Mon, Aug 24, 2020|Corey McLaughlin

The Future of Work

Introducing the 'work shed'... The future of work... The hallmarks of a recession... Essential businesses need essential software... 'The best value in our SaaS universe'...

New buildings are appearing in many suburban backyards...

They look something like this...

It's not quite a gardening shed – and not quite a pool house, either... It's a home-office pod.

It includes just enough space for a desk and a chair, as well as some walking room and natural light... kind of like those "tiny houses" that became all the rage starting a few years ago.

Except this is a getaway from your house. It's a place to work in our "stay at home" pandemic times.

Construction of these new buildings is a certifiable trend, as the Chicago Tribune noted a few days ago...

Tiny house builders and garden shed manufacturers across the country are pivoting to create home office structures that range from compact, prefabricated deluxe sheds to more elaborate custom designs. And business is booming.

"A soon as the quarantine and having to work from home started, the requests for our sheds doubled," said Brennan Deitsch, online marketing manager for Heartland Sheds. "A lot of people never really had their home set up as an office, so having a quiet place allows them to make the most of the work-from-home lifestyle," he said.

Another Chicago-area tiny house builder quoted in the article said he's getting up to 85 requests per week for "backyard offices." And it's not just Chicago backyards that are getting extra office space...

In Toronto, Trevor Gilbert – an entrepreneur working in construction, building prefabricated bathrooms – and his wife were struggling to work from home with their toddler when the pandemic hit...

It was impossible to get any work done, and we grew distracted and frustrated. I thought, "It would be great for us to have a place to focus on work and create some separation from the home."

So at the end of May, Gilbert decided to find another use for his machinery... He pivoted from producing bathrooms to making prefabricated, all-weather backyard office spaces that he designed and built himself in about six weeks. As Gilbert told Toronto Life magazine...

Prices start at $7,500 for a basic eight-by-eight model with finished interiors, lighting, and electrical, and go up to around $25,000 for a larger, more elaborate setup like what I've made for myself, with its own HVAC system.

For customers seeking their own pods, the design and construction process takes about four to six weeks. The installation takes three days.

Have you been working at home longer than you thought you would be?

We have. I (Corey McLaughlin) would be lying if I said I didn't think we'd be back in the office for at least a few days a week by now.

Don't get me wrong, working from home – if you can – has its perks... starting with the simple fact that I have a regular-paying job that allows me to think big and share what all of our Stansberry Research editors are saying each and every day.

However, productivity and morale considerations aside, it would be nice to simply get out more during the day... Maybe it's just me, but I'd prefer to see the familiar faces of coworkers instead of interacting through e-mails and video chats, or seeing their Slack Technologies (WORK) avatars.

We were preparing to return to our downtown Baltimore office a few months ago. But like a lot of places, the situations and local government decisions discourage returning to group gatherings yet.

Everyone has their own feelings about our new work world (we'd love to hear yours at feedback@stansberryresearch.com), and there's plenty to discuss on this topic in the months ahead.

We speak from an office-worker perspective today, but the point is...

Remote work isn't going away anytime soon...

All things considered, we're fortunate at Stansberry Research.

First off, I'm healthy, and I have a job...

On the flip side, more than 175,000 Americans have reportedly died from COVID-19. The disease is the third-largest cause of deaths in the U.S. for the year with four months to go... trailing only heart disease and cancer. Stansberry Venture Technology editor Dave Lashmet shared this sad reality with us the other day.

And of course, the pandemic and government shutdowns have taken their economic tolls as well. They've shuttered many physical businesses – like retailers and restaurants – for good... and limited regular business for so many others.

At least 18 million Americans who say they want a job right now don't have one. And nearly half of work-eligible Americans don't have a job, either by choice or necessity...

We're hearing all kinds of anecdotal stories about people and families adjusting to kids going back to school (or not), offices closing (or not), and jobs coming back (or not). Stansberry NewsWire editor C. Scott Garliss shared his family's story recently with readers...

Last March, my wife and I were gearing up for our traditional Spring Break in Florida. We were going to visit [our kids'] grandparents. We take the same trip every year and the kids love it.

