Actions of Focus on video communications (NASDAQ: ZM), Zscaler (NASDAQ: ZS), and Just eat take out.com (NASDAQ: GRUB) ended Tuesday down 2.4%, 6.7% and 8.1%, respectively. Zoom and Zscaler actually fell much earlier in the trading session before recovering.
This may be a situation where good news for the economy in general means bad news for these companies in particular, all of which have benefited greatly from the pandemic. But on Tuesday, it emerged that recent concerns from traders about the impact of the omicron coronavirus variant were waning, and long-term bond yields and oil prices rose, putting pressure on these growth stocks to “stay at”. the House “.
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None of the aforementioned companies made specific announcements on Tuesday, so their sales were likely more tied to macro factors. On Tuesday, the yield on 10-year Treasury bonds and the price of crude oil both rose, indicating that investors can anticipate both a strengthening of the economy and a relatively rapid emergence from the large rise in the omicron. that currently affects the country.
In recent days, former Food and Drug Administration commissioner Dr Scott Gottlieb has publicly stated via various media that the omicron surge in the hardest-hit areas of the United States could peak in a matter of weeks. , and that the national peak could possibly occur in February.
Good news for the economy means good news for stocks, doesn’t it? Well, not for those stocks in particular. Clearly, Zoom soared early in the pandemic as people learned to work, teach and communicate from home using its easy-to-use platform. Tens of millions of employees suddenly working from home and accessing their business systems through the cloud have also made organizations more vulnerable to cyber attacks, increasing demand for the services of cybersecurity specialist Zscaler. And obviously, when people are afraid (or can’t) go to a restaurant or a grocery store, they’re more likely to turn to services like Grubhub, which was purchased by Just Eat Takeaway in June 2020. So, Any reason to be optimistic about the future course of the pandemic is bad news for these stocks.
Not only that, but the aforementioned companies are also growth stocks that are still trading at high valuations even after difficult November and December. Zoom’s stock price looks more reasonable after being halved over the past year, but it’s still trading at 48 times earnings – not exactly a bargain if its growth rate slows significantly. Zscaler will continue to help businesses improve their cybersecurity regardless of what social distancing measures they need to take, but it is trading at 55 times sales – not profits, Sales. Just Eat is also not profitable today, and likely won’t be for some time to come due to wage pressures and management‘s continued investment in growth.
For young investors, I still think growth stocks are the place for the long haul. However, the market may actually be entering a tough time for high growth software and internet games that are not yet generating significant net profits.
As the economy continues to reopen and interest rates rise, investors may feel the need to move more of their assets to lower value sectors such as finance and energy, which have taken over. lagging behind the tech sector for most of the past decade – and particularly during the pandemic. It might not be exactly like the dot-com crash of 2000, but the market may well start to favor non-tech sectors in 2022.
Some investors might want to hold on to these tech companies for the long haul due to volatility, but you really need to be a firm believer in this, given the pressures on valuations and the way investor sentiment is gravitating elsewhere.
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* Returns of the portfolio advisor as of December 16, 2021
Billy Duberstein has no position in the stocks mentioned. Its clients may own shares of the companies mentioned. The Motley Fool owns and recommends Twitter, Zoom Video Communications and Zscaler. The Motley Fool recommends Just Eat Takeaway.com NV The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.