During the last two years of the pandemic companies were remarkably resilient. Some truly excelled.
Moderna, one of the vaccine pioneers tops the list of companies whose stock price grew the most since January 13, 2020. More of a surprise were mining company Freeport-McMoRan, chemical specialist Albemarle, or retailer Bath Bath & Body Works.
While the list celebrates companies that did well during difficult times, it also reveals how companies will out-perform in 2022. Three observations are particularly useful.
First, the pandemic supercharged digital transformation. Those with a big brick-and-mortar footprint, e.g. Bath & Body Works, can still do well if they manage to leverage a strong brand and display a willingness to experiment online. Further, specialists have an edge. We might be at the cusp of a transition seen on Main Street before, when department stores (i.e. generalists) lost their allure. This explains why Etsy beat giants like Amazon and eBay.
Secondly, the spoils of the energy transition and tech revolution do not go to those companies grabbing the headlines. It is suppliers of raw materials like Freeport-McMoRan or chips like NVIDIA who dominate the list. In fact, more than half of the top 10 performers fall into this category.
Finally, big winners used the pandemic as an opportunity to move forward an agenda that has staying power. Moderna is the most obvious example. Their vaccine strategy proved that mRNA treatments work, essentially offering a platform for new kinds of treatment.
But now with no further ado, the winners.
#1 Moderna—stock up 937%
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Moderna has always been an investor’s darling. The founding team took just two years to turn the biotech company into a unicorn and the 2018 IPO set a new industry record, valuing the company at $7.5 billion.
At the moment Moderna is a one-product firm. With the future of COVID-19 vaccines unclear, the stock price dropped by 50% in recent months. J.P. Morgan’s Cory Kasimov worries that the stock is still overvalued.
The core strategy, however, is solid. Moderna’s COVID-19 vaccine supported the company’s claim that the manipulation of mRNA molecules will provide a platform for new treatments. With several vaccines in the pipeline there is reason to be optimistic. The invitation to join the Operation Warp Speed further suggests that Moderna can work well with US government—a critical factor in a politically sensitive industry. Finally, the brand is now a household name.
#2 Enphase Energy—stock up 366%
“When everybody is digging for gold, it's good to be in the pick and shovel business.” An quote wrongly attributed to Mark Twain highlights that not those who were caught up in the frenzy of the gold rush but those who offered them vital supplies actually “struck gold”.
Enphase Energy is one of these “shovel” providers for a new type of gold rush sparked by the inevitable conversion to cleaner energy—a trend that persisted during the pandemic. The company designs soft-ware driven home energy solutions and was the first to commercialize a technology that is necessary to convert solar panel power to grid-compatible alternating current. 30 million of these microinverters have been shipped already.
With 40% of the workforce in R&D the company is in a strong position to defend its lucrative niche in the solar power industry.
#3 NVIDIA—stock up 322%
Talk of being at the right place at the right time! NVIDIA designs graphics processing units (chips for to put it simple) for gaming, mobile banking, and automotive markets. Three big growth opportunities.
And NVIDIA has another iron in the fire: GeForce NOW, a subscription service for cloud gaming. It’s a smart way to cash in on the shortage of graphic cards which frustrates gamers waiting for the new generation of consoles. For $9.99 a month—a fraction of what they would pay for new hardware—they can stream high-end games hosted on a powerful supercomputer. By the end of 2021 GeForce Now had 14 million subscribers, capturing close to 60% of the cloud gaming market. Growth had accelerated towards the end of the year. For now, cloud gaming represents only a small fraction of the global gaming market. This suggests that there is substantial room to grow.
#4 Etsy—stock up 248%
The online marketplace Etsy saw an opportunity for hand-made masks early on in the pandemic. By the end of September 2020, 10% of Etsy’s gross merchandise sales—$600 million—came from masks.
Masks were not the only winning product. As people spent more time at home, Etsy benefited from a wider desire to redecorate. Even though e-commerce growth might slow down in 2022, big trends in online shopping work in Etsy’s favour.
Particularly, the demand for more personalized experiences. Etsy is set up to connect buyers and sellers in exactly this manner. It also emphasizes the uniqueness of items on sale. Big players like Amazon realize this, but Amazon Handmade does not fit neatly with the core platform.
For now, Etsy seems to have the upper hand. Its stock price outperformed Amazon over the past two years by the factor 3.
#5 Freeport-McMoran—stock up 228%
Mining companies are unlikely cheerleaders of the climate change debate. Freeport-McMoran is one of them.
The energy transition is fueling its growth. Copper is among those metals not able to keep up with the soaring demand from e-vehicles and renewable energy technology. Hence, copper prices more than doubled since March 2020. A trend that is likely to persist. As a recent IMF study points out, copper is under-supplied by over 40% in a net-zero scenario.
