When it began to set in on Wall Street in February that COVID-19 would wreak havoc on financial markets, there was little precedent to guide investors through what became the worst sell-off since the Global Financial Crisis more than a decade ago.
In the end, seemingly everyone piled into large-cap tech stocks as the new stay-at-home reality created massive dependence on firms like Alphabet, Microsoft, and Amazon.
But the so-called FAANMG stocks (Facebook, Amazon, Apple, Netflix, Microsoft, and Google/Alphabet) weren't the only winners. Companies that had positioned themselves well in the years before the pandemic in terms of their e-commerce infrastructure also surged, in addition to many firms in the computer hardware, software, and cloud industries.
Now, as COVID-19 cases spike again around the US to the highest levels since the pandemic began and the market sells off, investors are scrambling to find a plan. The number of new reported cases hit a daily record over the weekend, and states including New York and Illinois have reclosed some non-essential businesses.
In an interview with Business Insider in September, which he re-confirmed on Wednesday, GraniteShares Director of Research Ryan Giannotto said investors should follow the same playbook.
"Investors now have a data point that they can use to position themselves if confronted with a second lockdown. And that's really the key difference between now and March. Investors know how the economy will shake out," Giannotto said. "It wasn't realized, except for the people that were more forward facing, that the virtual economy would take absolute precedence."
In the case of another lockdown, Giannotto said he expected the FAANMG stocks to surge again but also laid out his case for seven other companies that thrived during the first lockdown.
7 stocks — in addition to the FAANMGs — to buy in a 2nd lockdown
Giannotto first highlighted the cloud-software firm Salesforce (CRM).
"They are the monetization engine for staying in contact with your customers and controlling that mutual relationship when you can't see them physically," he said. "Zoom has been sort of been the move for accessing your customers; CRM is the method for monetizing them. It's been really astounding to see that in action."
Second, he said the pizza chain Domino's (DPZ) should see gains in another lockdown because of restaurant closures and the success it had with its e-commerce platform during the initial lockdown.
Giannotto also pointed to the chipmaker Nvidia(NVDA).
"They've really benefited from Intel basically getting their supply chain in a mess in not being able to adapt in this process," he said. "[Nvidia] has been able to forge ahead of Intel, and they've really benefited there. The economy doesn't wait for your supply chain to get back in order; it's going to quickly substitute."
Fourth, Giannotto said he liked Adobe's (ADBE) prospects in another lockdown scenario because of its importance in allowing businesses to operate virtually.
"They've directly been involved in the automation of business processes," he said. "So they've done very well in this environment, not only in bridging the employer-employee gap but also moving businesses — they are basically in the business of enabling virtual companies. That's their business model, effectively."
Next, Giannotto pointed to two gaming stocks: Electronic Arts(EA)and Take Two(TTWO).
"With the shutdown of physical entertainment, of all forms really — restaurants, movie theaters, any sort of social activity that has gravitated to the virtual domain — gaming stocks have really been positioned outstandingly well to see who can go take that market share from the locked-down physical economy," Giannotto said.
Finally, in a text message on Wednesday, Giannotto added Snap Inc. (SNAP), the parent company of social media app Snapchat, to the list.
"SNAP's 28% jump on Q3 earnings is further validation of how physical distancing has prompted virtual expansion," he wrote.
In addition to the above six stocks, Giannotto also recommended that investors try to eliminate from their portfolios stocks they are confident will perform poorly in a second lockdown. Giannotto uses this strategy for his exchange-traded fund, the GraniteShares XOUT U.S. Large Cap ETF (XOUT), which is up 22% since its inception in October, more than 9% year to date, and 51% since March lows.
"You can't predict who's going to be the next Lululemon by digitizing apparel, but you can say Under Armour and L Brands have really just abjectly failed in managing that transition and have gotten forced out of the market," he said. "And that's just apparel. What happens when you think about this all across the market? The pandemic has catalyzed this dynamic with a certain ferocity."