And then COVID-19 hit... If you have school-age children, you probably had a similar experience. At first, we were going to enjoy an extended break... an extra week... then two... Then, the school started sending out plans for online learning...

That's when my wife took on a new job – teaching our children. Like so many families across the country experienced, our home suddenly became school for our children.

It's the same plan in many places around the country as we head into fall. As Scott continued...

Schools are worried about the safety of children. No one wants to be responsible if something bad were to happen. Many employ teachers who have been there a long time. They have spouses at home who are vulnerable.

And we're not the only area that's experiencing this reality. Many schools return in late August/early September. Administrators suddenly see risks in plans that seemed buttoned-down in July. The nerves set in.

COVID-19 has left a lasting mark on the economy... Life is different.

And not everyone is so lucky...

We detailed the physical retail "apocalypse" last week. Over the weekend, we saw it on display at a single shopping center in suburban Baltimore...

At one end, home-improvement retailer Home Depot (HD) had giant orange letters – We're Hiring! – painted on its front windows.

Just a few stores away, Modell's Sporting Goods – one of the dozens of nationwide retailers that has filed for bankruptcy over the past few months – was selling literally everything in the store for at least an 80% discount.

And when I say it was selling everything, I mean it... down to the cash registers, mannequins, tape dispensers, and employee lockers. Here's a picture I took...

As I spent $20 on two lacrosse sticks and a baseball hat, I couldn't help but think how the basketball-jersey-wearing kid working the register wouldn't have a job in eight days.

If you're not an 'essential' business, you're in trouble...

Why "go to Mo's" when you can buy the same sporting goods online and get free shipping (in many cases)?

This is what happens in a recession. The money goes where it's needed and wanted first. In reality, it always does... We just see it more when money is tighter for everyday Americans.

Take food as another example... We all need it. But we can eat at home, too.

So online ordering and curbside pickup have become normal... Yet at the same time, more and more restaurants – killed by customers' reluctance to sit among strangers during an airborne virus pandemic – have been closing down for good.

At the same time, if you're an 'essential' part of these essential businesses, you're doing quite well...

That might sound confusing at first, but here's what we mean...

In today's world, data are the new oil. That means the companies that control these data, including cloud-based vendors and storage companies, are the new pipelines and oilfields.

As our colleague Alan Gula wrote in the latest issue of our flagship Stansberry's Investment Advisory newsletter, one area of technology that many of our editors love is Software as a Service ("SaaS")...

This type of software lets you order food from a local restaurant... or connect to your company's networks and do business around the world from your house – or even a shed in the backyard.

As we've written in the past, DocuSign (DOCU) is one of our favorite SaaS companies. The company, which sells e-signature software, has more than tripled since the Investment Advisory recommendation in November last year.

Subscribers who followed the Investment Advisory team's advice are up roughly 220% in about 10 months. The recommendation recently cracked the top 10 list of open recommendations across all Stansberry Research publications... This list measures total returns and includes recommendations made as far back as 2007.

Not only are SaaS businesses practical for the user, they're incredibly capital-efficient and a "win-win" business model for software vendors and customers. As Alan wrote in the Investment Advisory this month...

For customers, it lowers costs – they don't need to pay a large, upfront perpetual license fee, buy expensive computer hardware, pay to have the software deployed, and then pay a "maintenance" fee on top of all that. Under the SaaS model, there's just one regular subscription fee, and software updates and upgrades are automatic and seamless.

For the software vendors, cloud-based application hosting creates economies of scale. There's also only one software version to support since the upgrades occur behind the scenes on the vendor's servers.

In short, the SaaS model is superior to the perpetual license model. SaaS software is cheaper and easier to get up and running. It attracts many more new customers. And good SaaS businesses tend to have high renewal rates, leading to lots of recurring revenue.

All of these factors have led to explosive revenue growth.

Today, the five biggest tech companies account for 25% of the S&P 500 Index...

By market cap, Microsoft (MSFT), Amazon (AMZN), Google parent Alphabet (GOOGL), Apple (AAPL), and Facebook (FB) are roughly one-fourth of the benchmark U.S. index.

Think about that... Overall, the index is just about breakeven for the year. And those five stocks are up an average of 46% in 2020.

