Shesa's SEPTEMBER 2020 Investment Blog
SEPTEMBER 2020 - INVESTMENT BLOG
By Shesa Nayak
U.S. Stock Market Update
After U.S. stock market experienced one of the shortest and quickest bear markets in March, stock market has been in an upward trend ever since. NASDAQ is "the champion" which has gone up 21% so far this year. The S&P 500 index is up 3.4% year-to-date (YTD). Dow Jones Industrial Average is laggard as it still down -3.06% YTD. NSDAQ and S&P 500 both have hit new all-time highs. August has gone with a record as the best August since 1984. The crucial months of September are partially gone but October is another unfriendly month which is yet to come. Off late, there is a little bit of correction in the market which is healthier for long-term prospects of stock market. We can still see some volatility going forward. However, there is no reason to panic in my view. There are almost $3.6 Trillion sitting on the checking accounts, meaning not invested in the stock market! The economy is reopening, so all eyes will be there for next quarter results. Meanwhile, it seems like merger and acquisitions activities have started gaining momentum. Nvidia is talking to by ARM holding for $40 billion. Gilead Sciences is in talk to buy Immunomedics for $21 billion. The U.S presidential election is just 50 days away, presidential debate kicks-off on September 29. Which party will win election on NOV, democrats or republicans? What will happen to the stock market? Will the market HOLD or go for another correction? I will share my analysis but before that let’s first take a quick look to U.S. stock market indexes.
| Indexes | 1/2/20 | Close FRI (9/11/20) | Change in 2020 | % Change in 2020 | All Time High | From All Time High | % from All Time High | LOW this Year |
| DOW | 28,538.44 | 27,665.64 | -872.80 | -3.06 | 29,568.57 | -1,902.93 | -6.44% | 18213.65 |
| S&P 500 | 3,230.78 | 3,340.97 | 110.19 | 3.41 | 3,588.11 | -247.14 | -6.89% | 2191.26 |
| NASDAQ | 8,972.60 | 10,853.54 | 1,880.94 | 20.96 | 12,074.06 | -1,220.52 | -10.11% | 6631.42 |
| BTK | 5,067.45 | 5,151.66 | 84.21 | 1.66 | 6166.36 | -1,014.70 | -16.46% | 3985.72 |
| NBI | 3,786.54 | 4,016.23 | 229.69 | 6.07 | 4600.54 | -584.31 | -12.70% | 2947.85 |
Earnings
Q2 2020 Earnings: Almost all the S&P 500 companies have reported earnings, 84% of the companies reported positive EPS surprise and 65% have reported positive revenue surprise.
For next quarter (Q3): The estimated earnings decline for the S&P 500 is expected to be -22.4% which is worst since Q2, 2009 when it was -26.9%.
Valuation: The forward 12-month P/E ratio for the S&P 500 is 22.5. This P/E ratio is above the 5-year average (17.1) and above the 10-year average (15.4)
Major Economy News
- U.S stocks had the best August since 1984. Most of the indexes gained over 7% last month.
- U.S personal income rose 0.4% in July vs 0.2% drop expected
- Federal Reserve announces new inflation approach that could keep rates low
- U.S durable goods orders rose jumped 11.2% in July vs. 4.3% expected
- Jobless claim: 1.37 million vs. 1.32 million expected. Last month it was 1.434 million
- Unemployment: dropped to 8.4% vs. 9.8 expected. It was 11.1% in July. There are still 11.5 million people unemployed!
- US debt reached its highest level relative to the size of the economy since 1946I. Next fiscal year, projected to be bigger than the US GDP for the full year — a 1st since 1946. Total debt is expected to be $27 trillion which is $82K per American.
- GDP Growth: Q3 GDP growth is expected to be over 30% quarter over quarter. Last quarter it was -31.7%.
- US Total GDP/Economy: $21.44 trillion
- Interest Rate: 0.25%
- Inflation rate: 1.3% (moth over month 0.4%)
- U.S Coronavirus Cases: 6.417 million vas. 4.6 million during last blog, Death: 191,916 vs.154,000 in my last blog.
