Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
2020 has been a challenging year for the U.S. stock market, to say the least. The worst is behind us, even if the upcoming months may result in geopolitical events wreaking havoc. While there is uncertainty in the markets, we are slowly beginning to see businesses return to more predictable patterns.
Some industries, like the biotech sector, are doing well, while others, like the hospitality industry, are facing a different reality. Today we look at a few different types of stocks and their prospects for the fourth quarter of 2020.
Top 3 Stocks for Q4 2020
As 2020 concludes, the hope is that the markets will be healthier due to worldwide stability. Vaccines are still not close enough to warrant optimism, but some progress has been made. This, in addition to the hopeful reduction of the virus’ spread, could buoy the market and set it up for a good Q1 2021. Much of this, of course, depends on the result of the U.S. presidential election.
Having said that, it is a good time to strengthen one’s position in the market and latch onto undervalued stocks. The following are three stocks that look like they could be just that, as we head into Q4 2020.
Zuora is a SaaS company that builds enterprise software for businesses that work with subscription services. This includes billing, quoting, collections, and revenue recognition solutions. The company was founded in 2007, and has taken advantage of the growth of subscription services. Compared to peers and other sectors, it has come out of the worst of the pandemic in better shape.
Zuora’s financial figures prove that the emergence of the subscription model has helped its figures. Both revenue and cash show that the company is fundamentally in a good position for the medium-term future.
Sales have been growing quarter-over-quarter, and CEO Tien Tzuo, says that the company looks good for the future.
Zuora reported a revenue of $75 million at the end of Q2, beating estimates; of that, $58.3 million was subscription revenue, which grew 15%, indicating a good underlying value.
While Zuora does have liabilities of roughly $217.1 million, it also has $230.7 million in cash, i.e., the balance sheet looks good.
Chegg is a comprehensive online learning platform. The service includes features such as renting textbooks, a homework helper, on-demand tutoring, and more. Since the pandemic started, companies like Chegg have grown enormously popular with students and teachers. While schools will return to in-class sessions soon, online platforms’ stocks have benefited from the pandemic.
Chegg has performed phenomenally well during 2020, and competitors’ performances don’t even compare. Early 2020 investors in the company are raking in the profits. Quarterly reports also show that it can establish itself as a market leader.
Chegg reported a revenue of $153 million in its Q2 2020 report, up 63% year-over-year, and highlighting a definite trend towards online learning.
Chegg has outperformed against its competitors since the pandemic began, indicating a good hold on the market.
The stock has recorded a YTD of 97.2% and outperformed the stock market by 91.19%.
Shopify is an e-commerce company that provides a platform for online stores and retail point of sale systems. The Shopify solution is ubiquitous on the Internet, and a good portion of online sellers use the platform. With e-commerce showing no signs of slowing down, analysts are optimistic about the growth of platforms like Shopify.
While by no means an obscure stock, Shopify has still managed an incredible year and sits near its all-time high. The trend towards e-commerce hints at the fact that Shopify has a lot more to grow. Consequently, some analysts peg Shopify as a good buy.
Some analysts see the merchant user base growing from 1 million to over 4.6 million by 2030, which could result in revenue of $25 billion.
Q2 2020 was Shopify’s best quarter, recording revenue of $714.3 million and growing 97% from the same time last year, i.e., online sales have been aided by the pandemic
All the stocks mentioned here have performed phenomenally well in a tough year for the markets. These stocks have benefitted from the change of circumstances brought about by the COVID-19 pandemic. What’s fascinating is that they look good for the short to medium-term future due to strong fundamentals.
Q4 2020 may not be the end of growth for these stocks, and there might be some fuel left in them. These stocks are well worth examining as we head towards the end of a tumultuous year.
How do you think Q4 2020 will pan out? Do you have stock recommendations of your own? Let us know in the comments below.
Disclosure:Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.