Stunning Stunning Stunning

Stunning divergence in equities is a short-term opportunity

Equities 4 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Travel stocks are soaring on good Omicron news and a quicker path to normalisation and the broader commodity sector is still favoured as investors are adding protection against inflation to their portfolios. The flipside is a bloodbath in speculative bubble stocks and themes such as NextGen Medicine and E-commerce. The divergence in just two trading session is stunningly 9.1%-point between the travel and bubble stocks baskets. While there are many arguments for why bubble stocks could fall more, we think the selloff will soon turn into a "buying-the-dip" situation with the market betting on bubble stocks going into the earnings season on the notion that this part of the market will deliver growth surprises.


Speculative growth stocks are continuing their 2021 descent

We are only two full trading sessions into the new year and we are already observing a 9.1%-point difference in performance between the travel basket, helped by the good news on the Omicron variant, and bubble stocks which suffering from the latest move higher in the US 10-year yield and investors continuing their rotating out of speculative growth and adding inflation hedges such as mega caps, financials, energy and mining.

While we think that a better balance between the physical and the online is warranted in the portfolio as inflation will run higher for longer due to physical constraints across energy and metals during the green transformation. But short-term we think a tactical trading opportunity is emerging as many bubble stocks will continue to show high revenue growth, whether they can deliver on operating margin is a different story, and that they will be bought back again by investors. The next couple of weeks could be tough for speculative bubble stocks, but our thinking is that investors will pick them up ahead of the earnings season betting on revenue surprises lifting share price against deteriorating expectations.

Bubble stocks basket

NameMkt Cap (USD mn.)12M Fwd EPS12M Fwd EV/SalesDiff to PT (%)5yr return (%)YTD return (%)
Kuaishou Technology213,499-0.8516.295.5NA-6.2
Sea Ltd140,384-1.2617.3101.5NA-11.6
Airbnb Inc130,635-1.3128.114.0NA2.6
NIO Inc94,795-1.5918.089.8NA-0.3
Snowflake Inc84,570-0.8771.525.7NA-6.9
DoorDash Inc67,743-0.1917.671.9NA-8.7
Roku Inc59,111-0.2623.160.9NA-2.4
Bilibili Inc51,601-4.7618.2159.8NA-12.9
Teladoc Health Inc41,124-0.3020.372.3452.7-0.4
XPeng Inc37,228-2.4115.032.2NA-5.4
Affirm Holdings Inc34,499-0.8939.782.5NA-15.1
BeiGene Ltd34,490-9.7835.871.1699.2-9.1
Unity Software Inc34,299-0.3532.734.5NA-9.3
Plug Power Inc32,156-0.1868.175.52,152.0-0.3
Seagen Inc31,016-0.1115.923.3165.3-1.2
Cloudflare Inc28,050-0.0846.187.0NA-12.6
Splunk Inc27,486-0.2110.844.5106.20.1
MongoDB Inc25,201-0.9834.120.5NA-12.1
Exact Sciences Corp24,752-1.1413.360.7429.92.8
Gaotu Techedu Inc24,455-3.3411.8NANANA
Farfetch Ltd23,465-0.6610.349.1NA-1.1
DraftKings Inc23,186-1.1626.5118.3NA-3.1
GDS Holdings Ltd20,998-0.1518.695.9389.5-13.0
10X Genomics Inc20,458-0.3238.941.5NA-5.1
Argenx SE19,397-10.72105.27.71,718.1-3.9
Alnylam Pharmaceuticals Inc19,214-4.7721.025.3291.3-2.6
Ping An Healthcare and Technology Co Ltd18,942-0.9111.6115.1NA-10.2
Innovent Biologics Inc18,305-0.6124.0140.5NA-17.2
Guardant Health Inc16,826-1.5040.563.9NA-2.0
Zai Lab Ltd15,781-2.5287.5163.3NA-12.1
Kingsoft Cloud Holdings Ltd15,710-2.569.6145.9NA-12.4
Yatsen Holding Ltd15,665-1.1710.766.0NA-7.9
Oak Street Health Inc15,461-0.4611.167.9NA-3.2
C3.ai Inc15,370-0.7969.668.4NA-1.4
Bill.com Holdings Inc15,319-0.1957.465.3NA-12.3
Canopy Growth Corp15,279-0.9024.234.116.73.7
Appian Corp15,229-0.4043.357.5NA1.1
Avalara Inc14,770-0.1621.370.7NA-5.9
Elastic NV14,429-0.4420.650.1NA-5.5
Wolfspeed Inc14,240-0.5921.3NANANA
Aggregate / median1,565,14121.367.0409.7-5.5
Source: Bloomberg and Saxo Group

The market is betting on a totally different car industry

As a follow up to yesterday’s equity note, we extended our commentary on the EV battle in today’s podcast. We failed to cover all our thoughts because we have to be conscious of time, so we expanded further on our thinking in this Twitter thread. At any case, the EV battle this year is one of the most interesting to watch and a defining moment for the car industry. A lot of market value is at risk this year. We forgot in our Twitter thread to elaborate a bit on the car as a platform. The idea for the bulls on Tesla is that 1) the company takes 25% global market share, and 2) cars will become a major digital platform in which you can sell software services on. In that scenario, Tesla could be extremely profitable, but the path to the endpoint is not without risk and while we have seen Volkswagen having difficulties ramping up production to beat Tesla, we do not yet know the dynamics of the remaining large players (Ford, GM, Toyota etc.) entering the EV race at full force.


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