As the economy reopens, investors appear to oscillate between cyclical names that will benefit from faster economic growth and technological growth stocks that have been accelerated during the pandemic.
Again, who said you have to choose? Technological actions Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Reserve assets (NASDAQ: BKNG) and T Mobile (NASDAQ: TMUS) all have business drivers that will also benefit from the reopening. So by buying these long term winners you get the best of both worlds.
Alphabet Auction-Based Ads Expected To Increase With Economic Growth
Alphabet’s financial data and stock price have been in tears recently, but expect the good times to continue as the economy heats up. Before the pandemic, around 12% of Alphabet’s search revenue came from the travel industry, so look for travel-related ads to further strengthen Alphabet’s digital ad dominance. And while inflation appears to be a concern for growth stocks like Alphabet, remember that the Google search auction process should see prices rise with inflation, as companies that raise their own prices will pay. probably more for effective search ads.
Alphabet is also expected to benefit from increased use of YouTube, which increased during the pandemic and now reaches over 18 to 49 years of age than all of linear TV combined. This is expected to continue and more and more people are cutting the cord of traditional television and consuming content on mobile phones – a trend that will not end anytime soon.
Finally, the pandemic has been a wake-up call for all companies that have not yet taken a bigger step towards cloud computing and remote working. While some office work will return, look for more flexible work options wherever you are to stay after the pandemic. As businesses realize the need for cloud and video conferencing capabilities, look for Google Cloud Platform and G Suite software tools to continue to grow alongside economic growth and increased spending.
Alphabet is a digital company, but remember that its core business in consumer-based advertising and cloud computing is also correlated with economic growth, which is expected to benefit from the reopening.
Booking Holdings: a first beneficiary of the rebound in travel
Booking Holdings is one of the world’s leading online travel agencies (OTAs) helping people find discounts on flights, hotels, rental cars, attractions and restaurant reservations through its various brands including Booking.com, KAYAK, Priceline, agoda, Rentalcars.com and Open Table.
The travel industry is still suffering at this time and Booking Holdings’ profits are still negative, with an operating loss of $ 311 million in the last quarter. However, Booking has tons of cash, with over $ 12 billion in cash as of March 31 against just under $ 14 billion in debt. In addition to this cash, Booking also owns a $ 3.1 billion stake in the Chinese services super-app. Meituan-Dianpeng, 525 million dollars in Chinese OTA convertible notes Trip.com, $ 400 million in equity in Didi Chuxing (private), China’s largest ridesharing service, and an additional $ 200 million in preferred shares in Grab, a ridesharing, food delivery and ride super app. Singapore-based payments, which may soon be made public via a SPAC.
And travel is starting to come back – at least in geographies where vaccines have been distributed, like the US, UK and Israel. During the first quarter conference call with analysts, Booking management said its U.S. segment has already experienced positive growth in overnight bookings compared to the first quarter of 2019.
While Booking is focused on Europe, with the US accounting for less than 30% of revenue, while more of the world is getting vaccinated, one would expect results to improve over the course of this year. this year and in 2022. In the recent call, management also highlighted two new technology initiatives that are expected to further drive growth: its own internal payment platform, as well as a “connected travel” feature that should enable consumers can more easily book travel through flights, hotels, rental cars and attractions.
In 2019, Booking made just over $ 5.3 billion in operating income, and today its market capitalization is around $ 94.6 billion, or about $ 90 billion without the aforementioned investments. in other societies. Factoring in interest and taxes, this equates to a P / E ratio of around 20. But given that Booking is now growing compared to 2019 in geographies with high vaccination rates, revenues should be expected. exceed 2019 figures in 2022 and beyond, making Booking a reasonably priced way to play the travel rebound.
T-Mobile: More supplier switching should lead to more net additions
You might not think of leading 5G wireless service provider T-Mobile as a “reopening game,” but in some ways it does. Over the past decade, T-Mobile’s “one-carrier” philosophy of low prices and user-friendly policies has continued to gain market share in the telecommunications industry in the United States. So, during times of high switching, T-Mobile tends to win. And this trend is expected to continue in the 5G era, especially as T-Mobile not only offers low prices, but also the first 5G network.
When people were quarantined at home during the pandemic, the industry churn rate declined as most wireless plan changes still occur in retail stores. But now that a majority of American adults are vaccinated and things are opening up again, look to increase the number of changes, which should benefit shareholders like T-Mobile, which has continued to dominate the industry. wireless network additions this year.
In addition, T-Mobile also offers generous features for international travelers, including free calls to Mexico and Canada, as well as free SMS to over 201 countries, as well as low cost international data plans. So these low-cost travel features should benefit T-Mobile as well, as customers assess which wireless plans may benefit their travel plans.
While T-Mobile’s subscription-based revenue has not been disrupted by the pandemic, the reopening could result in even bigger share gains for this 5G leader.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.