- U.S Presidential Election: Tuesday, November 3, 2020. Per latest poll projection, Joe Biden is expected to win 279 seats and Donald Trump 122 seats.
- Apple Event: Apple has scheduled an event on September 15 but it’s unlikely that they will be
- declaring next version of iPhone. It rumored to be Apple Watch and MacBook. Even if new iPhone is declared it won’t be available before October.
- Nvidia (NVDA) plans to buy ARM holding for $40 billion based on latest news.
- Gilead (GILD) plans to buy Immunomedics (IMMU) for $20 billion according to WSJ.
- TikTok rejects Microsoft’s offer for TikTok’s U.S operation.
What do we expect in stock market?
After recording as the best August since 1984, all the stock indexes have pulled back. NSDAQ has corrected about 11% in September. Probably it could continue for some time. Sell in May and go away thesis did not work this year as many of stocks are profiting from a rotational correction. The good part is money is not leaving the market rather it’s rotating from sector to sector or between indexes. In the near future, we will see quarter-ending window dressing will start from mid-late September where some stocks will lose and fundamentally strong stocks may do better due institutional buying pressure. Even though the second quarter was the worst quarter for GDP due to coronavirus shutdowns, productivity soared to 10.1% in Q2. In this quarter, many companies are in the midst of a V-shaped economic recovery. The reasons for this coronavirus stock market rally have been primarily due to recovery in the U.S. economic numbers as more and more businesses are re-opening. Moreover, the support from fiscal and monetary policies have also played a major part. The Fed lowered the interest rate, which is currently sitting at a record low, and it also started its quantitative easing program once again.
Stock Market in Election Year
Well, as we know this year is the presidential election year. First of all, let’s look back at the performance of the S&P 500 during election year since 1928, the market ended on a positive note in 19 of the past 23 presidential election years with an average annual return of more than about 10%. The negative return in 2000 was due to the .com bubble burst and 2008 was due to the great financial crisis (subprime mortgage crisis). So, effectively only two negative market downturn in 1932 and 1940 (see the table below)
Here are the market results for the S&P 500 for every election year since 1928.
Year | Return | Candidates |
1928 | 43.60% | Hoover vs. Smith |
1932 | -8.20% | Roosevelt vs. Hoover |
1936 | 33.90% | Roosevelt vs. Landon |
1940 | -9.80% | Roosevelt vs. Willkie |
1944 | 19.70% | Roosevelt vs. Dewey |
1948 | 5.50% | Truman vs. Dewey |
1952 | 18.40% | Eisenhower vs. Stevenson |
1956 | 6.60% | Eisenhower vs. Stevenson |
1960 | 0.50% | Kennedy vs. Nixon |
1964 | 16.50% | Johnson vs. Goldwater |
1968 | 11.10% | Nixon vs. Humphrey |
1972 | 19.00% | Nixon vs. McGovern |
1976 | 23.80% | Carter vs. Ford |
1980 | 32.40% | Reagan vs. Carter |
1984 | 6.30% | Reagan vs. Mondale |
1988 | 16.80% | Bush vs. Dukakis |
1992 | 7.60% | Clinton vs. Bush |
1996 | 23.00% | Clinton vs. Dole |
2000 | -9.10% | Bush vs. Gore |
2004 | 10.90% | Bush vs. Kerry |
2008 | -37.00% | Obama vs. McCain |
2012 | 16.00% | Obama vs. Romney |
2016 | 12.00% | Trump vs. Clinton |
2020 | TBD | Trump vs. Joe Biden |
Source: Dimensional's Matrix Book 2019
For 2020, we are yet to see the market return. We will know the fact only after the market closes on 31st December 2020. However, so far the market has been going on a very positive note since the market debacle on 16 March 2020.
Election countdown - what happens in next 50 days?
