The broad technology space is one which has continued to outperform industrial and low-tech companies during this recent flight to safety, in perhaps a surprising way. I certainly did not predict this coming into the COVID-19 crisis. We're almost certainly headed for a recession and, by some accounts, a deep recession. However, many of the largest tech names, which have broadly generated the bulk of returns for various indices, continue on higher. Investors seem to feel safer holding large tech plays, rather than industrial options or consumer staples plays. This is surprising as the latter have traditionally been viewed as top safe haven pecks in times like this.
That said, not all technology companies are equal. Some do retain high levels of sensitivity to the long-term economic outlook which seems to become increasingly dire every day as new numbers and figures get reported for companies like Paychex Inc. (NASDAQ:PAYX). Paychex earns their fees from payroll services. For a significant number of companies declining payroll numbers (rapidly declining would be a more appropriate descriptor) have rightly shaken investor confidence in such companies’ prospect for the future.
Indeed, the near-term performance of payroll processing companies like Paychex will be mired by an overly pessimistic outlook for some time. However, for long-term investors who do believe we will turn the corner at some point, I believe the underlying business models of Paychex and similar firms are solid. Investing in some point in the future of such companies could turn out to be a great bet. Paychex is on my watch list right now. I will continue to monitor this company over the medium-term in a patient fashion, with this perspective.
Invest wisely, my friends.
