News of the Omicron Covid variant has sent markets reeling around the world, providing patient investors with an excellent opportunity to buy shares they had on their watchlists. However, not all are the great deals they may seem and I am personally avoiding as many as I am buying.
Rolls-Royce
I’ve talked a lot about Rolls-Royce and I stand by what I’ve said. It has great brand recognition, an excellent history of making good quality products. Royce has also been able to secure military contracts with both the UK and US governments, which will bring in revenue for several years to come. As a high-quality manufacturer, however, it has high operating costs and potential upsets to global supply chains knock investor confidence. This is why I believe the share price fell by nearly 12% on Friday. There aren’t many deals as good as this on the stock market and I am adding it to my portfolio as we speak.
International Consolidated Airlines Group SA (LSE: IAG)
IAG has fallen a further 12% since last week as news of the Omicron variant brought back fears of international flight shutdowns. The airline seems to be a favourite of investors who think that an end to the pandemic will bring its share price roaring back to pre-2020 highs.
The only problem with that assessment is the assumption that the pandemic will simply be announced to be over one day. The world will eventually get through this storm, but it could be years before the final cases are completely eliminated.
Between now and then, who knows how many new variants will be discovered? Even in ordinary times, IAG is a highly volatile asset. It has spent years bouncing between highs of nearly 500p and lows of just under 100p. It is currently trading near just shy of 100p, but since I’m not willing to become a trader, this is one I’m steering clear away from.
SSP Group (LSE: SSPG)
SSP is a multinational food contract service. It operates around 2,800 branded retail units in airports, train and bus stations around the world. Naturally it was hit hard by the initial Covid lockdowns. The share price has taken a further loss of around 15% over the last few days, and currently trades for 214p. However, I think that SSP will fare far better than IAG. In the years before Covid, SSP increased its revenue and its profit margins. It also paid down debt and saw steady, sustainable growth in its share price.
There is a lot of pent-up demand for both air travel and food services. But reopening small cafes domestically have far fewer issues than operating international flights. Small retail units also have much lower operating costs than airlines. Once the world gets back on track, I believe SSP is in a good position to regain its pre pandemic share price of 550p.
The future
No one can be sure what will happen because of the Omicron variant. This could be a flash crash or the start of a much longer decline. But Warren Buffett famously said “Be fearful when others are greedy and greedy when others are fearful.” I see a lot of fear right now.
