The COVID-19 pandemic never entirely went away. However, many countries loosened travel bans and work from home orders across the globe and set off on a path toward recovery. The new Omicron variant threatens this return to normal, with experts suggesting it could plunge world economies back into chaos.
If COVID-19 returns, which stocks will win and which stocks will lose?
Stay At Home Stocks
While the pandemic hit world economies hard, plenty of stocks were well-positioned to take advantage of this new normal. So, we should see a repeat of this if there are further lockdowns. Two companies that could benefit from the return of COVID-19 are Peloton and Zoom.
Other stay-at-home equities that could benefit from brick-and-mortar business closures are Deliveroo and Just Eat. Likewise, streaming services like Netflix could gain more subscriptions if everyone is locked indoors.
Last time around, tech stocks were the big winners of the pandemic. Remote working became the norm in many industries, and the tools that made it possible triumphed. Cloud computing, video conferencing, SaaS, and cybersecurity were just some of the big winners. History is likely to repeat itself.
Consumer discretionary services were another big winner during the last lockdown. Amazon has had a bumpy year, but it’s still up 8% year to date. eCommerce and clothing shops like Footlocker and eBay also look possible.
Intangible assets — like patents, technology, research, and copyrights — all performed well during the last lockdown. Indeed, the research is reasonably compelling. With supply chain issues haunting the production of physical goods, more abstract services seemed to have an edge throughout 2020.
If the world shifts back to dealing with a public health crisis, it can only be good news for pharmaceutical companies. Pfizer’s free cash flow doubled to $29 billion on the back of its COVID-19 vaccine. Expect a strong performance if new variants rear their head. Moderna is another equity that will go the same way.
When lockdowns were announced in Austria recently, the international community took notice. Indeed, some of the equities that had benefited most from reopening took a tumble. Travel bans and stay-at-home orders would hit an already ailing hospitality sector.
At the end of November, the stock market dip foreshadowed what could happen if a new strain broke out once more.
Hospitality & Airline Stocks
Airlines & hospitality sector have dipped after the Omicron news
After the Austria announcement, airlines were the first to dip. Boeing dropped 5.7%, with United Airlines (2.7%) and Delta (1%) falling too. All this came only a week after the US announced a loosening of travel restrictions into the country.
The picture was just as bleak for the FTSE 100. IAG, who own British Airlines, and cruise line Carnival were both down over 10%. Tui, EasyJet, and Wizz Air also suffered significant losses.
Omicron is terrible news for the hospitality sector too. Airbnb shares shed 3.8%, while Expedia lost almost 10% of its value. The biggest losers were Royal Caribbean Cruises, with a drop of 13.2%.
More lockdown orders could harm tourism, nightlife, and office work. These three areas are important revenue sources for many popular ride-sharing apps. Indeed, shares in Lyft and Uber dropped 3% as the market felt the tremors of a new variant.
Last time out, the Energy sector was hit hard by COVID-19, with shares dropping by 20%. The pandemic’s travel restrictions reduced oil demand, which had a knock-on effect on production, refining, and other businesses that supply equipment to industry.
Pandemic fears in late November hit the stock markets hard. The Dow Jones Industrial Average dropped by 900 points as investors had COVID-19 deja vu. However, it seemed like a short-term shock. The green shoots of recovery soon emerged, with sentiment in London and Europe turning positive.
If this was a dress rehearsal for a future COVID scare, the last few weeks might have demonstrated the resilience and quick recovery of the market. With vaccines available and business continuity in place, the markets seem to suggest that they could take another pandemic in their stride.
The last time out was unprecedented, and no one was prepared. If COVID-19 returns, global economies should be ready.
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Alpesh Patel OBE
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