Is the Rise of Popular Stay-At-Home Stocks Temporary?

In the second quarter of 2020, the behemoths that typically drive the market like Apple, Google, Microsoft, and Facebook weren’t in the top ten stock performers, according to Bloomberg. Instead, it was stay-at-home stocks that led the way, enjoying returns of 75% to 145%.

But what exactly are stay-at-home stocks? And should you invest in them now? Or has the window of opportunity already passed?

Here’s what you should know before you speed to your laptop to get in on the stay-at-home stock gold rush.

What Are Stay-At-Home Stocks?

Stay-at-home stocks are from companies that serve consumers or workers at home. Here are a few types of products or services that fit the bill:

Video conferencing software
Music and video streaming services
Home fitness equipment and apps
Meal kit and food delivery services
Cloud computing hardware and software
Online retailers
Team project management and messaging tools
Social media games
Online dating
eSignature tools

Below were the 10 stay-at-home stocks that performed best from May-June according to the Bloomberg report.

Tesla may seem like a strange inclusion in the list above. But its rise during the pandemic makes more sense when you consider that it offers completely online car buying and touchless delivery too.

The truth is there are no strict criteria that define a stay-at-home stock. But any company that makes life easier for people who are stuck at home could find itself over-performing during the pandemic.

What Kind of Investors Do They Attract?

Let’s be clear if you’re thinking about investing in stay-at-home stocks then you’re probably someone whos comfortable with trying to time the market.

Traditionally that’s not a great idea. Yes, timing the market can mean massive gains when you guess right on a stock. But it can also mean big losses when the market turns back the other way.

Many investors with a low appetite for risk prefer to stick with a passive, buy-and-hold strategy in diversified funds and ETFs. On the other hand, many day traders and swing traders won’t be able to resist the opportunity to cash in on the huge potential gains that stay-at-home companies offer.

If you’re looking for a happy medium, you could consider investing a small portion, preferably less than 10% of your portfolio, in stay-at-home stocks and keep the other 90% in well-diversified funds.

This way, you can dip your toe into speculative investing without putting your entire portfolio at risk.

Are Stay-At-Home Stocks A Fad?

When the pandemic first began, many assumed that life would quickly return to normal once COVID-19 was under control or a cure had been found. But now, over six months later, sentiment has begun to shift.

Some experts now believe that certain consumer and business behaviors may be permanently affected by the pandemic. Many businesses have learned that their workers can competently handle their work away from the office. And many consumers have discovered that they actually enjoy buying their groceries online or exercising from home.

For these reasons, many stay-at-home stocks may be here to stay. Will they still significantly outpace the rest of the stock market next year? Maybe not. But, for many of these companies, it’s also becoming increasingly unlikely that they will tank.

How to Invest in Stay-At-Home Stocks

It’s never a smart idea to invest all of your money in any particular stock (or even stock sector). However, investing a small percentage of your overall portfolio in stay-at-home stocks can play a role in a diversified investment strategy. Here are three ways to get started.

Purchase Whole Shares of Stay-At-Home Stocks

If you have a medium or large-sized portfolio, you may be able to buy full shares of stay-at-home stocks while still keeping a low overall risk exposure.

To get started, you’ll need to open an account with a low-cost stockbroker. Today, many brokers charge $0 in commissions and trade fees when you buy and sell stocks. Here are just a few of our top brokers that offer free trades:

Ally Invest: Best if you’re looking for easy website navigation
TD Ameritrade: Best for experienced traders looking for advanced tools
Fidelity: Best if you’re looking for a broker with offices nationwide
You Invest by J.P. Morgan: Best for cash bonuses

Once you’ve decided which stock to buy, you’ll need to make a trade order. To find the company you’re looking for, you’ll typically need to know its ticker symbol (i.e., AAPL is the ticker symbol for Apple).

Unless you’re looking to buy the stock at a particular price, you’ll want to make a market order. After sending your order, you should receive confirmation within seconds that your trade has executed.

Once you own a stock, there are a few advanced trading strategies that could limit your risk. For example, you could place a stop-loss order to automatically generate a sell order if the stock price decreases by 5% in a trading session.

Or you could set a trailing stop-loss number that adjusts the stop price at a certain number of points below the market price.

Use Fractional Shares to Gain Exposure to More Stay-At-Home Companies

Buying entire shares of stay-at-home stocks could work if you have a $50,000 portfolio. But it will be less realistic if your total assets are closer to $500 or $5,000.

For example, let’s say you’d like to invest in Peloton (the home exercise equipment company). At its current share price of $96 (as of this writing), buying just one share would require nearly 20% of a $500 portfolio. And at Zooms current share price of $488 (also at the time of this writing), buying just one full share would mean tying up nearly 10% of a $5,000 portfolio in a single stock.

But with fractional shares, you can buy little pieces of both of these companies no matter the size of your portfolio. Here are a few brokers that offer fractional share investing today:

With each of the companies above, you could invest as little as $1 to $5 in many of the most popular stay-at-home stocks. The more stocks you’re able to buy, the more diversified your portfolio becomes.

Invest In a Stay-At-Home Fund

Speaking of diversification, it’s now possible to invest in dozens of stay-at-home stocks at once with an exchange-traded fund (ETF) that tracks these companies. Here are a few ETFs that invest in companies that facilitate online work, learning, or entertainment.

Direxion Work From Home ETF
iShares Virtual Work and Life MultiSector ETF (still waiting for SEC approval)
Amplify Online Retail ETF
Global X E-Commerce ETF
VanEck Video Gaming and eSports ETF
The Global X Education ETF

By investing in stay-at-home ETFs, you could get the benefit of solid diversification with each share that you buy. Just make sure to factor in expense ratios when comparing funds.

The Bottom Line

As with any single investment, you shouldn’t mortgage the house to throw buckets of money at stay-at-home stocks. However, it does appear that this is an investing trend with some staying power. So investing in these companies today could still be a smart play as long as your position sizes are small enough to preserve diversification.