The countdown for election has already started. We are just left with 50 days. The market may get volatile and swing from sector to sector depending on the possibility of who wins the election. Hence, it may be worth having a core holding and also have some trading positions to take opportunity of volatility. Whoever wins the election the stock market may probably go up before having any major correction. But next year may get rocky irrespective of Biden or Trump win. The key factor will be that how long unlimited QE (Quantitative easing) continues. In addition, there is a significant money sitting on the sidelines. Based on the current poll Joe Biden is leading Trump with almost 10 points overall. But it does not necessarily mean that Biden will win because many times such poll goes wrong. The market usually rises going into an election as both candidates promise anything and everything to voters. Joe Biden has said that he will not raise taxes on people making less than $400,000 per year. The presidential debates are scheduled for Tuesday, September 29, Thursday, October 15, and Thursday, October 22, 2020. We will see how all these go. I do not want to predict any stock because I buy based on their fundamentals, momentum and future potential at that given time. However, clean energy stock (Solar, Wind, EVs) would most likely do well if democrats win. In addition, cannabis may not be legalized in U.S but democrats may decriminalize marijuana law, possibly legalize use of marijuana for medical use and empower states to decide on the matter related to marijuana. If that happens, it will be very positive for the entire cannabis sector.
TONS of money still sitting on the sideline!
Another major determinant factor is that there is a huge amount of money still sitting in the sideline. The checking account deposits in the United States has gone up to $3.6 Trillion. What do the depositors get? On an average it’s almost ZERO. The actual checking a/c interest is about 0.04 cents. Meaning that, we get we get 4 cents for keeping $100 in a bank of one year! Now let’s subtract inflation of about 1% and also consider the opportunity cost (not investing the money in a booming stock market!). So, investors sitting with pile of money in sidelines could be as bad as it gets! The last decade saw a large increase in the checking account deposit, that increased from about $800 billion to $2.3 trillion, particularly after people experienced the horrific financial crisis of 2008-09. Further, this year we saw the emergence of COVID-19 resulting in millions of sickness and deaths. The economy basically was shut down for several months. The government started sending out stimulus checks and lot of those cash went to checking accounts surged to $3.6 trillion, almost 56% jump in less than a year. If history is any evidence, during each recession the checking deposits grew or at least remained stable. Subsequently, the stock market rallied! If you see, the biggest moves in stocks over the last 35 years came after the 1990, 2001, 2008 recessions, 2018 December collapse and of course March 2020 short-term collapse due to COVID-19.
So, how does these money play?
(i) First of all, people spend hundreds of billions of dollars on buying goods and services. It goes to the corporate worlds who makes more revenue and profits causing the stock prices to rise.
(ii) Based on Fed statement, they are now open to letting inflation move above 2% so that economy can recover from shutdown turmoil. As we know, there are several sectors still buried viz. Airlines, entertainment, sports, recreational activities, malls etc. If Fed does not raise interest rate then these checking accounts will earn nothing. People/Companies would be able to refinance their loans, resulting in more money and more savings.
(iii) When we earn nothing from the deposit, always look for avenue(s) where we can better use our money. And that’s “Stock Market”. This spells for a booming economy and possibly further run of stock market for many more months.
A quick look to my Stock opinion in the Investment Group
First of all, let’s be realistic that we cannot always hit a home run in investing. If that’s the case all investors would be vacationing rather than investing. As an investor, we must have right set of expectations. These days some stocks go up like crazy irrespective of their fundamentals, thanks to Federal Reserve for their unlimited quantitative easing. I have always said that taking some chips out of table is always key to the success. I never buy a stock unless I feel comfortable, otherwise I better to stay away irrespective of how highflier the stock may be. I may miss some opportunity but that’s OK. I do not expect to hit a home run in each stock. If that’s possible then every investors on the earth could be billionaireJ. Also, I can’t forget the fact that, most of us have limited resource and can’t buy each and every stock or unlimited amount of a given stock. Now let’s see some of the stocks that I discussed in my investment meet and WhatsApp group:
NIO: I included this stock when it was trading at $4.27 in January 2020. When it went up to about $6-7, I further said that this is just the beginning of the fireworks. This stock is just not going due to hype but with real substance - huge increase in delivery of EVs, improved cash flow, available financing, improved EBITA, delivering quality product and so on. The stock is currently trading at $17.97, up 321% in last 5 months.
