Shesa's APRIL 2020 Investment Blog

April 2020 - INVESTMENT BLOG

By Shesa Nayak

U.S. Stock Market Update     

The stock markets all over the world have been rattled by COVID-19 resulting in unprecedented volatility. Most of the stock indexes saw a decline of more than 30% before bouncing back and recouping some losses. United States has not experienced this magnitude of layoffs and economic contraction since the Great Depression.  More than 22 million Americans have filed for unemployment benefits in the past four weeks. We have seen a rapid and unprecedented deterioration of U.S. economy due to COVID-19.

Last month, Congress approved $2 trillion economy stimulus package to help combat fast deteriorating economy. The package is expected to help individuals, small business and some large business which are hit hard due to COVID-19. In addition, the Federal Reserve unveiled over $2.3 trillion stimulus into a U.S. economy in new loans to keep the economy afloat in the aftermath of the Great Recession more than a decade ago.  Fed action will commit to hundreds of billions of dollars in loans to mid-size businesses and the purchase short-term notes directly from states and large counties. All these stimuluses are the need of the hour. There were $349 billion loan allocated to small businesses but got exhausted in a matter of days. Additional, $250-300 billion is expected next week for this sector. Furthermore, there may be many more stimulus to come in the foreseeable future depending on how the economy shape. All these stimuluses have stopped the irrational selling of stocks. Even great companies lost more than 40-50% of their value during this bear market. We saw some bounce in the stock indexes but volatility will continue to be the name of the game. All these stimuluses are short term ammunitions to keep the economy rolling and avoid catastrophe. This is not really an economy problem rather medical problem impacting the economy which is difficult to predict on its actual damage to the global economy! But COVID-19 may have created some best buying opportunities long term as well as trading opportunities. Last Friday, the stock market rejuvenated on the news that we may have a possible cure to Coronavirus! Gilead Sciences antiviral drug known as “remdesivir” is helping to treat patients infected with coronavirus and most of the people were discharged from hospital at University of Chicago.

The Q1 2020 earnings season was kicked-off for last week. The Banks and financial institutions have started reporting their earnings. Lot of banks have kept huge reserve for COVID-19 and showing less profits. S&P 500 companies earnings are estimated to decline at -10.0% for the current quarter. Will these earnings be as bad as expected? We could see that emergence Coronavirus cases curve is flattening and things are slowly looking little, it gives investors a glimmer of hope not only in U.S but across the World. There are some optimisms in the air as governments discuss reopening their economies. So, can we expect a V shapes recovery or U shape recovery or will the doom and gloom continue? I will share my views but before that let me share the gloomy stock market indexes.

Indexes	1/2/20	Close FRI (3/13/20)	Change in 2020	% Change in 2020	All Time High	From All Time High	From All Time High %
DOW	28,538.44	24,242.49	-4,295.95	-15.05	29,408.05	-5,165.56	-17.57%
S&P 500	3,230.78	2,874.56	-356.22	-11.03	3,347.96	-473.40	-14.14%
NASDAQ	8,972.60	8,650.14	-322.46	-3.59	9,575.66	-925.52	-9.67%
BTK	5,067.45	5,184.04	116.59	2.30	5264.82	-80.78	-1.53%
NBI	3,786.54	3,914.49	127.95	3.38	4165.86	-251.37	-6.03%

Major Economy News 

With the emergence of unprecedented Coronavirus, the GDP for Q1 and Q2 is going to be hugely impacted. It’s highly likely that we are going to see global recession all over the world.

Coronavirus cure?? Gilead Sciences (GILD) stock soars on reports that antiviral drug known as remdesivir, is helping treat patients infected with coronavirus. There were report that the trial results at the University of Chicago, indicated that "most" of the test's 125 COVID-19 patients infused daily with the drug had improved and discharged. The test is underway in another 151 sites globally in Gilead's controlled study of 2,400 people.

- China economy shrank by 6.8% in the first quarter as the country struggled with Coronavirus. But things are getting back to normal gradually.

- U.S housing starts plunged 22.3% to 1.216 million vs. estimated 1.3 million.

