MLCO - Concerns over COVID lockdowns in China may be overstated - watch these stocks

2023-05-27 12:00:00 ET

The anxiety over a potential wave of COVID cases impacting economic activity may be overwrought, according to fresh analysis from Cowen.

The firm said there are a number of reasons to be optimistic that sweeping reports of a large number of Omicron variant XBB cases does not mean a major long-lasting impact for stocks tied to China.

Analyst Oliver Chen wrote that the most recent COVID wave appears to be more of a headline risk than an actual business risk. He said new COVID-related business closures are unlikely, as Chinese authorities are focused on an economic recovery without massive stimulus. Of note, local infrastructure has been dismantled and mass PCR testing have been discontinued. In general, COVID has been downgraded in China from a Class A virus to a Class B virus, which is a similar categorization to the common cold. Symptoms are also noted to less severe than prior variants, as most of the Chinese population are either vaccinated or already infected. Finally, vaccines are already approved in China including those targeting the new XBB.1.5 and XBB.1.16 strains.

Cowen and team called out some stocks in particular as looking attractive following some China-related selling pressure. LVMH ( OTCPK:LVMHF ) was reiterated as a top pick in the luxury space, while Canada Goose ( GOOS ) was also observed to have a high percentage of exposure to China. In the restaurant sector, the COVID headlines are not seen diminishing the long-term bull stories on Starbucks ( SBUX ) and Yum Brands ( YUM ). Meanwhile, in the healthcare sector, BeiGene ( BGNE ) is said to stand out as a stock that has been bid down too much on COVID-related China news.

Separate from the Cowen update, other Wall Street analysts have pointed to some of the Macau casino stocks as having been held back by COVID-related developments out of China. Melco Resorts & Entertainment ( NASDAQ: MLCO ), Wynn Resorts ( WYNN ), Las Vegas Sands ( LVS ), and MGM Resorts ( MGM ) are said to be in the early innings of the recovery for their Chinese subsidiaries.

More on Macau stocks:

• Read the latest news updates on Macau
• View the growth metrics on Melco Resorts.
• View the growth metrics on Las Vegas Sands.
• Check out Seeking Alpha Quant Ratings across the casino sector.
• See the Macau gross gaming revenue update for April

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