Find out what’s driving the great resignation and how the gig economy stocks are on the rise, creating massive opportunities for investors.
Hey Bow Tie Nation, Joseph Hogue here with possibly the biggest trend of the decade, one every investor needs to get in front of. More than 38 million Americans have quit their job in the first 10 months of the year with a record-breaking 4.4 million in September alone.
We’re talking the great resignation, the mass exodus of workers to become freelancers and putting that gig economy into overdrive. According to a study by Upwork, more than 59 million Americans freelanced this year, more than a third of the entire workforce and this trend is just getting started.
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It’s a gold rush for workers, being able to control their own hours and earnings, but like any gold rush…for investors you want to be providing the picks and shovels. Investing in the companies providing the services that make this gig economy possible.
Of course, the problem is, most of these stocks are already extremely expensive. Revenue growth of thirty- and forty-percent a year has attracted a wave of investors, pushing stocks up to records. Stocks in the theme are up nearly 150% since early last year. You need to know how to value these stocks and which to buy.
In this video, I’ll show you what’s driving the great resignation and how the gig economy is creating a new opportunity for investors. We’ll look at two funds for instant exposure and then I’ll reveal the five best stocks to watch in the space.
Opening a MooMoo Account
I’ll be using the MooMoo app throughout the video to find and analyze stocks for the revolution in electric vehicles. MooMoo is a commission-free trading app with the analysis and real-time market news to help you invest better. You’ll get free Level 2 quotes critical to making the best trades, options analysis to combine with your stocks and more than 20 chart tools to help you find the trends you need to know.
The app offers some of the best trading hours I’ve seen with pre-market and after-market access from four am to 8pm eastern. That means you can trade before the rest of the market when important news hits.
The app is built for stock traders but also has some great features for long-term investors, features like custom stock screeners and news feed from CNBC.
It takes less than five minutes to open an account and there’s no minimum to start. Use the link I’ll leave below and you’ll get five free stocks worth up to $3,500 each when you start investing on MooMoo.
Rise of the Gig Economy
Nation, the number of people quitting their job is increasing with more than four million in each of the last three months. Before this year, that number had only reached 3.5 million twice in the last 20 years.
And what’s even crazier here is there are more than 11 million job openings now for only 7.4 million unemployed looking to work. That’s total job openings in blue and the number of unemployed in red, with those lines crossing in May of this year. This is an historic trend and you need to be prepared for how it will affect stocks.
And this is all being driven by the rise of that gig economy, the opportunity in freelancing work where people can set their own hours and control how much they make. Looking back on that Upwork study, more than two-in-three, 67% of freelancers are optimistic about their career with 65% expecting to see their income increase in the coming year. Nine out of ten freelancers believe their ‘best days are ahead’ for this work from home trend.
First I want to show you how to find the stocks in this theme, how to start your list, and its actually the same place you find our first two opportunities.
There are two exchange traded funds, ETFs, that invest broadly in stocks across the theme. Not only are these going to be a good start to your portfolio but it’s a great way to find stocks to research further.
First is the Direxion Work from Home ETF, ticker WFH, a fund of 40 stocks driving adoption of remote work including emerging technologies in cloud, cybersecurity, project management and remote communications.
And for any fund, you can go to its website and look at all the stocks it holds. It’s a great way to start your list of stocks in a theme to research further and invest in only the best. Besides these top 10, you can download a list of all the stocks held and looking through the stocks, this one is much more on the enterprise side, enabling businesses to remote work their employees so you get larger tech stocks like VMware, Vonage and IBM versus the freelancer platforms and the gig economy stocks we’ll see in the next fund.
The SOFI Gig Economy ETF, ticker GIGE, offers a different focus with 70 stocks targeted more to the user or freelancer side of the theme. Here you’re really getting into the companies providing that picks and shovels for enabling freelancers and gig workers themselves to make the transition.
Within the top 10 stocks, you’ve got popular work from home companies like Shopify, Roblox and Square and just like the other fund, you can download a full list to see every stock it’s holding.
2 Things to Remember About These Funds
Now there’s two ideas I want to point out about these funds and then I’ll reveal my five favorite stocks to watch in the great resignation theme.
First is that either of these is a great way to get overall exposure to the theme and a lot less stress investing. These stocks are volatile with huge swings in the price so it’s nice to have that diversification across dozens of companies so you ride the general trend higher but aren’t worried about one stock crashing.
But the funds are also a great way to start your search, mine the holdings for your initial list of potential investments and then narrow it down to buy only the best. Because as much as I think either of the two funds could do well, I don’t expect every stock to do as well or really even that it belongs in a gig economy list. Just in the top ten stocks within the gig economy fund, you’ve got names like Spotify and LendingClub that, while they might be good companies, in my opinion don’t really qualify for this freelancer theme we’re looking at.
5 Favorite Gig Economy Stocks
So maybe get a little of that broad exposure with some money in these funds but then pick a few of your favorite stocks for extra weight in the theme. Here I’m going to share my five favorite and show you how to analyze these stocks later.
And first here is a site I’ve used for years in my own business, Upwork, ticker UPWK, a traditional freelancer marketplace where businesses or others post jobs they need done and freelancers bid a price on the project.
The platform takes a fee from five- to 20% from freelancers as well as a payment fee from those hiring and earns on a client subscription program as well. Revenue was up 32% in the most recent quarter and up 24% last year with over 750,000 active clients.
The number of active clients grew 25% last quarter and more than 20% in each of the last three quarters of the year. I’ve been using the site for about five years and have spent more than $35,000 paying freelancers for editing and blog management. And even though the fees are a little higher than some alternatives, I stay on the platform because it makes managing all of it so easy. That’s why I think the site can keep growing that client base and its revenue.
