Displaying items by tag: covid
Morgan Stanley put out a very direct research report this week. In it, it tells investors which stocks they definitely should not buy. The bank selected 22 “Secularly Challenged Stocks” which it says no one should own right now. Here is a selection: Alcoa, AMC Networks, Abercrombie & Fitch, CenturyLink, Macerich, Cheesecake Factory, H&R Block, Michael’s, and Molson Coors Beverage.
FINSUM: A lot of names one would expect here, but some that are a bit of a surprise. We certainly would not want to own Macerich given the state of commercial retail real estate, but CenturyLink would not seem nearly so dangerous.
Dividend stocks do not seem like a bad bet right now, so long as they are names with reliable dividends. Interest rate risk seems very minor, and stocks with decent cash flow appear likely to do well as yields stay ultra-low. These value stocks are favored by analysts because they are priced with much less bullish outlooks, meaning they have an additional margin of safety versus growth stocks. Here are the stocks: CenturyLink, Unum (UNM), Westrock (WRK), AT&T, HP, Xerox, Principal Financial, MetLife, and Tyson Foods.
FINSUM: This is a nice mix of stocks that should naturally be un-correlated to one another.
You may be wondering what is guiding the market right now, but in reality it is pretty simple. It is the combination of the prospect for reopening the economy, blended with the early results of vaccines that would help accelerate that process. This morning’s pre-market trading was another sign—new promising vaccine news sent S&P 500 futures up 1.5%.
FINSUM: If you want to predict the market, just pay very close attention to pharma news. Stocks in the sector have seen huge bumps because of vaccine hopes, and it is driving the whole market.
The Center for Disease Control made a pretty worrying announcement today. The CDC has previously warned that American could see a big uptick of the COVID-19 virus in the Fall, when temperatures cool down and flu season ramps up. It echoed that more strongly this week, citing evidence that the virus is gaining ground in the southern hemisphere as their winter takes hold. According to Robert Redfield, head of the CDC, “We’ve seen evidence that the concerns it would go south in the southern hemisphere like flu [are coming true], and you’re seeing what’s happening in Brazil now … And then when the southern hemisphere is over I suspect it will reground itself in the north”.
FINSUM: The reality is that a vaccine will not be ready before the next flu season starts, so it is pretty easy to imagine that the virus might see a big second wave in the Fall that leads to another lockdown.
The market is making a very strong bet that American Airlines—one of the largest carriers in the US—is going to fail. Bloomberg data shows that based on credit default swap pricing, investors think there is nearly a 100% chance of the Texas-based carrier defaulting in the next five years. There is nothing particularly unique about American Airlines’ exposure to the COVID crisis, except that it has a great deal more debt than other carriers, making it much more vulnerable. For its part, American is trying to “right size” its budget and is planning to downsize its operating expenditures by about $12 bn this year.
FINSUM: Cost cuts are great, but if your revenue has fallen 90%+ plus, all the costs cuts in the world aren’t likely to keep up.