- U.S weekly jobless claims were 5.245 million vs. estimated 5 million.

- Unemployment Rate: U.S official unemployment rate, which climbed to 4.4% in March, from a historic low of 3.5% in February. Now it’s expected to hit double-digits in April.

- Apple launched a cheaper $399 iPhone which will be available to pre-order starting this Friday, April 24. It seems to be a strategy shift caused by Coronavirus pandemic.

- OPEC Deal: On Sunday, April 12; The group of countries known as OPEC+ agreed to cut production by 9.7 million barrels per day, making it the single-largest output reduction on record.

-  IMF sees World economy worst recession since great depression.

- India extended Coronavirus lockdown till May 3, 2020.

- Barnie Sanders endorses Joe Biden for U.S presidential election expected in Dec 2020.

How COVID-19 is impacting the Economy, Stock Market, Recovery?

Economy Stimulus:

I do not want to write too much about Coronavirus rather focus my analysis towards economy impact of COVID-19. Because most of us know what is happening around the world and impact of it on our day-to-day life. So, I will try to contend myself to the economy impact as much as possible. More than 17 million Americans have filed for unemployment benefits in the past four weeks. A rapid and unprecedented deterioration in the U.S. economy caused by deadly coronavirus have kept people quarantined inside their homes. U.S. economy is in an emergency situation and deterioration further with alarming speed, particularly as far as unemployment is concerned. The central bank (FED) unveiled over $2.3 trillion in new loans to keep the economy afloat. The nation has not experienced this magnitude of layoffs and economic contraction since the Great Depression of 1930s. In addition, the $2 trillion package that Congress approved last month has started to get out to the recipients. But it may take weeks and months to reach to many of the recipients who have not filed the tax or not filed it electronically. But the good news is that, people have started receiving these stimulus check, particularly if they filed online and have direct deposit available.  The new Fed action will commit to hundreds of billions of dollars in loans to mid-size businesses and the purchase of short-term notes directly from states and large counties. Out of these, $349 billion loan allocated to small business but got exhausted in matter of days. Additional, $250-300 billion is expected next week for these small businesses. All these stimuluses are just the phase-I stimulus and we may see many more to come depending on how far the lock down continues and economy conditions deteriorate. Furthermore, not to forget the that the Federal Reserve did cut interest rate down to almost ZERO (0-0.25%), which was the lowest since financial crisis of 2008-09.

Stimulus for the Economy: Short and long-term Impact?

The global lockdown to "flatten the curve" and curb the spread of coronavirus is undoubtedly the right step at this time. However, in long run the shutdown of global economy could be devasting for businesses. The sudden and dramatic loss of revenue means many companies are burning through cash and taking on debt faster than ever before, just to keep their doors open. The government and FED stimulus could help them like ventilator to keep running their business. However, the longer the shutdown lasts, the worse the economy damage is going to be. The government stimulus or Fed stimulus available to small/large business are debts those needs to be repaid. But what happens if they won't be able to pay those debts? Many corporate may go bankrupt and it would also impact the Banks and financial institutions who landed them money. The only way repayment is possible if their business able to sustain and generate enough sales/revenue. But longer the shutdown continues, there will be more pain ahead, there may be more lay-offs, less spending by consumers causing further less capital spending by corporations and many more lay-offs. Thus, it can have a spiral effect. The company who are more dependent on debt could be more devastating.

Can we expect V shape or U shape Recovery?

Many experts are projecting that we can see a V shape recovery once Coronavirus abate. In other words, there will be sudden pick in demands and significant upside on consumer spending. That would zoom-in or bring sudden spark to economy recovery. However, I may not totally agree with these experts. In my view, we could see more of a U shape recovery. Why so? Because I do not expect that people will rush to mall, travel, leisure, sports events, restaurants, vacationing immediately after COVID-19 is abated. People need self-assurance about their jobs. They should start getting paid and ensure that they have a job and that they will not be laid off. Secondly, Coronavirus will not evaporate in months, so people will be very cautious on what they do and how they spend. The good news as I said on my opening remarks “Gilead Sciences (GILD) antiviral drug known as remdesivir is helping treat patients infected with coronavirus and most of those people were discharged from hospital at University of Chicago”. This is a very welcome sign. But most people have gone through horrific experience and will be very cautions at least in short term. In addition, the first quarter earnings which kicked-off last week  (mostly financial sector)  do not look very promising as the companies are keeping vast amount of profit as provision for Coronavirus. We will get much more clarity when technology companies start reporting their earnings starting this week. But I do not expect huge revenue/earrings beat. Furthermore, most companies may not provide future guidance or would be very cautious providing guidance. Hence, I do not expect a V shape recovery rather a U shape recovery, wherein there will be some spark in the economy recovery and then it may remain stable for some time before picking up further. I will not be surprised if we see a \ shape recovery – bump up and again come down and again starts going up.

