Uncertainty surrounding Omicron’s ability to derail the world’s return to normality has unsettled the markets around the world. With the FTSE 100 experiencing its worst month in over a year, stock prices have plummeted as investors brace for the worst.
However, whilst the new coronavirus variant has dragged the stock market downward, not all companies share equal vulnerability to the latest COVID iteration. Investors may feel disgruntled that their portfolios are clouded in red as of recent, but the savvy among them will regard the “crash” as a buying opportunity.
Innovation vs. Vulnerability
Depending on the nature of their operations, some businesses have wilted away during the pandemic while others have blossomed. Much of the disparity is down to the innovative nature of these companies. The set-in-their-ways traditional brick-and-mortar suffered the worst, with airlines, hotels and F&B topping the victims list.
Singapore Airlines alone lost USD 4.3 billion as its passenger traffic shrank 97.9% in the financial year ended 31 March 2021, from a year before. Conversely, an innovative company such as Facebook saw its revenue rise 21% at the end of 2020. Although Facebook can be regarded as a pure tech company, its new “Meta” chapter is set to revolutionise the internet as we know it; its Oculus arm and venture into the metaverse are positioned to shape Web 3.0.
Innovation that results in growth potential serves as a safeguard against government-enforced restrictions that prohibit physical consumption. Of course, innovation is not completely covid-proof. Severe lockdowns will paralyse society in its entirety, as we all saw in March 2020. Nonetheless, as we aren’t expecting Omicron to plunge us into the depths of March 2020, innovative stocks are our favourite play for now.
Good Companies, Great Stocks, Bad Luck
Some companies we previously covered on Bread were regarded as favourable recovery plays. For us, these are fantastic companies whose damage from Covid could be reversed as the pandemic comes to a close. Such companies include Galaxy Entertainment and Haidilao. Both have dropped tremendously more as “normality” continues to be a pipedream, worsened by Omicron.
Sadly, we cannot recommend these stocks during this so-called dip as the severity and lethality of Omicron has yet to be determined.
Instead, we’re shifting our focus to companies that will continue to prosper even if Omicron extends the pandemic long into the future.
Battered Stocks But Not Battered Companies
Nio [-19.60% since Omicron announcement]
Just before Omicron was announced to the world, Bread covered Nio. Presenting the idea that WallStreetBets doesn’t fear Beijing with regards to Nio, we suggested that you shouldn’t either. The entirety of this thesis continues to stand true – Beijing might be enforcing tighter restrictions in response to the new variant but its long term goal of carbon neutrality by 2060 is not jeopardised.
Nio is in China’s good books, receiving over USD 1 billion of funding from the government. What’s more, the Chinese EV maker has also enjoyed robust demand from the domestic market too. In its 3Q 2021 report, Nio reported a 102.4% YoY in revenue to USD 1.34 billion generated from vehicle sales. Additionally, Nio is outplaying its local EV rivals by targeting the luxury car market. Its September average sale price was RMB 47,500 higher than the average price of high-end brands. Nio’s pricing was even RMB 41,600 higher than BMW’s average of RMB 399,700.
If this isn’t enough, Nio is aggressively expanding to Europe. Having already established a presence in Norway, Germany is next on the cards.
Nio’s potential is vast and largely unrestricted by covid restrictions. Sure, immediate sales may take a toll and harsh restrictions could result in supply chain issues, but Nio’s long term prospects all remain intact.
Monex Group [-8.00% since Omicron announcement]
When Bread covered Monex Group in July, its stock price was below JPY 640 (USD 5.64). Since publication, the stock price soared to JPY 1,045 in November. Although it fell from its peak shortly after, the share price appeared to be rising back towards four figures until Omicron hit. It now sits at below JPY 800.
Pushing the boundaries of fintech in Japan, Monex is an attractive play for those betting on the crypto space in Asia. Coincheck – the crypto platform acquired by Monex – is the most popular cryptocurrency app in Japan.
At the time of writing, cryptocurrency is also facing a bear market in response to Omicron concerns. This has also led to Monex’s share price dipping. However, its dominance in Japan and its ability to capitalise on the crypto appetite in the region have not been diminished.
CEO Oki Matsumoto, who views Japanese retail investors as risk-taking “cowboys”, has capitalised successfully on their behaviour and has his sights on expanding Monex’s fintech to further embrace blockchain.
Pre-emptive Pandemic Plays
Some companies’ stock prices haven’t experienced the so-called Omicron dip…yet. Some have even seen their stock price rise since the announcement of the new variant. In any case, these companies are worth adding to your watchlist in case Omicron prompts another global lockdown.
Tencent [-3.5% since Omicron announcement]
As one of China’s biggest tech titans, Tencent found itself at the centre of Beijing’s anti-monopoly investigation. However, despite being down over 40% from its 52-week-high, Tencent hasn’t appeared to have suffered too greatly from Omicron.
In November, Bread argued that Beijing’s intervention may have delayed Tencent from joining the trillion-dollar club but its membership is still on the cards. We were particularly impressed by Tencent’s diverse portfolio of companies, its cloud computing, malleable gaming sector, and its capacity to play ball with Beijing.
At the time of writing, Beijing had added new impositions on conferences and events, and we advised that patience is required for Tencent investors, but their waiting will inevitably pay off.
Now that Omicron has emerged on the scene, the message is the same: patience is key, but with an additional footnote: buy any volatility spurred on by the new variant.
If governments (particularly Beijing) respond fiercely to Omicron and slap on harsh restrictions, it’s likely Tencent will be pulled down by the gravitational force of the market. In such a case, have your cash ready.
Nintendo [+7.10% since Omicron announcement]
It goes without saying that video game companies stand to gain if we’re all locked down again. However, Nintendo offers even more than just a pandemic play. With highly anticipated sequels to its launch titles just around the corner, a next-gen revamp of the Switch, and a vast loyal fanbase, Nintendo’s stock price at 21% down from its 52-week-high is a bargain.
Additionally, Super Nintendo World offers long term investors a reopening opportunity, and the 2022 Super Mario Bros movie starring Chris Pratt, Jack Black and Seth Rogan will certainly see gamers flocking to theatres.
Samsung [+7.05% since Omicron announcement]
Despite dominating the smartphone market and outpacing Apple, Samsung stock is curiously disregarded by investors. When we covered the company in November, we were impressed by its financials and its future prospects. Proving that its USD 2,000 folding smartphone is no longer a gimmick, Samsung has demonstrated the power of innovation in drawing in sales.
Reports of South Korean investors neglecting their own market in favour of America’s may suggest that the region’s stock market is rather lacklustre. But the smart money is on undervalued companies. If South Korea reacts aggressively to Omicron and its markets suffer, Samsung is certainly worth picking up.