Stay-at-home names in the US were among the best-performing stocks last year, benefiting from the lockdowns caused by the Covid-19. However, with economies expected to reopen gradually on the back of the vaccine rollout, investors have favoured value or cyclical companies.
“In recent months, value has sharply outperformed growth and cyclicals have similarly outperformed secular growth,” said Pamela Woo, head of US equities at BNP Paribas Asset Management.
Woo believes that there will be some reversion back to the way of life prior to the pandemic with the vaccine rollout. However, she expects that stay-at-home stocks will continue to be relevant in the coming years.
“We expect that this transition to be very gradual and believe that many aspects of life will be forever changed.”
For example, companies that were able to maintain some semblance of business as usual virtually will likely offer employees a hybrid approach to work, such as remote working arrangements. In addition, trends like e-commerce and virtual healthcare are expected to continue given the convenience they have provided to people.
“So we expect stay-at-home stocks to maintain relevance even in a post-Covid world,” Woo said.
Other fund managers have shared the same view. For example, Jay Jacobs, head of research and strategy at Global X, believes that certain parts of the technology sector, particularly stay-at-home names, will continue to provide long-term investment opportunities.
“In the stay-at-home economy, we saw a lot of structural disruption, such as more people working from home and buying things online, which have benefited various tech companies,” he said previously.
“These changes in consumer habits will carry through the ‘new normal economy’, and we believe that that the companies that have benefited before will continue to be well-positioned throughout the reopening economy,” Jacobs said.
But valuations are expensive
While Woo’s long-term outlook remains positive on stay-at-home stocks, she noted that she has become cautious of them short-term because of their valuations.
“We are cautious and disciplined around valuation. We sold or trimmed several stocks with Covid tailwinds last year due to appreciation, but we may in some cases, look for re-entry points,” she said.
Overall, the firm has re-adjusted its US portfolios, rotating some of their assets into the value or cyclicals space.
“Value and cyclicals appear to still trade at a sizeable discount to growth or secular winners after several years of growth stocks dominating. At the margins we have repositioned our portfolios to benefit from such an environment where we are still able to find discounts to estimated intrinsic value.
“However, we remain hesitant to make any drastic changes as interest rates remain very low by historical standards, only recovering to pre-pandemic levels at this stage, favouring long-term growth plays.”
In terms of sectors in the US, Woo favours industrials and consumers.
“We think parts of the industrials sector, such as construction, machinery and transportation, will be the bigger beneficiaries from increased infrastructure spending and a supportive backdrop for an emerging capital expenditures cycle.
“Within the consumer space, with more than 75 million Americans fully vaccinated or 23% of the population, we think the biggest pent-up demand will be for leisure travel and entertainment.”
Citing findings from a Jefferies survey, Woo said that 35% of Americans have made domestic travel plans, 24% have made international plans and 21% are in the planning stages.
“In addition, we think that restaurants and bars, as well as clothing and accessories will also bounce back when things reopen.”
Around 32% are going out to restaurant more, 21% are increasing visits to retailers or shopping malls, and 17% are visiting entertainment venues, she said.