Stock Market Rally, is it sustainable?

In the week of 6^th April, we saw a huge rally in the stock market. It can be noted that, the U.S. stock market enjoyed one of its best weeks ever. The Dow posted its seventh-best weekly performance, rallying 12.1%. This was the biggest one-week gain since 1974 for S&P 500. These gains are welcomed by investors but such gains are not sustainable. Too fast to the upside or downside is not a very good sign in my view.  The market needs to be stable and if it makes smaller moves are more indicative of a healthy bull market. If you read my previous blog and compare the index then you could see that most of the indexes have recovered more than 50% in last four weeks. Such massive leaps higher can easily give way to major declines. If that happens it can provide better long-term investment and trading opportunities. Moreover, waiting to get the market to bottom and then start buying could be like waiting for moon to be fully visible on a cloudy night. Because we don’t know when that will happen and may lose some golden opportunity.

What should I do now as an investor?

Is the recovery in place? Or it’s just a short-term bump and again the market will keep going south. There are different school of thoughts on both side but I will share my thoughts. It’s better to avoid buying stock based on false hope and just to realize that market comes right back down after we buy. In my view, the smart money always keeps looking for bargains and these kinds of opportunities comes only when market goes down irrationally. Because during a crisis, everything goes down and sellers do not think whether the stock is good or bad. They will first sell and think later which we saw last month. During this coronavirus pandemic, people went through lot of emotions and possibly we saw some irrational selling a few weeks ago. Whenever the stock market comes down, people says, “this time the situation is different”. But ultimately the market always goes up. You can read my last month’s blog for more details. Of course, this time it was little different because it was more of a medical problem rather than an economy problem which invigorated economy problem. It caused people to panic and started unloading assets like stocks and bonds, without thinking much and that brought good stocks to bargain price. We have seen that market had a good rally in last couple of weeks and many of those bargains have quickly disappeared. The question is will that come again? Frankly, I don’t know and I guess nobody does! This is where I always keep emphasizing Warren Buffet’s principle buy good stock when there is blood on the street. And I always think to buy in a phased manner and take some gain when it goes certain percentage points up. I am not an “all-in, all-out” investor. That’s because I do not know the “Top or Bottom” of a stock or even stock market. You can ask a question to yourself, “how many times these market pundits or news or media have been able to rightly call for top or bottom?”. I guess “none” and if somebody did call sometime correctly then his/her words are written on the rock! If I can stay rational while the markets act irrationally, that’s the best opportunity to buy. But unfortunately, I may have limited resource and so also all of us. So, we should try to best utilize those resources based on our own investment framework. I made an early conclusion on cannabis sector looking  the way industry was going but probably I am wrong so far.. But now I should appropriately re-position/readjust to take long term opportunity in future.

Now that the first-quarter earnings season is underway, it's clear that Wall Street is reacting to weak results and rewarding strong results! I do like the mechanics of the market,
volumes are high on up days and lighter on down days and I believe that’s a good sign. The market rewards stocks that beat expectations and punishes those that disappoint them. In this volatile market, that’s going to be as true as it ever was.

China Recovery? what it means for World Economy?

