What has been learnt from COVID-19 waves 1 to 5 has been replicated last Friday with Telcos hardly avoiding a negative performance while transport / leisure-related stocks plunged. The striking observation though is that on a one-week perspective, Semiconductors took a 9% plunge, i.e. their demise started well before the Friday collapse. On Friday, only Food Retail saved the day by not losing.
Friday 26-11 performance (vertical) vs. Week to Friday 26-11 (horizontal)
The brutality of the reaction with Autos, Banks, Oils, Aerospace, Building & Construction losing 6% or more is perplexing as the learning curve about the new strain is bound to take weeks before a risk assessment takes shape. As the planet is better prepared, the case is really about buying quality on deep dips.
The trouble is that there have been no deep dips for quality names. We looked at strong stories from a business model standpoint (fundamental strength) and balance sheet (rating at A or better). But for Volvo (see table), all have rather fallen under the weight of excessive multiples but not enough to become attractive, so that those stocks are merely 5% to 10% cheaper on ludicrous multiples. The only opportunity across quality names is Genmab.
Quality names suffered … due to their high multiples
Sure enough, there is more upside potential on stocks which lost more than 3% last Friday, more than 5% over the week to Friday 26-11 and more than 15% over the month. Edenred, Entain and Philips are presumably worth another look, while other names are subject to fast-shifting sentiment (29 names list on request : email@example.com) .