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How To Find COVID-19 Stock Market Winners

Unsure of where to find profitable stocks in this highly volatile market? Here’s how to find COVID-19 stock market winners.

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Two and a half months after the initial market crash, there are plenty of COVID-19 stock winners out there. Some are obvious - and a few might surprise you.

Before I talk about COVID-19 stock market winners, i.e. stocks that should continue to work through this pandemic and the aftermath, I want to talk at a high level about the difference between the likely winners and losers.

While COVID-19 likely sounds the death knell for many companies, like slow-to-adjust retailers, it also represents a potential accelerant for others, including those exposed to trends such as work from home (WFH), cloud, e-commerce, internet, digital transformation, streaming, etc.

That’s because there is no likely scenario in which this virus, and others like it, totally disappear in the near future. That means corporate executives, citizens, government leaders and the like can’t simply assume it will soon be business as usual without protecting their businesses against future outbreaks of COVID-19 and/or other viruses. That would be grossly negligent.


Rather, they will be taking steps to make sure they can deal with this again because that helps right now, and in the future. That gives the advantage to the trends mentioned above (WFH, cloud computing, etc.), which were already strong leading into the pandemic.

Potential COVID-19 Stock Market Winners

Now, not all stocks with exposure to those trends will be winners. Some will see much lower demand, longer sales cycles, lower average selling prices, deferred deal closings, and more. There are a lot of company and market-specific factors to consider, and which should be done on a stock by stock basis.

For example, cloud-based payroll providers could be disproportionally hurt in the near-term, which is why many of these stocks are still 35% to 45% below their all-time highs.

Others might not grow as fast as they otherwise would have, but should still do very well, provided we don’t have a worst-case scenario (rolling, severe breakouts worldwide; social unrest/rioting; major supply chain disruptions; no vaccine/effective therapies on the horizon, etc.).

While it’s a little early to tell, my list of potential COVID-19 stock market winners includes companies like BlackLine (BL), which sells automated accounting software and which just reported earnings last week; as well as names like Smartsheet (SMAR), which is an inexpensive productivity tool; and Survey Monkey (SVMK), which is self-explanatory and will fall off in some areas of use but also pick up as organizations seek more information from their communities to help inform their evolving strategies.

Then there are the potential winners – companies that could turn in reasonably consistent results in either a best-case or base-case scenario as some areas of their businesses grow fast enough to offset the slower areas. These include mega caps such as Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Apple (AAPL).

They also include lesser-known companies such as CrowdStrike (CRWD), a potential winner in security; Dynatrace (DT), one way to play application and cloud infrastructure monitoring; and Chewy (CHWY), for online pet supply ordering.

Price Still Matters

All this said, just because a growth trend exists doesn’t mean investors should buy into it at any price!

Even though stocks have been recovering nicely we still want to be mindful that there’s a lot of uncertainty in terms of how this all plays out, and unanswered questions about what happens if and when the stimulus gravy train goes off the tracks.

In a deep recession/depression scenario, even the growth winners would likely be investment losers if purchased around current prices. It is not like all these stocks are cheap right now relative to historical valuations during recessions.

In short, investors are walking a bit of a tightrope right now. On the other side of the Valley of Death are very attractive capital gains for investors that diversify their investments in the right trends, average in, and keep putting one foot in front of the other.

If either the best-case or base-case scenarios play out (i.e. economic growth resumes later this year or early in 2021), they should get to the other side in reasonably good shape.

But if the worst-case scenario plays out, or starts to play out and freaks everyone out again, the rope could easily snap, and down we will all go.

Companies with more exposure to growth, resilient business models, strong balance sheets, etc., will go down less, but they’ll still go down. I think this scenario is unlikely, but it could happen.

The bottom-line message is that investors need to tread carefully now, even when buying the potential winners. Price matters, as does valuation.

For investors looking for specific guidance on what’s a good price for a stock and what’s not, the best advice I can give is to look to the Cabot analyst that covers the types of stocks you are interested in. Not only will that help you figure out what’s a buy, hold and sell today, but it will help you sort out the same at every stage through this pandemic, and the eventual recovery.


Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.