China may have played some game by not disclosing some crucial facts. As they initially said that COVID-19 only gets transmitted from animals, which was false. We have seen thousands of cases spreading each day across the world. Could they have shared the accurate information, the world could have been in a different situation altogether. All the nations could have taken appropriate precautions.  In fact, many reports published indicates that some portion of this COVID-19 was man made in research laboratory at Wuhan! China may be very intelligent but down the line it’s going to impact their own economy in the long run. Now everybody understands what it takes to be dependent on a country who produces cheap commodities!! Not to forget the fact that China is an export-oriented economy, in other words they are more dependent on export than import. In future, many countries may suspend import of critical goods from China. For the time being, each country is grappling with their own COVID-19 situations so nobody is telling anything. But as time passes, these countries including U.S has learned some good lessons. U.S. was over dependent on the cheap goods that till now it has not been able sufficiently supply masks though four months have passed! And U.S is the number ONE economy on the earth! These countries have to learn how to be self-dependent from many imported goods rather than over relying on China. Once the Coronavirus situation becomes normal these countries will gradually minimize their dependency and import less from China which will not be good for Chinese economy in the long run. So, ultimately China will have to be more reliant on its domestic consumptions. 

Some positive side of COVID-19!

I know it will be surprising to think the positives under such circumstances but in my view there are couple of indirect benefits from this pandemic

• With the social distancing the life has almost come to a halt inside home. Thus, it has been a boon for the climatic condition. The pollution level has comedown significantly all over the world. Imagine the number vehicles, jets, airlines operate on daily basis and all those have stopped. As an example, people in India are able to view the great mountain  of Himalaya from some of the state like Punjab which could never have been possible. The big cities in India, China etc. are overly polluted but COVID-19 has reduced it beyond imaginations.
• People are being quarantined at home so they are spending 24 hrs with their family members which could never have been possible. Also, they have time to get in touch with family and friends which is hardly possible in the day-today busy life.
• It also proved the fact that working from home (WFH) works and works well, particularly in IT sector. Some companies thought WFH is a hoax!

Major Stock Market Performances in 2020

Indexes	52 week (% age change)	YTD % (last blog)	YTD % Change
DOW	-24.81%	-32.81%	-15.05%
S&P 500	-17.7%	-28.66%	-11.03%
NASDAQ	-9.99%	-23.33%	-3.59%
China Shanghai Index	-12.08%	-12.28%	-6.94%
India BSE Sensex	-21.61%	-27.48%	-23.43%
Japan Nikki	-23.13%	-29.72%	-15.89%
Hongkong Hang Seng	-23.49%	-22.58%	-13.51%

Source: Wall Street Journal

Sectorial Performances 1 Year (U.S Stocks)

Sectors	Last Blog	As of Date
IT	-2.93	16.05%
Health Care (Best sector YTD)	-14.51%	-14.89%
Utilities	-8.18%	5.71%
Consumer Staples	-9.10%	6.63%
Communication and Services	-12.05%	-0.48
Consumer Discretionary	-19.92%	-1.97%
Real Estate	-23.09%	-2.72%
Financials	-29.53%	-17.91%
Industrials	-31.21%	-18.12%
Energy	-60.43%	-47.96%

Source: Fidelity.com

Now let me discuss about my current month’s inclusion to my Blog Portfolio.

Beyond Meat, Inc. (BYND)

Beyond Meat is a food company, engages in producing revolutionary plant-based meats in the United States and internationally. It offers its products in plant-based platforms of beef, pork, and poultry in ready-to-cook and ready-to-heat formats. Beyond Meat sells its products through grocery, mass merchandiser, club and convenience store, and retailer channels. The company is headquartered in El Segundo, California.

Some flashback: On May 5, 2019 the company went IPO. The stock skyrocketed 163% making it best-performing public offering by a major U.S. company in almost two decades. The IPO was priced at $25 a share, started trading at $46 and went to $65.75 by the end of the session. The intraday it went as high as $73.

