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1 top stock I’d buy and 1 I’d avoid with Omicron risks ahead

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When news about the Omicron variant first broke a couple of weeks back, the FTSE 100 opened down 3% on the day. It was clear that the market was shaken in the immediate term. Now we’re getting more information about the variant, but things are still uncertain. Even with the risks ahead, not all stocks might perform badly. Here’s one top stock I’m considering buying, and one that I’d stay away from.

Getting exposure to gold

The top stock that I think could do well if Covid-19 worries stay over the winter is Polymetal International (LSE:POLY). Given that the share price is down 22% over the past year, this might be surprising. However, I’m looking at the stock from the exposure it has to gold.

Polymetal is a top-10 global gold producer, with mines in Russia and Kazakhstan. Therefore, some of the share price movement is correlated to what happens to the gold price. After all, if the price of gold rallies 10%, then the asset mined by Polymetal will achieve a higher selling price. This acts to boost revenues.

Over the past year, the gold price is down 3.44%, acting as a drag for Polymetal. Yet if we see Omicron risks increase, I think the gold price should rally as investors look for a safe haven. As a result, this should help to uplift Polymetal shares. 

A risk here is that if the variant becomes very serious, mines could be closed, restricting any work potential. Also, Polymetal is a global company that transports and operates in countries around the world. Travel and supply chain disruption could hinder the business.

Are airlines top stocks right now?

A company that I wouldn’t refer to as a top stock right now is International Consolidated Airlines Group (LSE:IAG). The share price is down 11% over the past year, although this doesn’t tell the full story. Over two years, a drop of 61% has been seen, as the full hit of the pandemic from the start of 2021 is noted.

I wrote about the stock last week, flagging the fall in the short term due to concerns around Omicron. During the week commencing 22 November, it was the worst performing stock in the FTSE 100 index. This was when the news first gathered pace about the variant.

I think that if Omicron risks remain (or increase) then IAG shares could come under further pressure. The slippery slope is that governments are imposing travel restrictions at the moment. This generates lower demand for air travel. Thus, airlines under the IAG umbrella will likely have lower flying hours. Ultimately, this should translate to lower revenue.

I could be wrong, and IAG shares might find a bottom soon. Having been beaten up over the past two years, there’s logically a point where the share price can’t fall any lower, given that it’s not bankrupt. So buying it an a cheap level could offer high rewards in the future.

Overall, concerns around the stock market doesn’t mean there aren’t top stocks that could still do well. I’m considering buying shares in Polymetal, but steering clear of IAG.

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Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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