TGTX: I included this stock in my last month’s (August) blog at a price of $19.58. I also pinged this stock in my WhatsApp group when it was trading around $18 after the earnings. I reiterated that this is a good opportunity for long term accumulation. The stock is currently trading at $24.91.This oncology (Cancer drug) company has solid pipelines of cancer drugs. It seems to have outstanding future potential. The stock is up 27% since then.
Beyond (BYND): This is plant-based meat product company seems to have a tremendous future potential for long term investors. Whenever, this stock comes down, I keep accumulating. I included this stock in my blog at $76.91 in April, stock is currently trading at $134.88, up 75% since then.
Simon Property Group (SPG): Simon property group, the king of the shopping malls, recommended in my blog portfolio when it was trading at $54.59 in May 2020. The stock is currently trading at $64.15, up about 18%. In fact, the stock went up as high as $90 in June. I still like this stock. This is a stock that can be accumulated for long term.
Carnival Corporation (CCL): This is the largest cruise operator in the world. Cruise Bookings for 2021 are currently 40% higher than they were during same period in 2019. Carnival will be testing that when it begins operating cruises out of Italy. This will be a huge test case for cruise line to experience after COVID-19. If the company can manage to successfully keep the virus off its ship, there could be a release of huge demand on a large scale. I included this in my blog in March at a price of $12, currently trading at $17.69, up 47%.
Bed Bath and Beyond (BBBY): On the same day with PVH I said another retailer stock Bed Bath and Beyond that was trading around $8, currently trading about $12.03, up about 50%. I have also included to my blog portfolio this month.
Amarin (AMRN): Frankly, I was very bullish on this stock looking its effectiveness of cardiovascular drug result. It was approved by FDA and had tremendous potential. But probably the greed of CEO, negative comments by Analyst and loss of court battle against generics has devastated thus stock. This is still not the end of the road for the stock. There is still a way to go with European approval expected in Q4 or Q1 and China trial result expected in Q4. I still feel that this company has potential. I recommended around $18 and now it’s about $4.08, -77%. It has been a failure so far.
CVM: Several months ago, I had pinged in the WhatsApp group when the stock was about $6-7. The stock is trading at $13.25. The head and neck cancer drug which is under trail for several years reached its milestone (death of 298 patient). It’s under data lock. If the drug works then it would be a major breakthrough for the company. It has almost doubled since then. In next few weeks we may see final result. If it fails, stock may go to $2-3 but if it succeeds then it could be huge! This stock is not part of my blog portfolio.
APHA: I have been talking about APHA since last couple of years when the stock was $6+. When this stock was trading around $4, I had written that if I have to have one cannabis stock then it would be APHA. Even though, CGC is on my blog portfolio APHA is still my favorite. The is one the cannabis company generating highest revenue in the sector and have shown profits over consecutive quarters. If democrats win the next U.S election then this stock may provide one of the best ROI. This stock is not part of my blog portfolio.
PVH Corp (PVH): When this retail stock was trading around $43 a couple of months ago, I said that I like this retail stock. The stock is currently trading $67.07, up more than 50%. This stock is not part of my blog portfolio. But I like the stock.
INO: Inovio is biotech company actively involved in producing DNA vaccine but not entirely related to COVID-19.The company has many other drugs in the pipelines for cancer drugs. In fact, one of its cancer drug is already in phase-3 trial. When stock was trading around $7-8, I had told about this stock, the stock went as high as $35. When it was around $25, I wrote that it makes sense to take some chips out of the table (take profit). The stock has come down again to $10.08. I still like this stock and feel that it has a great potential for long term. This stock is not part of my blog portfolio.