Off late, plant-based food have gained traction for alternative to meat. There has been growing interest in the plant-based food. As a matter of fact, the food industry is currently seeing major restaurants and companies partner up with plant-based brands and Beyond Meat is a front runner. The company is quickly growing into one of the biggest manufacturers of fake "meats", providing the plant-based proteins for items sold at many outlets and fast food chains. It does not genetically modify any of their products rather it aims to find plant-based equivalents of meat’s core parts such as amino acids, lipids, trace minerals, vitamins, and water. The company sells a pack of two burgers for $5.99 and a brick of beef for $9.99 which has been one of Whole Foods’ highest-demanded items. Also, the company sells it on other major retailers like Target, Walmart, Safeway, Costco etc. In addition, Beyond Meat plant-based product offers its beef, chicken and sausage products at grocery stores and large number of fast food chains. Its popularity has been growing and it will gain further momentum over the next few years. According to a Nielsen study from 2018, almost 40% of Americans now try to eat more plant-based foods. In fact, a recent Nielsen study reported last month found that coronavirus had caused vegan meat sales to increase a whooping 279.8% compared to the year before. The global plant-based market is expected to explode to an estimated $140 billion over the next decade.

Partnership with fast-food Restaurants: Other than its popular food, Beyond Meat's success is due in part because of numerous high-profile partnerships with restaurant chains and food-delivery services. As demand for plant-based meat alternatives booms, having the right network is important for BYND. It has partnership with many reputed brands like KFC, Subway, Starbucks, Dunkin’ Brands, Blue Apron, Famous Dave’s, Tim Hortons, Del Taco, TGI Friday, Bareburgur, Carl’s Jr, Fiesta Restaurant Group and so on. These partnerships are very important to increase its brand awareness and revenue generation. It has also partnership with McDonald in some specific countries.

International Expansion:

The company is planning to expand its operations into international markets, particularly Asia and Europe. Beyond Meat is planning to expand to China sooner than later but the coronavirus pandemic could have been be a roadblock.  However, now China is coming out of the woods and situations there is becoming normal. So, I will not be surprised if the company starts its operations soon. China is the second largest consumers of meat after U.S and it can lower its reliance on meat import by embracing fake meat production. As such, a major player like BYND could be welcomed by China the way they welcomed Tesla. Some acquisition or joint venture may not be ruled out to operate in the Chinese market. If the company can launch in China then that would be big. Also, the company is planning other expansion but looks like China is on the top of its list.

Financials: In the fourth quarter of 2019, the company lost $452,000, or 1 cent a share, compared to a loss of $7.5 million, or 18 cents a share, in the year-ago quarter. Revenue soared astronomical 212% to $98.5 million from a mere $31.5 million a year ago. But Wallstreet was little disappointed with that penny loss. The first quarter result is expected by end of May or early June. For 2019, it generated $297.9 million in revenue. For 2020 (full year), the company projected net revenue in the range of $490 million to $510 million, representing growth of 64% to 71% comparing to 2019. It also projects Gross margin in the range of 33% to 35%. However, these may possibly be trimmed due to the unprecedented disruption caused by Coronavirus in last few weeks. BYND has a price to sales ratio of 10.88 which is very reasonable visualizing such humongous growth. It has $276 million cash, $100 million in gross profit and only $30 million debt.

Growth: In order to keep growing with this booming market, the company needs to invest big now and keep its leadership position. That way, the company can reap the rewards subsequently on its early investments resulting in explosive revenue and profit growth in long run. During its Q4 conference call the CFO said that the company is accelerating its global expansion and plan to capitalize their strong positive momentum. It makes perfect sense for such a huge growth company. This may put some dent on the profitability but long-term investors shouldn’t be too concerned about operating leverage today. Today’s investments are for tomorrow’s gain and that should power huge gains for BYND stock. The stock is currently trading at $76.92 looks impressive. Beyond Meat has a market capitalization of just $4.7 billion but it can disrupt $1.4 trillion of global meats market. Clearly, there’s lot of growth potential left here, and management is taking all the right steps to ensure that the company capitalizes on that potential. Beyond Meat has a huge potential to cater the need of Chinese government to minimize reliance on meat consumption and if that happens it would be a mega launch there and could be a big win for BYND.

Competition: It’s not that the company has no competition. Impossible food which is privately held is a key competitor. In addition, there are few more small ones like Hungry Planet, Next Level, Perfect Day, Field Roast etc. Moreover, some of the fast food chains are also coming with their own plant-based food.

