More and more shutdowns of schools, businesses, and gatherings are rippling across the economy. One of the big winners of this will be online education companies and video game stocks. The intense selling in the stock market has affected nearly every stock and sector, but it has also certainly created enticing buy opportunities.
These stocks have been showing some relative strength in the past few weeks and could see further gains in the coming weeks especially if market conditions do improve.
Online Education Companies
K12
K12 (NYSE: LRN) is an online education company that attempts to create personalized lessons for students. LRN's stock is almost 45% higher since the broad market began weakening on coronavirus fears. It is also one of a few stocks which made a higher low last week compared to the lower low in the broad market. The stock has been spiking higher on news that schools are closing as it seems imminent that schools could be closed on a nationwide basis in order to prevent a larger outbreak.
New Oriental Education
New Oriental Education (NYSE: EDU) is a Chinese online education company that specializes in language learning but provides all types of educational opportunities for all age groups. While most stocks have been in a free-fall over the past couple of weeks, New Oriental Education is at the bottom part of a four-month range between $120 and $140. The company has a reasonable forward price to earnings of 25 especially given its 30% sales growth and 56% margins.
Video Game Stocks
Activision
The closing of schools will also create more customers and demand for video games. Activision Blizzard (NYSE: ATVI) is lower over the past couple of weeks but remains within 10% of its late-February high. The stock is reasonably priced given a forward price to earnings ratio of 21 and 67% gross margins.
Zynga
Zynga (NASDAQ: ZNGA) is a forgotten stock that has been mired in a long-term trading range and is now attempting a break-out. The company IPO'd when its games were dominating on Facebook (Nasdaq: FB). This turned out to be a fad, and its stock lost nearly 90%. Between 2012 and 2020, the stock traded between $2 and $6. Now, it's broken higher and trading within a tight range between $6 and $7. There doesn't seem to be a notable catalyst given that the company continues to face headwinds and steep competition and doesn't have a new, breakthrough hit game.
Conclusion
One note of caution is that stocks are clearly in a bear market. They tend to persist for months and have many false hopes or bounces. High-multiple stocks are particularly vulnerable to steep declines in these conditions even if they can withstand broad market selling pressure in the initial stages. Therefore, risk should be managed with stop losses and position sizing.