The big comeback for growth and a major setback for travel

Equities 5 minutes to read
PG
Peter Garnry

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.

NameDomicileMkt Cap (USD mn.)12M Fwd EPS12M Fwd EV/SalesDiff to PT (%)5yr return (%)
Kuaishou TechnologyChina213,499-0.8516.260.3NA
Sea LtdSingapore140,384-1.2617.312.3NA
Airbnb IncUnited States130,635-1.3128.18.7NA
NIO IncChina94,795-1.5918.011.8NA
Snowflake IncUnited States84,570-0.8771.520.1NA
DoorDash IncUnited States67,743-0.1917.6-6.5NA
Roku IncUnited States59,111-0.2623.13.7NA
Bilibili IncChina51,601-4.7618.218.8NA
Teladoc Health IncUnited States41,124-0.3020.337.9928.6
XPeng IncChina37,228-2.4115.03.2NA
Affirm Holdings IncUnited States34,499-0.8939.714.3NA
BeiGene LtdChina34,490-9.7835.812.41,071.9
Unity Software IncUnited States34,299-0.3532.714.6NA
Plug Power IncUnited States32,156-0.1868.134.91,702.4
Seagen IncUnited States31,016-0.1115.916.3280.4
Cloudflare IncUnited States28,050-0.0846.1-5.6NA
Splunk IncUnited States27,486-0.2110.813.3166.0
MongoDB IncUnited States25,201-0.9834.11.4NA
Exact Sciences CorpUnited States24,752-1.1413.322.1915.2
Gaotu Techedu IncChina24,455-3.3411.8NANA
Farfetch LtdUnited Kingdom23,465-0.6610.321.2NA
DraftKings IncUnited States23,186-1.1626.531.9NA
GDS Holdings LtdChina20,998-0.1518.634.2NA
10X Genomics IncUnited States20,458-0.3238.97.7NA
Argenx SENetherlands19,397-10.72105.25.32,055.5
Alnylam Pharmaceuticals IncUnited States19,214-4.7721.02.8172.2
Ping An Healthcare and Technology Co LtdChina18,942-0.9111.627.8NA
Innovent Biologics IncChina18,305-0.6124.016.6NA
Guardant Health IncUnited States16,826-1.5040.532.0NA
Zai Lab LtdChina15,781-2.5287.58.4NA
Kingsoft Cloud Holdings LtdChina15,710-2.569.656.9NA
Yatsen Holding LtdChina15,665-1.1710.740.2NA
Oak Street Health IncUnited States15,461-0.4611.123.3NA
C3.ai IncUnited States15,370-0.7969.657.7NA
Bill.com Holdings IncUnited States15,319-0.1957.4-2.5NA
Canopy Growth CorpCanada15,279-0.9024.213.9990.2
Appian CorpUnited States15,229-0.4043.3-22.4NA
Avalara IncUnited States14,770-0.1621.314.3NA
Elastic NVUnited States14,429-0.4420.616.0NA
Cree IncUnited States14,240-0.5921.317.5296.1
Aggregate / median1,565,14121.314.6857.9

Source: Bloomberg and Saxo Group

Source: Bloomberg

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.

Source: Bloomberg

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