Back to school and markets – where to invest now?

With holidays all over and markets back in full swing, where might investors look for gains? New additions to the S&P 500 might hold some promise for the world-leading index, while a sustained work-from-home ethos is giving a bump to related tech stocks. But with aviation and manufacturing still stalling in a post-Covid-19 world, is oil to be avoided?

S&P shake up gives food for thought
Investors in the S&P 500 will be hoping volatility in the tech-heavy index eases after a restless couple of days in early September, and that the three companies promoted to the blue-chip index bed in stress-free.

S&P Dow Jones Indices decided against introducing the much-fancied electric carmaker Tesla to the index, despite having met the criteria for inclusion by achieving four consecutive quarters of profit.

Instead, the evaluation committee opted for pharma group Catalent, crafts-to-fashion business Etsy, and automation testing specialist Teradyne. These were at the expense of Coty, H&R and Kohls, which are now out of the index.

While much of the media spotlight has been on Tesla, following its recent share split, the three new additions offer their own compelling investment cases.

Catalent joins the index just a few days after it announced an impressive 31% jump in revenue for the quarter ending June 2020, compared to the same period a year earlier. In an investor update, it also announced partnerships with several businesses to work on Covid-19 treatments.

Investor enthusiasm for Etsy dampened a little after Instagram’s announcement it is joining forces with Shopify and BigCommerce, allowing direct checkouts through social media accounts. However, Etsy’s sustained growth in cashflows has seen its share price more than double since the start of the year and, in August, it announced revenues and transaction values were also climbing steeply, allowing the business plenty of financial headroom for further growth.

Demand for automated testing services among Teradyne’s client base continues to grow. With various 5G rollout programmes happening worldwide, Teradyne is one of the companies benefiting from the substantial demand for higher spec smart phones and data centres.

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Zoomed Out?
With people all over the world becoming increasingly comfortable with video conferencing technologies, Zoom Video Communications has enjoyed a healthy period in the spotlight.

At the end of August, the company announced its total revenue for the second quarter of 2020 was up 355% on the same period in 2019. Significantly, the company trumpeted its progress in the corporate market, with the number of business customers (with 10 employees or more) up 458% year on year.

There had been speculation that the appeal of video-based social interactions among its users has been waning, but the company has been keen to stress the loyalty of corporate customers in particular.

Zoom’s financial update on 31 August shows corporates are continuing the back the video conference specialist, with it now boasting 988 customers with billings of $100,000 or more.

With businesses still endorsing homeworking amid the ongoing Covid-19 outbreak, Zoom has become something of a preferred platform for global businesses.

Webex, a rival service from Cisco, has also seen steady growth in daily video meeting volumes since the start of the pandemic and gave a buoyant outlook for this market segment on its earnings call on 12 August.

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Shell’s strategy in focus
Having shaken off nerves about crude oil prices, investors in Royal Dutch Shell saw its share price recover lost ground as trading opened in the second week of September.

But some still remain wary of the short-term prospects for the Anglo-Dutch group due to the global slump in oil demands caused by the coronavirus.

At the end of August, Barclays became the latest bank to move its stance on the company to ‘underweight’ citing reservations over its business strategy, specifically related to its capital investment programme and its appetite for acquisitions. The company was already out of favour with some after cutting its dividend in April for the first time in decades.

Despite this, there is growing recognition that the company is transitioning from traditional oil and gas operations to more sustainable revenues — and more quickly than previously anticipated.

Its investments in renewable energy and partnerships with green energy businesses have won it praise more recently from shareholders and lobbyists alike. The company’s green energy announcements have been coming thick and fast in 2020.

In August, it announced plans to harness the excess electricity it generates at its offshore windfarms to produce hydrogen and charge offshore batteries. This followed its Shell Energy division announcing plans to develop utility-scale solar assets in the US as part of a broader plan to enhance its retail energy supply in California and surrounding areas.

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