Any retrospective on 2020 is going to necessarily center around the pandemic, and that is equally true of pieces looking at the economic and market effects. The pandemic brought out volatility in the market like any black swan event would, but the uncertain duration of COVID-19 kept the market guessing and overreacting for most of 2020. While we are hoping 2021 will look a lot different, it is worth looking at some of the stock surprises of the past year, why they happened, and what likely lies ahead for them in the new year.

Key Takeaways

  • The pandemic created some of the unexpected winners in 2020, helping companies with niche products that were perfectly placed for a lockdown.
  • Tech companies are over-represented in the winners' circle due to their ability to quickly reshape business models to fill pandemic needs.
  • The companies surprising investors in 2020 are far from guaranteed to be able to continue that success in the (hopefully) post-COVID-19 world of 2021.

What Makes a Pandemic Winner?

A lot of stocks had a rough 2020, although some of the hardest hit sectors have seen some bounce-back with multiple vaccines gaining approval. For a select group of stocks, however, 2020 was outstanding. Some of these stocks were showing promise prior to the pandemic and kept on growing, some were already successful and marked the pandemic by expanding their edge on competition, and quite a few look to have been unbelievably lucky by offering a service that skyrocketed primarily because of the pandemic. This is far from a complete list of winners, but it will cover the major themes of the year.

The Clorox Company (CLX)

The Clorox Company (CLX) was an early and obvious winner in the pandemic market. As a maker of products used in household and commercial cleaning and sanitation, Clorox did well in 2020. The stock didn't test the levels that some of the tech-based pandemic darlings did, peaking at 55% above its start at $152 per share in January and looking to end the year at around $200 per share for a more modest gain around 33% overall. This is still far above the S&P 500, which is on track to end the year with gains somewhere between 11% and 14%.

Peleton Interactive, Inc. (PTON) 

We've talked a lot about Peleton Interactive, Inc. (PTON) and its meteoric rise in 2020 as it went from $30 per share to peak over $130 in October. The vaccine news took some of the wind out Peleton's sails, as the assumption is that a lot of fitness enthusiasts will be drawn back to the gym before they are sold Peleton bikes. That said, the market has reassessed how quickly health orders will be rolled back, and Peleton stock has worked its way up to the $120s.

Zoom Video Communications, Inc. (ZM)

Zoom Video Communications, Inc. (ZM) was in the right place at the right time. Even with its post-vaccine slump from over $500 per share to hover around $400, Zoom is still up over 350% in a year it started just under $70. To the company's credit, it worked to improve its technology and address security concerns throughout the year – putting its massively increased revenue to good use. Unfortunately for Zoom, its success has convinced larger competitors in Microsoft Corporation (MSFT) and Alphabet Inc.'s (GOOG) Google finally to improve and focus their video efforts. Meeting culture reverting to more in-person is a worry for Zoom, of course, but having Microsoft and Google on its heels is even more concerning.

Amazon.com, Inc. (AMZN)

It is a little hard to truly call Amazon.com, Inc. (AMZN) a stock surprise. Amazon was already a big stock before 2020, trading at over $1,800 per share. With everyone at home, of course, online shopping has become many people's only type of shopping, and Amazon is handling a large share of all that activity. The stock price has been up as high as $3,500 per share (up 80%), and it looks like it will end the year over the $3,000 per share mark (up over 60%). The pandemic accelerated Amazon without a doubt, but the company has shown an ability to grow intelligently. The new foray into prescription drugs is just another category where Amazon plans to dominate – although the pandemic makes it seem much more timely a move

PayPal Holdings, Inc. (PYPL)

Much like Amazon, PayPal Holdings, Inc. (PYPL) exceeded expectations in 2020 thanks to being leveraged to e-commerce. Being in the digital payment business as a lot of businesses become highly motivated to start selling online and taking payments online worked out for PayPal in a big way. PayPal was around $100 per share to start the year and is now closing consistently over $200 for a 100% gain. PayPal is also using its time in the sun to get involved in cryptocurrencies, another asset class that has seen interest during the pandemic. PayPal actually has a decent history of growing earnings and maintaining profitability, unlike some of the other tech companies that surged in 2020, so it can reasonably be expected to continue strong into 2021.

Tesla, Inc. (TSLA)

There may not be enough adjectives for how good 2020 was for Tesla, Inc. (TSLA), and it has very little to do with the pandemic. There is a lot about Tesla that has investors who experienced the tech bubble of the '90s getting twitchy. Although the company is now profitable and is joining the S&P 500, the run-up of over 600% in Tesla's share price this year seems extreme given that it still makes up such a tiny fraction of the vehicle market. The price-to-earnings (P/E) ratio that Tesla is boasting right now – above 1,200 times – is beyond surprising. It may even be reaching the point of terrifying.

The Bottom Line

As mentioned, this is far from a complete list of winners from 2020. We didn't cover Apple Inc. (APPL) despite another stellar year. This is because Apple also had a monstrous gain in 2019, so the 2020 result is less surprising than Amazon's in light of the latter's comparatively tame 2019. There were also stocks for which the market just expected so much more growth in the pandemic, like Rockwell Automation, Inc. (ROK) and salesforce.com, inc. (CRM), leading to more modest gains (but still S&P-beating returns).

Most importantly, just because a stock surprised in this very unusual year doesn't mean that it is likely to repeat. If you are considering any of the stocks on this list – and there are a few worth consideration even after this valuation run-up – dig into the latest earnings reports to get a better idea of how they plan to turn a pandemic windfall into sustainable profits going forward.