Epicenter Stocks

‘Epicenter’ stocks is a term coined by our Head of Research, Tom Lee, to refer to those equities whose means of generating earnings were most directly and acutely affected by the COVID-19 pandemic. These stocks like travel and leisure names, casino stocks, airline stocks, and many other industries were very adversely affected and, in some cases, had revenues drop to virtually nothing due to the interruptions and lockdowns associated with the pandemic. We typically consider the Energy, Consumer Discretionary, Financials, Basic Materials, and Industrials sectors to be the “Epicenter” sectors.

The response to every significant recession is different. In the wake of the collapse of internet stocks around the turn of the millennium, you made money by avoiding everything with a .com at the end of its name. After the financial crisis, you made money by piling into some of the worst affected names and assets as they recovered to more normal valuations. This crisis was, in some ways, the most significant commercial interruption ever. Never before has there been coordinated economic shutdowns.

In short, Epicenter stocks are companies that were closest to the economic and social consequences of COVID-19 but that still survived. Many companies on our lists have come out better and stronger than before the pandemic. Companies were forced to slash costs and adapt to the unprecedented shock the economy faced. As a result, lean and mean companies in Epicenter sectors with high operating leverage and the capacity for upside surprise remain what we see as the best risk-adjusted opportunity in the stock market today.