Agenus (AGEN): This is another small biotech company with a huge pipeline of drugs – more than 15 drugs. I told this stock around $3.80, now trading around $4.99. In my view, this company has tremendous future potential. Agenus (AGEN) has 3 molecules (zali, bali, 1181) that have produced CRs alone and in combination in a variety of solid tumors (90% of cancers). Two BLAs are scheduled for this quarter and early next year. I have been accumulating this stock. This stock is not part of my blog portfolio but one of my top pick. We will see where this company will be in a year or two!
NWBO: I said this as a lottery stock during my last investment meet, also to my WhatsApp group when it was trading around $.0.35 cents. This company has competed brain cancer vaccine and it’s under data lock whose result is expected to be declared any day now. If company’s brain cancer vaccine succeeds then the stock may go up x1, x2, x3% but if it fails it may come down below 10 cents. Currently, it’s trading at $0.56, up more than 50%.
LUV, UAL, DAL, NCLH, TRIP: During March and April when these travel related stocks were trading almost at their 52-weeks low, I had told in my investment meet and WhatsApp group that the travel industry has been decimated and these stocks are trading so cheap, I guess time to accumulate. Since then most of these stocks have gone up anywhere between 30-40-60%. These stocks are not part of my blog portfolio.
I have not written the above stocks to take creditability! But I have just mentioned for the awareness. Whenever, I say/write something I always do my due diligence. Having said that, how great research we do, we may not succeed every time. Also, timing to pick a stock is of paramount importance, particularly if we are trading. My investment approach is long-term investing. However, when there is volatility in the market one should have a core holding for long-term and another lot for trading in order to get bet better ROI.
Should we invest in an IPO?
Personally, I am not very keen on investing in an IPO. There are many reasons to it. Though the prospectus provides details about the company still it’s uncertain how the equity will perform in the market after listing. Many IPOS are listed at an exorbitant price. Secondly, unless you get into an IPO through an institution and buy the shares in an open market then usually the stock opens at a significantly higher price. Institutions/Big fishes manipulate it to take advantages of limited shares and big hype. So, for retail investors the probability of winning is very slim. Last year there were so many IPOs but there were only few success viz. Zoom Communications (ZM) and Beyond Meat (BYND), Crowd Strike (CRWD) etc. Most other like UBER, LYFT and many others were failures. It does not mean that all these IPO fails, there are many great successes too. But it all depends on the price you pay and company’s performance after the IPO. If there are solid revenue, profit growth then the company will prosper and share prices may go significantly higher. If not, the share prices may be doomed! I guess the best way to invest is to wait and get the share prices stabilized rather than chasing hype! The best example could be Facebook. There were so much of hype with this IPO that many brokerage house had trading system failures. Facebook launched at $38 on May 15, 2012. After that, the stock went up and then fell significantly bottoming out at $17.73 on Sept 4, 2012, before rising sharply in 2013. If you invested in Facebook at its IPO, your investment would have/had about 25% annual rate of return as of date. I only bought IPO stocks twice in open market on the day of IPO, those were MasterCard (MA) and Facebook (FB). This week there are significant number of IPOs are expected to hit the market. Here is a list that I am aware of for the interest of the blog readers:
Public Offerings Calendar (IPO) | | | |
AMWELL CORP | 9/16/20 | HealthCare | MS, GS, PIPER etc. |
BROADSTONE NET | 9/16/20 | Financials | JPM, GS, BMO, MS etc. |
PACTIV EVERGREEN | 9/16/20 | Consumer Products | CS, CITI |
SNOWFLAKE INC. | 9/15/20 | Technology | GS, MS, JPM, CITI, etc. |
UNITY SOFTWARE | 9/17/20 | Technology | GS, CS |
VITRU LTD | 9/16/20 | Consumer Products | GS, BAML, MS etc. |
GoodRX | ?? | HealthCare | MS, GS, JPM, Barclays |
Some personal experiences to make me a better Investor
Here are some of the important facts from my own research and experiences in last couple of decades. I keep talking these during my investment meets and WhatsApp group. But it’s good reminder to keep it in our memory. We saw .com boom and bust, we saw 9/11 the recession, we saw the great financial collapses in 2008-09, we saw the December collapse of 2018 and of course recently we saw the collapses of stock market in March 2020 due to COVID-19. Now we are seeing one of the phenomenal comeback of stock market. All these have always taught us some lessonsirrespective of how great research that you do or how experienced we are! Here are some of the lessons I learned that I would like to share this month.
