A pair of announcements — one last week from partners BioNTech and Pfizer, and another this week from Moderna — that two different coronavirus vaccines in late-stage clinical trials appear to be more than 90% effective at preventing COVID-19 were among the more welcome news items of 2020 thus far.
Based on the natural assumption that the imminent availability of highly effective vaccines will speed up global economic recovery, market dynamics are also shifting.
Some “stay-at-home” stocks have seen significant sell-offs in the week since the first of those two vaccine announcements, while names in the energy, industrials, and financial spaces have posted big gains. Successful vaccine roll-outs could also mean diminished growth prospects for some tech companies that have been high-flyers this year, but the tech sector also hosts businesses that are poised to thrive in a post-pandemic world — including these three dividend-payers that I think could emerge as big winners.
1. Cisco Systems
While many cloud-focused tech companies have seen surging demand due to the pandemic, Cisco Systems (NASDAQ:CSCO) has had a tougher time. With so many enterprises operating in work-from-home mode, there’s been less demand than usual for Cisco’s office networking hardware.
The company has seen upticks in demand for its services offerings such as cybersecurity and teleconferencing, but it still leans heavily on its router and switch hardware business for revenue. The return of employees to on-premises work environments could help rejuvenate its sales growth and tilt its sales mix back toward its higher-margin products.
Over the long term, Cisco will have opportunities to benefit from the deployment of 5G wireless networks and the world’s growing need for cybersecurity solutions, but in the nearer term, its stock is also a pandemic recovery play. While working remotely will remain popular even after the threat posed by the coronavirus diminishes, effective vaccines should pave the way for a return to more normal office life. That would likely help Cisco’s business cycle back up again.
The company is still generating strong free cash flow and has more than enough resources to weather the current economic downturn and continue expanding its software-based offerings. The stock looks cheap even after the recent gains following its better-than-expected first-quarter results: Cisco shares currently yield 3.7% and trade at about 13 times this year’s expected earnings.
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