The big comeback for growth and a major setback for travel
Head of Equity Strategy
Summary: Our NextGen Medicine and Bubble Stocks theme baskets are the big winners in June as inflation expectations have fallen as more market participants are buying into the Fed narrative of transitory inflation and a more hawkish FOMC. We also take a quick look at Appian which is the best-performing stock within the Bubble Stocks basket. Finally, we are covering the recent declines in travel stocks due to the new emerging Covid-19 Delta variant that could negatively impact this year's summer holiday in Europe.
June manifested itself as the big comeback month for growth stocks with theme baskets such as NextGen Medicine (up 17.6% in June) and Bubble Stocks (up 10.3% in June) powering ahead fueled by a more hawkish FOMC causing long-term US interest rates and inflation expectations to decline. The NextGen Medicine basket got an additional boost from the major gene editing breakthrough by Intellia Therapeutics which we covered in yesterday’s equity update.
Bubble stocks started their rebound back in mid-May and have since risen 21% likely causing a sigh of relief for Ark Invest and in general growth investors. While growth has staged a comeback and we believe investors should have these growth pockets in their portfolios, we are also still leaning towards inflation will run higher than current market consensus causing interest rates to climb higher over the coming year reducing the tailwind for growth stocks. Below the performance chart on our Bubble Stocks basket we have inserted the companies in the basket and if we look across performance last month the best-performing stock has been Appian.
Appian sells a low-code automation platform and solutions that maximizes resource use for businesses but has been under pressure since the peak back in February. In June, the stock finally rallied without any particular news until 17 June when the stock was added to Hedgeye’s new best idea long based on the views that Appian is doing the right things on pricing, community development and partner integration.
|Name||Domicile||Mkt Cap (USD mn.)||12M Fwd EPS||12M Fwd EV/Sales||Diff to PT (%)||5yr return (%)|
|Airbnb Inc||United States||130,635||-1.31||28.1||8.7||NA|
|Snowflake Inc||United States||84,570||-0.87||71.5||20.1||NA|
|DoorDash Inc||United States||67,743||-0.19||17.6||-6.5||NA|
|Roku Inc||United States||59,111||-0.26||23.1||3.7||NA|
|Teladoc Health Inc||United States||41,124||-0.30||20.3||37.9||928.6|
|Affirm Holdings Inc||United States||34,499||-0.89||39.7||14.3||NA|
|Unity Software Inc||United States||34,299||-0.35||32.7||14.6||NA|
|Plug Power Inc||United States||32,156||-0.18||68.1||34.9||1,702.4|
|Seagen Inc||United States||31,016||-0.11||15.9||16.3||280.4|
|Cloudflare Inc||United States||28,050||-0.08||46.1||-5.6||NA|
|Splunk Inc||United States||27,486||-0.21||10.8||13.3||166.0|
|MongoDB Inc||United States||25,201||-0.98||34.1||1.4||NA|
|Exact Sciences Corp||United States||24,752||-1.14||13.3||22.1||915.2|
|Gaotu Techedu Inc||China||24,455||-3.34||11.8||NA||NA|
|Farfetch Ltd||United Kingdom||23,465||-0.66||10.3||21.2||NA|
|DraftKings Inc||United States||23,186||-1.16||26.5||31.9||NA|
|GDS Holdings Ltd||China||20,998||-0.15||18.6||34.2||NA|
|10X Genomics Inc||United States||20,458||-0.32||38.9||7.7||NA|
|Alnylam Pharmaceuticals Inc||United States||19,214||-4.77||21.0||2.8||172.2|
|Ping An Healthcare and Technology Co Ltd||China||18,942||-0.91||11.6||27.8||NA|
|Innovent Biologics Inc||China||18,305||-0.61||24.0||16.6||NA|
|Guardant Health Inc||United States||16,826||-1.50||40.5||32.0||NA|
|Zai Lab Ltd||China||15,781||-2.52||87.5||8.4||NA|
|Kingsoft Cloud Holdings Ltd||China||15,710||-2.56||9.6||56.9||NA|
|Yatsen Holding Ltd||China||15,665||-1.17||10.7||40.2||NA|
|Oak Street Health Inc||United States||15,461||-0.46||11.1||23.3||NA|
|C3.ai Inc||United States||15,370||-0.79||69.6||57.7||NA|
|Bill.com Holdings Inc||United States||15,319||-0.19||57.4||-2.5||NA|
|Canopy Growth Corp||Canada||15,279||-0.90||24.2||13.9||990.2|
|Appian Corp||United States||15,229||-0.40||43.3||-22.4||NA|
|Avalara Inc||United States||14,770||-0.16||21.3||14.3||NA|
|Elastic NV||United States||14,429||-0.44||20.6||16.0||NA|
|Cree Inc||United States||14,240||-0.59||21.3||17.5||296.1|
|Aggregate / median||1,565,141||21.3||14.6||857.9|
Source: Bloomberg and Saxo Group
Delta variant is a key risk for travel stocks
The emerging Covid-19 variant called ‘Delta’ is coming a key risk for European tourism which is not only a blow to Southern Europe that is in desperate need of a rebound in their tourist income, but also travel stocks that are down 6.2% in June. While investors have reacted to the uncertainty selling off travel stocks, the recent data from the UK and Israel suggest that while new cases are increasing due to the new Delta variant the number of hospitalizations and severe cases of Covid-19 are not dramatically increasing suggesting that vaccinations are working. The recent selloff in travel stocks is healthy as the rebound in travel stocks has been too much relative to what we can expect of profitability and growth from the industry in the coming years.
Quarterly Outlook Q2 2022
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