- Learn to take some chips out of the table: In other words, taking some profits when an equity goes up is always advisable. Why? Because it does few good things. First of all, you got some return on your investment even if something worse happens. Secondly, you generated some cash which can be available for you to deploy when you see a better opportunity. Third, because you have taken some profit, if the same stock is beaten down then you think it as an opportunity to buy more rather than being emotional and thinking “Oh my God!”, the stock went up so much I did not sell, now it has come down so much.. I will wait and see what happens..”. Well, we can wait and watch but the capital is BLOCKED and future is always uncertain.. I have seen many people do NOT take profit because of greed. But when the stock gets hammered they become emotional and situation get worsened.
- Buy when people are running away and Sell when everybody is Chasing: Many retail investors get scared and sell the stock because of fear rather they should be accumulating. Many other times, they will either take a small profit and get out thinking they may catch a bigger and better fish. Practically, that fish may be in deep water and the perception and reality could be different. Many times, they will be putting high hope on a stock and put too much of money and they get tensed and emotional when it does not go on their way. In my experience, if we can buy a good company or good stock when they are hated and hold with patience it could provide much better ROI. Having said that, do not catch the falling knife! But how do you know it’s falling knife or real opportunity. This is where experience and your due diligence/research helps.
- Investing needs patience: Probably, most of us want to see our stock gets doubled in a few days or weeks! Those are rare consequences and realistically does not happen very often. If it happens we should consider ourselves as “lucky!”.Money is earned gradually, not overnight, hence patience is virtue. If a company or stock is really good based on our research and we know the real reason why stock is hammered then hold with patience or do dollar cost average. Sometimes we may hit a “jackpot” but we can’t keep hitting jackpots every time.. If that’s the case no human being would be workingJ.
- Have an Exit Strategy: Buying the stock in right time with right price is undoubtedly important to get better return on investment. But knowing when to sell is the most difficult thing. What if my investment fails? Do I have plan B? When do I exit? We should always have some exit strategy and take some profit when warranted.
- Do not worry to take losses: We buy a stock with some logic in mind. Whether it’s fundamental, technical, momentum, hype, a stock beaten down irrationally or whatever may be the reason. If that does not work we should not think too much about taking the loss and get out. In life, we cannot win every time, there is always something to buy/sell in the stock market.
- Diversify Portfolio: It’s better to have a long-term investment approach and a diversified portfolio with some trading strategy built around it. There is a proverb “Do not put all your eggs in one bracket”. It would be disaster if something goes wrong with that equity. But we should keep in mind not to over-diversify, otherwise profit earned by one equity could eaten by the losers equity.
- Current Market – Thanks Fed: Investors are investing without much fear, no fear -or- volatility because most of us know market will come back. Look at VIX, hardly there is any fear but let’s not forget that this will remain forever! Thanks to Fed for their unlimited QE!!
Final thoughts: These experiences are good to read but difficult to implement. It happens only when we practice and keep learning and unlearn our mistakes..