My final thoughts: I like growth stock which has significant potential. BYND is growing its revenue, gross profit, looking for partnership, international expansion and the stock is reasonably priced. It’s currently trading at $76.91. It had a 52-week high of $239.71, a discount of 68% from its top. Now most of the food chain stocks have been hammered. Once the COVID-19 fear recedes the company can see substantial increase in sales and causing the stock price to bump up. This is a long-term investment. But as I always say, I keep investing in a phased manner rather than buying at once. I have already invested and may add further if there is any pull back. Coincidently, I do not hesitate to take some chips out of the table if there is reasonable increase in the share price. I believe that Beyond Meat has a great future potential ahead. It’s just a matter of time and patience for the investors who invest for long-term.

Risk: For short-term it’s always a risk in such a volatile stock market. No stock is immune to market down-turn. I will not be surprised to see the stock coming down to around $60 level, if the stock market tanks. However, to mitigate the risk gradual accumulation may be right way to go. This is a growth stock so one can expect volatility. But I hope that it will worth the risk in long run.

Shesa’s Blog Portfolio (As of April 19, 2020)

Equity	Suggest Price	Current Price	Suggest Date	% Change	My View (see disclaimer)	Earnings Date
STOCK (All prices are in USD)
AAPL	51.63	282.8	1/25/13	448%	HOLD	30-Apr
FB	47	179.24	11/13/13	281%	Accumulate	29-Apr
MA	77.18	259.97	12/12/13	237%	HOLD	29-Apr
AMZN	311.73	2375	4/12/14	662%	HOLD	30-Apr
BABA	67.28	209.5	2/21/16	211%	HOLD	N.A.
EDIT	36.53	24	5/28/18	-34%	HOLD	N.A.
IQ	26.13	19.28	9/18/18	-26%	HOLD	N.A.
SHOP	134.81	590.39	11/25/18	338%	HOLD - Trimmed	6-May
NFLX	297.57	332.83	1/6/19	12%	HOLD	21-Apr
AMRN	17.66	6.51	2/17/19	-63%	Accumulate	N.A.
CGC	20.16	11.83	12/10/19	-41%	HOLD	N.A.
SQ	64.66	61.09	5/26/19	-6%	HOLD	6-May
GH	87.53	73.21	9/1/19	-16%	HOLD	N.A.
SDC	8.74	4.65	1/1/20	-47%	HOLD	N.A.
NIO	4.27	3.21	1/29/20	-25%	Accumulate	N.A.
CCL	12	12.56	3/22/20	5%	Accumulate	N.A.
BYND	76.91	76.91	4/19/20	0%	NEW Addition	N.A.
ETF
IHF	139.1	189.24	8/16/15	36%	HOLD
MUTUAL FUND
FBIOX	11.46	20.43	3/1/13	78%	HOLD
PRMTX	59.45	130.8	12/20/14	120%	HOLD
FSRPX	9.05	16.02	1/15/16	77%	HOLD
FBSOX	37.32	67.81	3/20/16	82%	HOLD
FSMEX	43.66	57.23	9/24/17	31%	HOLD
Note: Dividends are not adjusted on the price.
N.A: Date Not available as yet.

Positions CLOSED since last Blog

In last few weeks I closed many positions (Stock and Mutual Fund). Here are the ticker symbols: NBEV, BRK-B, ACB, XLY, PRHSX, MCDFX, FOCPX.

That’s all for today. Wish you great investing! Stay tuned for my next blog. Thanks for your time. If you want to get alert on my investment action, then please subscribe to shesagroup_invest@googlegroups.com or you can also join my WhatsApp group, if interested.

Disclaimer: This blog is meant to provide my opinion only. The information provided is to the best of my knowledge but may not be accurate. I do NOT provide any professional recommendation to buy/sell any stock, ETF, mutual fund, or any other security(s). As an investor, it’s your hard-earned money and you decide what is best for you. The above are merely my own opinions. Please contact a professional money manager to buy/sell any security. I do not charge any fees or commission by writing the blog except anything from Google AdSense. I have position(s) on whatever security I write on my blog and avoid recommending any security that I do not own or follow. Anybody buying or selling the equities mentioned here would do it on their own risk.

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