The biggest story in the last few weeks has been the spreading of the Omicron variant of coronavirus, and I believe that pathology company Australian Clinical Labs is an obvious beneficiary. You can see my prior coverage of Australian Clinical Labs here. The last thing I wrote was that the thesis was broken, because testing numbers were going down. However, that was two months ago, before the spectre of Omicron. Sadly, things change fast in a pandemic.
A Stock To Profit From Omicron
At the moment, the Australian government have their head in the sand, and there is 0% chance that they will re-impose restrictions that would interfere with the holiday season. Furthermore, the dangerous, catch-cry to “ignore cases and focus on deaths” has taken hold. Many adults, including our Prime Minister, seem to believe young children should just get infected, prior to vaccination.
This means we are almost certainly going to have a major outbreak of Covid-19 in Australia, in 2022, when schools go back, if not before.
Importantly, early evidence indicates that in practice, Omicron is causing lower hospitalisation and lower death rates than did Delta. As you can see from the financial times tweet below, in South Africa, case numbers are at about 95% of the Delta peak, but deaths are at about 10%, and hospitalisations are at about 50%.
I’ve added Gauteng excess deaths to my chart tracking all of its metrics, and here’s the result:— John Burn-Murdoch (@jburnmurdoch) December 15, 2021
Are outcomes in this wave less severe? Yes, definitely.
But so far excess deaths track Covid deaths, which have climbed to 10% of their Delta peak and are still rising. pic.twitter.com/bJCJT72IXG
Importantly, if hospitalisations are 50% of Delta, then our health systems will still get overwhelmed by covid-19.
That means the government will have to respond. The most likely way that they will respond is by encouraging vaccination boosters, and the second most likely way they will respond is by encouraging people to take covid tests. For political reasons, the government does not want to mandate masks, gathering sizes or vaccinations, so the spread will be very high and the number of people requiring a test to validate their status (even if they do not go to hospital or die) will be very high.
The NSW government has said they expect up to 25,000 cases per day, by the end of January.
Importantly, you can see in the chart below, that testing numbers have been increasing since the beginning of December 2021.
In my view, Omicron greatly increases the amount of money Australian Clinical Labs will make from covid testing. As I write, the ACL share price has been trading around $4.85. I believe that as the market realises the impact of Omicron on its profits, more buyers will emerge, and so I have bought back some of my Australian Clinical Labs shares today and yesterday.
For more, check this video of me talking about Australian Clinical Labs on Ausbiz, from 8 minutes, or watch it via twitter, below.
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Please remember that these are personal reflections about a stock by author. I own shares in Australian Clinical Labs and will not sell for at least two days after publishing this article (but I reserve the right to buy some). This article should not form the basis of an investment decision. It is an investment diary valuable only for the cognitive process it demonstrates. We do not provide financial advice, and any commentary is general in nature. Please read our disclaimer.
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