Major Stock Market Performances in 2020
Indexes | 52 weeks (% change) | YTD % (last blog) | YTD % Change (current) |
DOW | 1.64% | -7.39% | -3.06% |
S&P 500 | 11.09% | -1.25% | 3.41% |
NASDAQ | 32.74% | 19.76% | 20.96% |
China Shanghai Index | 7.56% | 8.52% | 6.89% |
India BSE Sensex | 3.51% | -8.84% | -5.79% |
Japan Nikki | 6.45% | -8.23% | -1.06% |
Hongkong Hang Seng | -10.42% | -12.75% | -13.08% |
Source: Wall Street Journal
Sectorial Performances 1 Year % Change (U.S Stocks)
Sectors | Last Blog | 1 Yr. % Change |
IT (Best sector YTD) | 35.03% | 40.76% |
Consumer Discretionary | 18.68% | 24.12% |
Health Care | 15.41% | 16.13% |
Communication and Services | 12.05% | 16.23% |
Consumer Staples | 2.95% | 6.27% |
Industrials | --8.55% | --0.33% |
Utilities | 1.86% | -5.72% |
Real Estate | -3.29% | -8.34% |
Financials | -15.36% | -11.56% |
Energy | -41.48% | -45.51% |
Source: Fidelity.com
Now let me discuss about my current month’s inclusion to my Blog Portfolio.
Bed Bath & Beyond Inc. (BBBY)
Bed Bath & Beyond is a New Jersey based retail company who sells a range of domestics merchandise viz. bed related items, bath items, kitchen textiles, home furnishings, basic housewares, general home furnishings, consumables, and many other products. It also provides various textile products and amenities to institutional customers in the hospitality, cruise line, healthcare, and other industries. This is a rebound stock that I wanted to include in my blog portfolio. A few weeks ago, I had pinged in my WhatsApp when stock was trading around $8. Since then BBBY has gone up almost 50%. However, I still feel that the stock has much more scope to run in coming months/year.
As of February 29, 2020, the company had 1,500 stores, including 976 Bed Bath & Beyond stores in the United States and Canada; 261 stores under the names of World Market, Cost Plus World Market, 126 baby stores; 81 stores under the Christmas Tree Shops. Once COVID-19 started the stock got decimated to $3.43. As I say, sometime Wall Street goes irrational and keep buying/selling on emotion. Bed Bath and Beyond was part of the same emotion. However, the company bounced back strong in last couple of months.
Why do I like the turnaround story?
Five years ago, this was a $60 stock. Yes, you heard it right! Let me first put the bear case for this stock. The company saw diminishing sales and profit in last few years. As a matter of fact, the company removed the CEO in late 2019. Just a few months after new CEO took over we saw the emergence of COVID-19 that changed the whole game plan. The company was already in a terrible shape, so the stock was decimated to $3 level.
The retailer suffered a 49% decline in sales last quarter and the company has been losing money for two years running. Bed Bath lost more than $300 million in last quarter alone. Visualizing many years of sales and profits decline the company removed the management in late 2019. The new CEO took over but worst pandemic hit the company that pushed sales down even further. The new management executed on its plan to energize digital sales, preserve cash, and refocus on their core brands. Recently, the company declared that it will lay off 2,800 employees, about 5% of its workforce to cut costs. This will result in savings of approximately $150 Million per year. With all these negatives, there are some lights that motivated me to add to my blog portfolio as given below.
Positives: During last conference the CEO said that company is seeing progress in its financials. Digital sales jumped remarkably to 82%, and curbside pickup available at 60% of their stores. The company closed the first quarter with $1.8 billion in available funds. The Wall Street has noticed the company is on the right path of increased online sales during this pandemic. The company will declare its next quarter result on October 1 and we will see how it goes. If it was just one quarter event then I may reconsider this stock but I guess BBBY is fowling the right path to succeed.
Financials
Market Capitalization: 1.15 Billion
Revenue: $9.89 billion.
P/E: Not available, 5 Years Avg PE: 9.09.
Price to Sales: 0.29, Trailing 12 months: 0.15
Price to Book: 0.87.
Quarterly Revenue Growth: -0.9%, Earnings Growth: -20.20% (impacted by COVID-19).
Total Cash: $1.15 billion
Total Debt: 4.17 billon
Institutional Holding: 95%
52 Week High: $17.79, 52 Week Low: $3.43
Dividend Yield: 5.6%.
