Zoom shares are a good bet even if the pandemic ends
The Motley Fool’s Take
Zoom Video Communications’ stock soared as the pandemic took hold, with millions of people using its software for video calls. However, its shares have recently fallen more than 75% from their all-time high, due to a slowdown in the growth rate and fears that Zoom will fade once the pandemic ends. But now might be a great time to buy some stock at a relatively low price, because there’s still a lot to like about Zoom.
For starters, Zoom was already growing rapidly before the pandemic hit. It’s profitable, with positive free cash flow and balance sheet strength. The end of the pandemic will bring more workers back to the workplace, but significant remote work is likely to remain. A September 2021 Gallup poll found that most respondents who worked from home at least part-time wanted to continue doing so. Of course, not everyone will make it, but many companies will offer remote options to retain workers.
Meanwhile, in addition to its flagship Zoom Meetings technology, Zoom offers Zoom Phone and Zoom Rooms, which arguably have greater long-term growth potential. They should work well even when workers return to the office, as Zoom Phone updates a company’s internal telephony infrastructure while Zoom Rooms modernizes conference rooms.
Risk-tolerant long-term investors should take a closer look at Zoom. (The Motley Fool owns stock and recommended Zoom Video Communications.)
ask the fool
From DL to Venice, Florida: I am new to investing. How do you know if a stock is overvalued or undervalued?
The madman responds: The intrinsic value of a company is to some extent a subjective number. Smart and experienced analysts who study the same company and perform calculations with sophisticated spreadsheets are likely to get somewhat or even very different results because they will be based on different assumptions and estimates. Even large investors will often disagree on the fair value of a stock.
Still, there are ways to get at least a rough idea of a stock’s price appeal. You can, for example, compare its current price/earnings ratio with its historical P/E range over the last five to ten years.
PepsiCo, for example, recently traded with a P/E close to 30. A look at its past ratios (available on Morningstar.com, among other sites) shows that its average P/E over the past five years is around 25. This suggests that PepsiCo shares may be overvalued at this time. Of course, there’s a lot more to the picture. Potential investors should assess PepsiCo’s strengths, weaknesses and competitive advantages, as well as its cash flow, debt, profit margins and growth rates, among other things.
There are also other valuation metrics to check, such as price-to-sales ratios.
From FW to Detroit: What is the short-term tax rate for stocks?
The madman responds: The short-term capital gains tax rate is the same as your ordinary tax rate and applies to shares held for one year or less.
However, the long-term capital gains tax rate, for qualifying assets held at least one year and one day, is currently only 15% for many people. There is also talk of changing tax rates these days.
school of fools
Here’s another way to make money with stocks: by selling short, which involves reversing the typical “buy low, sell high” order.
Here’s how it works: Let’s say that many investors bought shares of Scruffy’s Chicken Shack, expecting great success. But you are skeptical and expect the business to fail. You contact your brokerage and place a short order on Scruffy’s, a stock you don’t own. Your brokerage will borrow shares from a Scruffy shareholder and sell them for you. (Yes, it is legal and commonly done.)
Later, if the value of the stock drops, you will “hedge” your short by buying stocks on the open market at the now lower price, to replace those you borrowed. If you short Scruffy’s at $120 and cover when it hits $90, you’ll earn $30 per share (minus commissions).
Short selling can be profitable if you correctly identify the stocks that will go down. If the overall market crashes, your short positions will likely make money for you, and even in a booming market there will be struggling companies that will decline in value.
But the risks of short selling are significant: if, instead of falling, Scruffy’s shares rose to $150, and you then covered your short position, you would have lost $30 per share (minus commissions). .
And consider this: if you invest in a stock expecting it to go up and then fall to zero, you will lose 100% of your money, but no more. A short stock, however, could continue to rise; it can double or triple in value. If you hang on to all of this, your loss could be 200%, 300% or even more – the loss is theoretically unlimited.
Similarly, on a short sale, your gain is capped at 100% (if the stock falls to zero), compared to the unlimited possible gains when you buy a stock in the usual way, expecting it to rise. .
If you sell a business short, its management will work against you to ensure the success of the business. Short selling is best practiced by experienced investors, and even they can do well without it.
My dumbest investment
From MH, online: My dumbest investment? He was “investing” $5,000 in a “business training” course. The online courses were rubbish and the company basically stole my money.
The madman responds: Just as regular colleges vary in their value propositions based on their faculties, class sizes, costs, and outcomes (among other things), online investing courses also vary.
Because so many people are eager to earn big bucks, many companies can and do charge thousands of dollars for courses. Some may be quite good and effective, but others may make you feel like you’ve been cheated. It is best to research these courses as much as possible before enrolling and inquire about satisfaction guarantees. (Note that some investing courses only cost a few hundred dollars.)
There are also many ways to learn how to invest with little or no cost. For example, you could read books about great investors and their wisdom; it can also be effective to learn about large companies to find out how they are growing and how to recognize them. Some brokerages offer free educational resources. And the websites offer tons of articles for free – about investing, about specific companies and more.
You may want to invest slowly until you are comfortable and give yourself a chance to learn lessons the hard way – by making common mistakes and losing money.
Who am I?
My roots date back to 1849 when two cousins founded me in Brooklyn. My headquarters moved to lower Manhattan in 1868 – today it is in midtown Manhattan. In 1936, I was the world’s largest producer of vitamin C and, during World War II, the largest producer of penicillin. Today, with a market value recently exceeding $300 billion, I am a large pharmaceutical company; drugs that have been sold under my name include Advil, Chantix, Lyrica, Prevnar, Viagra, Xanax and Zoloft – and even a COVID-19 vaccine. I started my Upjohn generic business in 2020; it joins Mylan and becomes Viatris. Who am I?
Don’t remember the trivial question from last week? Find it here.
Answer to last week’s quiz: Henkel AG