This performance surely doesn't say much for the other 495 stocks in the index. But it does prove that tech stocks continue to thrive. And today, a lot of the major tech companies are cloud companies in one way or another.

Amazon, Microsoft, and Alphabet are huge players as cloud vendors and software providers.

And as Scott wrote last week in his NewsWire post...

As much as it disappoints me for my children, I also view it from an opportunity standpoint as an investor. It's going to throw continued support behind all of the names that have been driving this market rally. It's going to support tech stocks for at least another six months.

Names like Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOGL) are going to see steady demand for their cloud-based storage products. Apple (AAPL) should continue to see buyers for the iPad, iPhone, Macs, and all of their related services. Services that connect remote individuals like Facebook (FB) and Zoom Video Communications (ZM) will see an increase in usage once more.

The biggest SaaS player is Adobe (ADBE), which switched from a license model to a SaaS approach back in 2013... Adobe's stock price is up more than 850% since the move.

But there are dozens of other "pure play" companies in the SaaS world that have outperformed even the biggest tech stocks over the years.

Introducing the Stansberry SaaS Composite...

As Alan wrote in the August issue of the Investment Advisory...

We consider 59 public companies "pure play" SaaS businesses. We've created an equal-weight composite of these stocks, called the Stansberry SaaS Composite.

Take a look at how it has performed this year compared with the overall market and the Nasdaq...

The Stansberry SaaS Composite is crushing both. It's up an astounding 64% this year... more than double the Nasdaq. And that's during a global pandemic.

The market quickly realized that many SaaS companies benefit from the disruptions caused by the pandemic.

That includes our first two SaaS picks. And our Investment Advisory portfolio research team just added another.

But before you just go scooping up more shares of these names, we do have a warning for all investors...

Even by 'unlimited QE' era standards, the valuations of these companies are getting ridiculously high...

Even we're surprised by the meteoric rise of DocuSign, for example. Its enterprise value ("EV") – a company's market cap plus debt minus cash – is extremely stretched at 28.

In short, this company's software has become 'mission critical' for thousands of others...

And its footprint will only grow in the years ahead.

Change, especially changing the behavior of so many people, can be hard... A large number of smart people have said that over time. But once that change is made, it can be even harder to convince people to go back and do something the way they did before.

In this case, a virus forced massive changes in the way we work and do business... instead of an internal company committee or a boss.

And now, there's no putting the "genie back in the bottle," so to speak. Now, people are putting up their own "work sheds" in their backyards. Cloud vendors and SaaS companies are bringing in piles of cash. The future is here. There's no turning back now.

If you don't already subscribe to our flagship Stansberry's Investment Advisory newsletter, click here now for information on how to start risk-free... and get our editors' latest thoughts on the trends in big tech and working at home.

If you're already a subscriber or a Stansberry Alliance partner, click here to read our latest issue right now. And don't forget to let us know your thoughts about your work life today by dropping a line to our feedback e-mail address.

New 52-week highs (as of 8/21/20): Alibaba (BABA), iShares U.S. Home Construction Fund (ITB), JD.com (JD), Lennar (LEN), NetEase (NTES), Procter & Gamble (PG), ProShares Ultra Technology Fund (ROM), Sabina Gold & Silver (SGSVF), Scotts Miracle-Gro (SMG), S&P Global (SPGI), TFI International (TFII), Victoria Gold (VGCX.TO/VITFF), and Vanguard S&P 500 Fund (VOO).

In today's mailbag, feedback on Dan Ferris' Friday Digest. Do you have a comment or question? Send us an e-mail at feedback@stansberryresearch.com.

"Dear Mr. Ferris, Excellent insights well-penned... Thank you. Harry Browne would've been proud. Oh, by the way, please: what do you think gold and silver will do next week?" – Paid-up subscriber Jerry F.

"By definition, a well-diversified portfolio should include assets other than stocks and bonds. I have no time for financial advisors who tout only paper investments (stocks, bonds and their derivatives). Land and precious metals make any portfolio much more diversified (and safer, too)." – Paid-up subscriber Daniel S.

All the best,

Corey McLaughlin
Baltimore, Maryland
August 24, 2020