“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” — Winston Churchill
On our local front, today is day one of phase two of the re-opening in Singapore. Retail shops, gyms, parks and beaches have been re-opened and people can meet socially in groups of up to five — this extends to groups choosing to dine in at restaurants. Wearing masks, except while exercising or eating, remains mandatory and strict limits on the number of people allowed in any retail outlet or restaurants are being applied. Cultural centres, places of worship and other places for large gatherings such as cinemas remain closed for now.
If the spread of the virus remains contained during the re-opening of the economy, further easing of restrictions is expected over the coming 4 to 6 weeks.
Where Opportunities Are
Given our expectation of further upside in the US market, we having been looking through to find opportunities to allocate capital. In this week’s piece we provide charts and brief descriptions of companies that we think could warrant an allocation or at least further attention. (Some of these names have been in shared as trade ideas earlier today.)
As we looked through the market, we found that which has been working looks like it will continue working. That is, software, work from home plays, video games and home entertainment, select healthcare plays, select consumer staples and trucking plays.
Consumer Staples
None of the names highlighted in the consumer staples require any introduction. These are the purveyors of consumer product goods that have adorned supermarket shelves and filled up kitchen cabinets for decades.
One name we found surprising is Kimberly Clark, a company that has struggled for many years now and is one of the few Warren Buffet long term holdings that has really under performed over the last few years.
Kimberly Clark $KMB
Pepsi $PEP
(Already in our live trade ideas.)
Software, Work from Home, Home Entertainment and Gaming
Take-Two Software Interactive Software $TTWO
(Added to our live trade ideas today.)
Take-Two Interactive Software is a leading video game developer, publisher, and distributor. Games are published under a number of labels including Rockstar Games, 2K, Private Division, and Social Point.
Popular games developed or published by the company include Grand Theft Auto and its sequels and the 2K series of sports games.
Activision Blizzard $ATVI
Activision Blizzard is an American video game holding company based in Santa founded in July 2008 through the merger of Activision and Vivendi Games.
Popular games developed or published by the company include Call of Duty, and its sequels and Crash Bandicoot and its sequels.
LivePerson $LPSN
LivePerson is an online marketing & web analytics company with a chat platform that allows companies to talk with visitors in real time on their websites. The company is in the business of developing conversational commerce and artificial intelligence software.
Salesforce.com $CRM
(Already in our live trade ideas.)
The mega-cap cloud-based software and enterprise application company targeting customer relationship management.
Twilio Inc. $TWLO
(Added to our live trade ideas today.)
Provider of application programming interfaces (APIs) for the development of communications tools such as applications that can make and receive phone calls, send and receive text messages and conduct other communication services.
WhatsApp is the most popular over the top (OTT) communication application that utilises Twilio’s APIs.
2U Inc. $TWOU
2U Inc. is a software as a service company than enables colleges and universities the infrastructure and tools to develop and offer online courses.
Healthcare
Within healthcare we see opportunities across biotechnology, large cap pharma and medical equipment suppliers.
Amgen $AMGN
The large cap pharmaceutical company that markets, an immunostimulator used to prevent infections in patients undergoing cancer chemotherapy, and Enbrel, a tumour necrosis factor blocker used in the treatment of rheumatoid arthritis and other autoimmune diseases.
Quanterix $QTRX
Quanterix develops and markets disease detection technology. The company’s products are currently being used for research applications in several therapeutic areas, including oncology, neurology, cardiology, inflammation and infectious disease.
In May the company announced the development of a test using the company’s Simoa platform for the detection and measurement of anti-SARS-CoV-2 IgG, IgM, and IgA antibodies against four immunogenic viral proteins.
Vertex Pharmaceutical $VRTX
Vertex Pharmaceuticals is the only pharma company with the necessary regulatory approvals to market medicines for the treatment of cystic fibrosis, i.e. a sub-category monopoly.
Trucking
Schneider National $SNDR
Founded in 1935, Schneider National provides trucking and logistics services to corporations across the US, Canada and Mexico. The company is estimated to employ approximately 12,000 drivers.
Knight Swift Transportation Holdings $KNX
Founded in 1990, Knight Swift is the largest trucking company in the US.
Money Supply
Some may have come across the above chart or some iteration of it. The narrative surrounding such a chart is centred on either how unprecedented Fed action has been in response to the COVID-19 pandemic or how it will lead to inflation. And of course, the overarching theme is usually how the Fed is making a major policy error.
[Definition – Monetarist: A monetarist is an economist who holds the strong belief that the money supply, including physical currency, deposits and credit, is the primary factor affecting demand in an economy. Consequently, the economy’s performance, its growth or contraction, can be regulated by changes in the money supply.]
We are not central banker apologists. That being said, the following passage from George Soros’s Alchemy of Finance suggests that the Fed’s playbook in response to the wide-ranging economic collapse has been the right one:
“Monetarists believed that the primary objective was to bring inflation under control and to that end the money supply must be strictly regulated. Instead of controlling short-term interest rates, as it had done hitherto, the Federal Reserve fixed targets for money supply and allowed the rate on federal funds to fluctuate freely. The Federal Reserve’s new policy was introduced in October 1979, and interest rates were already at record levels when President Reagan took office. In his first budget, he cut taxes and increased military spending simultaneously. Although a concerted effort was made to reduce domestic spending, the savings were not large enough to offset the other two items. The path of least resistance led to a large budget deficit.
Since budget deficits had to be financed within the limits of strict money supply targets, interest rates rose to unprecedented heights. Instead of economic expansion, the conflict between fiscal and monetary policy brought on a severe recession. Unexpectedly high interest rates combined with a recession to precipitate the international debt crisis of 1982. Henry Kaufman had long warned that government deficits would drive other borrowers out of the market. He proved to be right but it was the foreign governments that were driven out first, not the domestic users of credit.
The Federal Reserve responded to the Mexican crisis of August 1982 by relaxing its grip on the money supply. The budget deficit was just beginning to accelerate. With the brakes released, the economy took off and the recovery was as vigorous as the recession had been severe. It was aided by a spending spree by both the private and the corporate sectors and it was abetted by the banking system. Military spending was just gearing up; the private sector enjoyed rising real incomes; the corporate sector benefitted from accelerated depreciation and other tax concessions. Banks were eager to lend because practically any new lending had the effect of improving the quality of their loan portfolios.
The demand emanating from all these sources was so strong that interest rates, after an initial decline, stabilized at historically high levels and eventually began to rise. Banks bid for deposits aggressively and holders of financial assets could obtain even higher returns from the banks than from holding government obligations. Foreign capital was attracted, partly by the high return on financial assets and partly by the confidence inspired by President Reagan. The dollar strengthened and a strengthening currency combined with a positive interest rate differential made the move into the dollar irresistible. The strong dollar attracted imports, which helped to satisfy excess demand and to keep down the price level. A self-reinforcing process was set into motion in which a strong economy, a strong currency, a large budget deficit, and a large trade deficit mutually reinforced each other to produce noninflationary growth.”
This post should not be considered as investment advice or a recommendation to purchase any particular security, strategy or investment product. References to specific securities and issuers are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.