The stock market is seeing a bearish tint, as the winds of a fifth wave bring cold shivers of another lockdown. It has not been even six months since the recovery began in full swing, and now news of a new mutant variant from South Africa has infected more than 20 countries. The United States and Canada also reported a few cases of the new Omicron variant. In light of the new variant, here are four stocks to buy in the dip:
- Kinaxis (TSX:KXS)
- Descartes Systems (TSX:DSG)(NASDAQ:DSGX)
- Enghouse Systems (TSX:ENGH)
- Cargojet (TSX:CJT)
Omicron impact on the stock market
Before discussing the logic of the above four stocks, let’s first understand the Omicron virus. This virus is a mutant of COVID-19, but its structure is very different. Scientists fear that the current vaccine might not be effective on this variant. And like all mutant variants, its spread rate is way higher than COVID-19. Although governments have the protocols in place and are ready to control the contagion, you cannot rule out the possibility of a lockdown.
If the virus creates another pandemic wave, pharma, logistics, and digital stocks could rise again. And airline and oil stocks could see a slump. This is the right time to buy digital stocks before they begin rallying.
Kinaxis and Descartes stocks and Omicron
Kinaxis and Descartes are into supply chain management (SCM) solutions. The pandemic created a new supply chain challenge, as there was a major demand shift, and all non-essential factories and stores were closed. There was a big change in the goods people purchased and how they purchased them. The proliferation of e-commerce created another major challenge, as order flexibility and doorstep delivery needed more detailed SCM solutions.
Kinaxis and Descartes stocks slumped 15-28% during the March 2020 pandemic dip but surged 70-80% from their pre-pandemic levels. While I don’t expect a similar level of growth in the next wave, I do expect higher-than-normal growth. So, if you are tired of waiting for Air Canada to make you money, you can liquidate your position and put your money in Kinaxis and Descartes. These SCM stocks can help you recoup losses of up to 25%. And if you are lucky, they might also grow your portfolio in a year.
Enghouse Systems stock
Enghouse Systems offers software solutions to contact centres, transportation, telecom, and geographic information systems. The company’s growth strategy is to buy software companies that complement its existing businesses and grow recurring revenue. During the 2020 pandemic, the company benefitted from its recent acquisition of video conferencing software. The demand for its products skyrocketed, and the stock surged almost 40% from its pre-pandemic high.
But the stock has dipped since then. It fell 16% since November 22 when Bloomberg, citing people with knowledge of the matter, reported that Enghouse is exploring a potential sale and has also talked to an adviser about the same. But nothing is confirmed, and even the sources say no decision is made.
Here there are two reasons to buy the stock. First, if the Omicron wave hits the market, the demand for video conferencing might surge, driving Enghouse stock. Second, if the rumour is true and the company finds a buyer, the stock could surge to the premium price of the acquisition offer.
Cargojet and Omicron
Cargojet provides premium, time-sensitive air cargo services. This airline gained popularity during the pandemic. As passenger airlines were grounded, demand shifted to freighters and charter planes. That was when Cargojet saw a 143% growth in adjusted EBITDA.
But the stock has dipped 30% from its pandemic peak and 20% from its September 2021 high, as the return of passenger airlines took away Cargojet’s catalyst. Moreover, supply chain issues slowed the cargo volume. But overall, the stock is doing way better than the pre-pandemic times, thanks to the e-commerce boom and its extended partnership with Amazon Canada.
The 30% dip has discounted the stock for the pandemic catalyst. If the Omicron wave impacts air travel again, the catalyst might return and drive the stock to new highs.
The above four stocks can protect your portfolio from the Omicron variant, but you have to buy now.