My View: Fundamentally the company do not look great because of its continual miss of revenue and profit. However, investment thesis is not based on the past, rather I am visualizing this as a turnaround story. This is a famous brand. If the company can increase its digital sales and control the finance then it’s on the right path. I am already invested in the stock and bought around $8. However, I still keep accumulating in small quantities. For last couple of months, particularly after the earnings share prices have increased significantly. But it has still not got out of hands comparing to its peers. I believe that BBBY is on a right track after induction of new management team which is technology focused. I do not invest heavily on retail stocks but it does not mean that I do not invest if I find a good stock. I also like PVH and I was in little dilemma which one to add on my blog. Off late, PVH has gone up, hence I tilted more towards BBBY. Now the stock is trading at $12..03. It had a 52-Weeks high of $17.79, which is 32% discount to its high.
Risk: No stock is immune to stock market decline. But at present BBBY looks to be on a strong footing. It can get further stronger if it comes with a good next quarter. The current pandemic is always risky for the retail sectors. But those companies who are finding a ways and means to sell their products are thriving and those who have failed are decimated. So, there is risk but I would term it as “medium risk”.
My Final thoughts
Bed Bath and Beyond is a turnaround stock. I will watch next quarter earnings which is due on October 1st. That would give a clear indications whether this company is on the right path or it was just one-time boom. I am optimistic that’s not the case but it’s difficult to predict with 100% certainty. So far, I am invested and wait for the outcome based on that I will determine the next step as needed. As many retail stocks are cyclical, usually Q4 are best because of “thanksgiving” and “Christmas” holiday shopping. So, I believe Bed Bath and Beyond should be able to capitalize.
Other Stocks to Watch: PVH, AGEN, CVM, EXPE.
Shesa’s Blog Portfolio (As of September 13, 2020)
Equity | Suggested Price | Current Price | Suggested Date | % Change | My View |
STOCK (All prices are in USD) | |||||
12.9 | 112 | 1/25/13 | 768% | Buy on Dip | |
47 | 266.61 | 11/13/13 | 467% | Buy on Dip | |
77.18 | 330.15 | 12/12/13 | 328% | Buy on Dip | |
311.73 | 3116.22 | 4/12/14 | 900% | Buy on Dip | |
67.28 | 271.61 | 2/21/16 | 304% | Buy on Dip | |
36.53 | 29.99 | 5/28/18 | -18% | HOLD | |
134.81 | 914.5 | 11/25/18 | 578% | Buy on Dip | |
297.57 | 482.03 | 1/6/19 | 62% | HOLD | |
17.66 | 4.08 | 2/17/19 | -77% | HOLD - Trimmed | |
20.16 | 16.17 | 12/10/19 | -20% | HOLD | |
87.53 | 95.65 | 9/1/19 | 9% | HOLD - Trimmed | |
8.74 | 10.72 | 1/1/20 | 23% | BUY | |
4.27 | 17.97 | 1/29/20 | 321% | Accumulate | |
12 | 17.69 | 3/22/20 | 47% | Accumulate | |
76.91 | 134.88 | 4/19/20 | 75% | Accumulate | |
54.59 | 64.15 | 5/25/20 | 18% | BUY | |
45.3 | 65.1 | 6/28/20 | 44% | BUY / Accumulate | |
19.58 | 24.91 | 8/2/20 | 27% | BUY / Accumulate | |
12.03 | 12.03 | 9/13/20 | 0% | NEW ADDITION | |
ETF | |||||
139.1 | 197.11 | 8/16/15 | 42% | HOLD | |
MUTUAL FUND | |||||
11.46 | 22.15 | 3/1/13 | 93% | HOLD | |
59.45 | 166.81 | 12/20/14 | 181% | HOLD | |
9.05 | 20.91 | 1/15/16 | 131% | HOLD | |
37.32 | 84 | 3/20/16 | 125% | HOLD | |
43.66 | 67.1 | 9/24/17 | 54% | HOLD | |
Note: Dividends are not adjusted on the price. | |||||
Positions CLOSED since last Blog
None.
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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Expressed very well for guidance! Individuals as well as financial institutions must take the benefits.
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