Market Insights

Coronavirus isn’t just unleashing historic volatility in the stock market. The outbreak may also reshape the face of investing for years into the future.

Many old-economy stocks are dwindling in value as a new flock of technology firms rise. In most cases, the trends were in place before Covid-19. Now the outbreak is accelerating a normal Darwinian process of natural selection. The result on the other side of the crisis could be a stronger market with more growth potential.

Here are the losers so far:

• Traditional oil and gas companies struggled before the pandemic and now have collapsed to multidecade lows. Big names include Halliburton (HAL) and Exxon Mobil (XOM).
• Travel and leisure companies like airlines and casinos faced weak demand before coronavirus and have only crumbled further since. Examples include United Continental (UAL) and MGM Resorts (MGM).
• Mall and shopping center names like Capri (CPRI) and Darden Restaurants (DRI) have tumbled as shoppers stay home.

Tesla and Technology Stocks

Most of those businesses have existed in various forms for decades. Their markets are either stagnant or shrinking. Fortunately for investors, several newer technology companies have risen as those have slipped.

Tesla (TSLA) is undeniably the biggest name. Elon Musk’s electric car maker overcame key manufacturing hurdles in the autumn. That convinced naysayers it would dominate a rapidly growing corner of a multi-trillion dollar global market.

It also triggered one of the most breath-taking rallies ever between October and January. TSLA almost quadrupled in price, but has gotten cut in half since early last month.

Even with the pullback, TSLA was worth about $82 billion yesterday. That would rank it No. 58 in the S&P 500 in terms of market capitalization — if only it were in the index.

Index Membership

This raises the next big issue: membership in the S&P 500. Traditional firms like XOM, Chevron (CVX) and Ford Motor (F) are rapidly losing market cap in the index at the same time new technology firms are gaining.

After TSLA, the next big name to watch could be Shopify (SHOP). Weighing in at $38 billion, the 16-year-old Canadian company has roughly the same market cap as the three biggest airlines combined: Delta Airlines (DAL), UAL and American Airlines (AAL).

If you don’t know SHOP, here’s a quick summary. It began as a snowboarding website, but its technology was so versatile that it soon morphed into a provider of online shopping carts for other vendors. The firm has now expanded into payment processing and shipping/logistics.

SHOP’s customer base now exceeds 1 million small businesses. People are starting to think it may rival Amazon.com (AMZN) in the realm of e-commerce.

Atlassian, Workday, Zoom

A trio of other companies are also in the ballpark of $30 billion market cap. All three beat estimates last quarter and have revenue growth north of 20 percent.

• Atlassian (TEAM) owns the IT-service platforms Jira and Confluence. Most people working in an office these days have probably encountered them. At 18 years of age, TEAM is the oldest of the three.
• Workday (WDAY) might not be a household name, but it’s become a key provider of HR and accounting software to major enterprises like Netflix (NFLX) and Ohio State University.
• Zoom Video Communications (ZM): The provider of teleconferencing systems has emerged as a top beneficiary as coronavirus forces employees to work remotely. It’s the most expensive of the three, trading at more than 40 times revenue.

Now may be a good time to start learning some of these companies. After all, this correction will end at some point. Investors will go back to buying once it’s over, although their dollars could very well go into different stocks as life returns to normal.