Volatility seems to have made a bit of a comeback recently and we are only a week removed from the Dow’s worst day since March. Nonetheless, there seem to be reasons to believe that the market’s rally from its March 23 lows could continue, as economies around the world shake off the rust from their coronavirus lockdowns.
May U.S. retail sales surged 18% from April to crush estimates and help showcase that the pandemic’s worst economic days are most likely behind us. Meanwhile, the Fed continues to provide as much support to the market as it can, and there are new reports that the Trump administration is considering a $1 trillion infrastructure spending plan.
That said, the headlines about spikes in coronavirus cases are likely to remain constant as economies around the world reopen. Investors should remember that there was always going to be an increase in reported cases when the lockdowns were lifted because the virus didn’t disappear. And last week’s big-one day drop might simply have been a chance for investors to take home some profits after a massive run.
The fact remains that the S&P 500 is up over 37% from its lows and the Nasdaq nearly hit the 10,000 mark once again Wednesday. The big tech giants such as Apple AAPL, Amazon AMZN, Microsoft MSFT, and others continue to drive the rally, which is a good sign since their fundamentals remain strong in the face of the pandemic.
With this in mind, let’s dive into three growth-focused tech stocks that are poised to expand during the coronavirus economic downturn and well after…
Datadog is a cloud software firm that enables its clients to monitor the performance of databases, servers, apps, networks, and more. The company’s cloud-based SaaS offerings have attracted well-known clients, including Deloitte, FedEx FDX, and Pelton PTON, and it continues to add larger customers. DDOG closed the first quarter with 960 customers with annual recurring revenue of $100,000 or higher, which marked a 90% jump from the year-ago period.
Datadog easily topped our Q1 fiscal 2020 earnings estimate on May 11, with revenue up 87%. And DDOG recently launched its Security Monitoring offering and surpassed over 400 out-of-the-box supported integration. “This crisis has demonstrated the need to be digital-first and agile, has underscored the importance of observability into cloud environments, and reaffirmed the long-term opportunity for Datadog,” CEO Olivier Pomel said in prepared Q1 remarks.
The monitoring and analytics platform firm’s full-year 2020 revenue is projected to surge 55% to reach $562.3 million, based on current Zacks estimate. Investors should note that this would come on top of FY19’s 83% sales growth. Meanwhile, DDOG is expected to swing from an adjusted loss of -$0.01 per share to +$0.03 in fiscal 2020 and jump to +$0.05 a share in FY21. And Datadog’s longer-term earnings revisions have trend heavily upward to help it grab a Zacks Rank #2 (Buy) at the moment.
DDOG also boasts “B” grades for Growth and Momentum in our Style Scores system and its industry sits in the top 19% of our more than 250 Zacks industries. Wall Street has recently fallen in love with DDOG’s story and its ability to expand during the current market conditions. DDOG, which went public in September 2019, has seen its shares skyrocket 187% since mid-March to blow away stay-at-home standout Zoom’s ZM 120% and Netflix’s NFLX 50%. And Datadog stock hit another new high Wednesday.
Anaplan develops cloud-based SaaS platforms to help improve planning and decision-making in real time, from finance to supply chains. The San Francisco-based firm topped our Q1 earnings estimate at the end of May, with total quarterly revenue up 37% and subscription sales up 44%. The firm, which has over 1,400 customers worldwide, thinks the coronavirus pandemic might have made its offerings even more desirable.
“While our first quarter results reflect the impact of COVID-19, we believe the need for a digital connected planning platform will become even stronger as it is clear that traditional planning no longer works,” CEO Frank Calderoni said in prepared Q1 remarks. “We are confident in the demand for our Connected Planning solution as companies look to drive digital change in order to respond and adapt to the rapid pace of change.”
PLAN shares have jumped 60% since mid-March and popped another 1.6% on Wednesday. Despite the recent climb, Anaplan stock has 23% more room to run before it hit its 52-week highs. PLAN is a Zacks Rank #1 (Strong Buy) at the moment that sports a “B” grade for Momentum in our Style Scores system. The company’s shares are also trading at a 45% discount compared to their 12-month highs in terms of forward 12-month sales at 13.3X vs. 24.3X.
Looking ahead, Anaplan’s fiscal 2021 revenue is projected to jump 25%, with FY22 expected to come in another 26.3% higher. The company’s adjusted full-year loss is projected to come in flat from the year-ago period, before being cut nearly in half in FY22 at -$0.26 a share. PLAN has also crushed our bottom-line estimates by an average of 32% in the trailing four periods.
Chegg started as an online textbook hub for college students. Chegg still sells discounted textbooks, but these days its expanding portfolio includes online tutors, test prep, and much more. The firm calls itself a “direct-to-student learning platform,” and management expects the pandemic will boost its already-growing digital learning platforms. “Our belief is that, in every industry, a crisis often accelerates the inevitable and that is what we see happening in higher education,” CEO Dan Rosensweig said in prepared Q1 remarks in early May.
Chegg’s Q1 revenue surged 35%, with its services sales up 33%. CHGG projected at the time that its Q2 subscriber growth will “be greater than 45%.” Meanwhile, CHGG’s fiscal 2020 sales are expected to jump 35% to hit $552.65 million, which would top FY19’s 28% expansion. This growth is projected to be followed by another 23% growth in FY21. And Chegg’s adjusted full-year earnings are projected to surge 33% and 22%, respectively in the next two years.
Chegg’s positive, post-earnings bottom-line revision help it grab a Zacks Rank #1 (Strong Buy) right now. CHGG also rocks an “A” grade for Growth and its stock is up nearly 70% in 2020 and over 100% since mid-March. The digital learning firm’s shares jumped another 6% in regular trading Wednesday after it announced a $500 million stock buyback program on Tuesday. This could signal that management believes CHGG stock is still undervalued and highlights the firm’s current strength after giants like AT&T T and others halted their repurchases.
Chegg stock is now up over 700% in the last five years. Longer-term investors might want to buy Chegg as a bet on the future of education becoming more digitally focused, especially as costs and student debt grow out of control. And let’s not forget that the coronavirus will likely cause schools to look different in the near-term no matter what happens down the road.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it’s predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks’ 3 Best Stocks to Play This Trend >>
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ATT Inc. (T) : Free Stock Analysis Report
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Chegg, Inc. (CHGG) : Free Stock Analysis Report
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