With three quarters of Freeport-McMoran revenues coming from copper this is music to investor’s ears. Particularly, as digital technology is helping to ramp up production. Bert Odinet, Freeport-McMoran’s Chief Information Officer, explains:
“If an asset is not as efficient as a comparable asset elsewhere in the operations, we analyze data in search of root causes. Perhaps there are differences in training, procedures, weather patterns, or maintenance that might explain it. This kind of insight helps identify and address early-stage problems before they manifest as more serious consequences, like equipment failures that lead to costly downtime.”
#6 Albemarle—stock up 228%
Here we go again: e-vehicles are also fueling Albemarle’s performance. The chemical company is one of the world’s largest producer of lithium—a critical raw material for batteries. As long as governments set incentives to convert to e-vehicles and carmakers poor millions into the ramp-up of their e-vehicle production, Albemarle should be able to grow.
The strong performance during the pandemic highlights, that firms could benefit from unrelated trends as long as they were able to avoid operational issues.
One potential question: will they be able to innovation sufficiently? Albemarle invests less in R&D than e.g. Jiangxi Ganfeng Lithium but a recent agreement with the U.S. Department of Energy to partner in two lithium research projects should help. So does the September 2021 agreement to acquire the outstanding equity of Guangxi Tianyuan New Energy Materials.
#7 Generac Holdings—stock up 208%
“Both exploration [of new possibilities] and exploitation [of old certainties] are essential for organizations” Jim March, a Stanford University Professor, wrote in a 1992 article. Easier said than done, as they compete for scarce resources.
But that’s what Generac does and does well. Exploitation happens in the highly competitive core business, manufacturing backup power generation products. As the only large specialist in this market—competitors are either more diversified or smaller—Generac can rely on an army of 500 engineers solely focused on generators. This enables manufacturing flexibility and efficiency. It also helps that the market for automatic standby generators is still growing.
Exploration happens in the clean energy space. Here Generac made two crucial acquisitions in 2019. Neurio Technology and Pika Energy provided a leg up in the energy storage and monitoring markets. Generac is competitive as its products offer attractive economics to customers by reducing home energy costs significantly.
Gernerac is yet another beneficiary of the energy transition but crucially it also performs well in the “old world”.
#8 Bath & Body Works—stock up 184%
There are two reasons why the specialty retailer selling body care and home products has done so well.
First, the company that was formerly known as L Brands spun off Victoria Secrets. Bath & Body Works has a stronger balance sheet now and can invest in shops that many customers consider the only ones worth visiting in the mall. According to Nicholas Coe, former CEO of Bath & Body Works, “few rivals have been able to strike the same balance between prestige and affordability.”
He also notes that “stores often double as testing labs, allowing executives to experiment with new floor plans, prices and products to determine what its customers want.” This experimental approach combined with an ability for executives to be close to the front-line, helped the company to transition into the digital age—the second reason Bath and Body Works did so well. For example the emphasis of seasonal products was reintroduced once it became clear that it brought customers back to the website to check out what’s new. In 2020 e-commerce doubled to $2 billion and by the third quarter of 2021 roughly one third of total sales were online.
#9 SVB Financial Group—stock up 180%
With technology companies doing well, it is hardly a surprise that the largest bank in Silicon Valley is doing well. SVB Financial Group provides loans and services to venture capital and private equity firms investing in technology and biotech.
The financial service provider is not your typical bank. It nurtures much closer relationships with startups including Airbnb, Fitbit, Pinterest and Square. Offering advice, occasionally even taking a stake, but with sufficient scale to take them through IPO, they are in a unique position.
“It’s not just a question of being there” analyst Gary P. Tenner at D.A. Davidson & Co explains. “It’s the relationships Silicon Valley Bank has developed over the years and, frankly, their reputation. I think they probably get the first look at a lot of deals.”
#10 Advanced Micro Devices—stock price increase by 172%
Advanced Micro Devices (AMD) is the second chip producer among America’s pandemic top performer. There is obviously room for more than one company in high growth markets.
Working from home has increased the demand for computing devices over the past two years. Combined with a shortage of chips, this pushed up prices. That’s good news for AMD. And while NVIDIA is able to cash in on cloud gaming, there is also an opportunity in gaming for AMD as the desire of gamers to finally get their hand on PlayStation 5 and Xbox X—both equipped with AMD chips—is unbroken.
But not everyone was able was able to ride this wave. Intel’s stock price declined over the past two years as the company failed to innovate for the new growth markets.
“When I look at Intel, I see a company that isn’t trying to innovate anymore,” Luke Lloyd, investment strategist at Strategic Wealth Partners, says. “I see a company that is trying to survive while its market share continues to get taken by [Advanced Micro Devices] and Nvidia.”