Shares trade for just 9-times on a price-to-sales basis, one of the least expensive in the group, and while the 32% annual revenue growth is the lowest…this is definitely one you want to watch.
Among the eight analysts covering the stock, we see a buy rating and an average target price of $65 a share, more than 91% above the current share price.
Next here is a company that works for both freelancers and in the remote work trend, Docusign, ticker DOCU, No other company can match Docusign’s scale in the e-signature market with 1.1 million users and it’s just starting to expand into an estimated $50 billion market opportunity in other services.
E-signature contracts are becoming the norm and the company is evolving into other services like notary and cloud contracts to grow its market size. Revenue was up 42% in the third quarter and up 49% in the last fiscal year. What I really like about this one is that 97% of its revenue is on a subscription model, booking consistent sales every month rather than a one-time purchase model.
Shares trade for a price of 14.3-times revenue, so quite a bit more expensive than Upwork but about average for the group. The growth rate though makes this one a can’t miss and brings down that relative valuation.
More than 20 analysts cover this stock with an average 3.9 out of five for a solid outperform rating. The average target price of $236 is 62% higher and even the lowest target is above the current price.
We’ve still got three more stocks to watch but I want to show you how to analyze these gig economy stocks to make sure you’re buying the best. These stocks have been extremely popular over the last two years but most have come off that popularity and you need to know how to analyze them.
First here is a valuation method we’ve talked about in the past, using growth to adjust price ratios like the price-to-earnings or price-to-sales.
You see, with traditional price multiples like price-to-sales, just about any of these growth stocks are going to seem ridiculously expensive. Even the cheapest in the group, shares of Upwork trade for nine-times the revenue it booked over the last year. If you were to compare that with the price-to-sales ratio of say IBM trading at just 1.5-times revenue…then there’s no way you would put your money in Upwork. Why pay more than six-times for a stock on that price-to-sales valuation?
But adjusting your analysis for growth puts everything into perspective. Upwork was able to grow its revenue by 32% over the last year while IBM sales grew at a measly 0.3% rate. If we adjust the price-to-sales ratio by these growth rates, so 9.1 for Upwork divided by its 32% growth rate and the 1.5-times sales on IBM divided by its 0.3% growth rate…we get a price-to-sales-to-growth of 0.28 for Upwork and 5 for IBM…the growth company is by far the better price because it’s sales are growing so much faster.
So don’t just look at the price-to-earnings or price-to-sales ratios to compare stocks. Adjusting them by that growth rate to see that relative valuation is just as important.
Second here, and this is something professional analysts do but is completely neglected by most investors, actually reach out to users of the companies for deep qualitative research.
I started working from home in 2013 so I’ve got fairly deep experience with the gig economy stocks and which have the most competitive advantages. If you don’t have that kind of experience, reach out to someone who does for some behind the scenes research. You may not see it watching CNBC or listening to analyst recommendations but this is the kind of in-depth research that analysts do…digging into these companies beyond just the numbers to find which have that best of breed growth.
Monday.com, ticker MNDY, is more on the enterprise side of the theme providing work and process management software for business customers.
This is another one with a strong subscription-based model and a really sticky service because once clients set up their work flow software, they’re not going to want to have to set it up again with a different platform.
That means strong revenue growth as the company keeps existing customers and builds on it each month. Sales grew 95% in the third quarter and 124% annualized in the three years through 2020, by far the fastest growth in our list.
The company estimates its in a $56 billion market between project management, software development and other applications.
Shares are the most expensive in our list at 51.7-times on that price-to-sales basis but with the growth rate, it’s actually one of the cheapest on a growth-adjusted basis.
Eleven analysts rate the stock with an average buy recommendation and a target of $428 per share, about 45% above the recent price with even the lowest recommendation at $335 a share.
I’m not sure we can talk about gig economy stocks without talking about Zoom Video Communications, ticker ZM, one of the most popular stocks of last year.
While the shares have come off that popularity and down 60% from the peak, the company still booked revenue growth of 35% in the most recent quarter to just over $1 billion. What’s more, the number of customers spending more than $100,000 on the platform were up 94% to over 2,500 last quarter.
Management has guided to sales of almost $4.1 billion for 2022 which puts the shares around 13.3-times on a price-to-sales basis. This stock is trading in oversold territory and the growth should help take it higher long-term.
We’ve got 32 analysts covering the stock with an average outperform rating and a target price of $330 per share. That’s more than 78% higher on a strong growth rate and a stock coming into value territory.
Another freelancer platform I’ve used a lot in the past, Fiverr International, ticker FVRR, and this one has a unique business model that gives it a competitive edge over the traditional platforms.
Instead of clients posting projects for freelancers to bid on, Fiverr has freelancers post their projects for a set price. Businesses and clients search the platform for what they need and then get the projects customized.
It’s a great low-cost option because freelancers can standardize their projects and then provide minimal customization. The platform has a strong user interface for both sides and I’ve used it more than a dozen times as a client since starting my online business in 2013.
The company estimates a $115 billion global market, collecting fees just over 5% on the buyer side and 20% from freelancers. That leaves a lot of room to grow on last year’s $190 million in total revenue. Sales grew 42% in the most recent quarter and 77% last year.
Shares trade for 16.2-times on a price-to-sales basis, so around the median of the group, but with the 42% growth…it’s the cheapest in the list.
On nine analyst targets, we have an average price target of $212 per share, just over 62% upside and a 30% return to the lowest target.
Don’t forget to get your five free stocks from MooMoo. You’ll get a free stock just for opening an account and another when you deposit any amount and start investing.
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