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The Weekly Summary


Memorial Day gave many parts of the country an excuse to loosen quarantine restrictions as new hospitalizations and COVID deaths hit a plateau. One way or another, it looks like the infection "curve" has indeed flattened to a point where the medical system can handle anticipated caseloads. Even in New York City, the clouds are finally clearing. People are getting back to work. Businesses are reopening or have pivoted their operations to accommodate the post-outbreak world.


We are tentatively optimistic that the pandemic has spent its force and will fade into the background over the remainder of the year. While there may well be local challenges ahead, the national shock is receding at last. That's good news. We urge you to remain alert and careful, but the medical crisis is no longer Wall Street's primary concern.


Now investors have the opportunity to  evaluate the economic landscape the pandemic leaves behind. The numbers are staggering, with the U.S. economy alone contracting nearly 5% last quarter on an annualized basis and tracking at least a 30% decline in the current season. On the whole, Gross Domestic Product will probably shrink 5% this year, but this headline comparison is largely a factor of trade . . . as cold as the comfort may sound, anyone who has been in an open supermarket or ordered from an online store recently knows full well that the underpinnings of the economy are as robust as ever.


And while hands-on service industries have struggled to compensate in the recent quarantine season, we are seeing dramatic activity in areas of the country that have reopened. Restaurants and bars have reopened. Stores are selling a new season of clothes. Construction companies are making up for lost time. Hotels and airlines are booking trips again. People who can earn an income are doing so.


As long as this continues, the current quarter looks like the worst. Things get better from here. And as it is, some areas of the market have already discounted the outbreak entirely and moved on. The Technology-rich Nasdaq is in positive territory YTD even as the broader-based S&P 500 and Dow industrials remain underwater. Overall, our stocks are roughly where they were in December, before the outbreak was even a whisper in China.


A lot of wounds need to heal and we are sure there will be additional unanticipated shocks along the way. As states and counties reopen, we'll see where the quarantine leaves recession to fester. Some jobs will not come back. Some careers will need to adjust. Defaults and bankruptcies are coming.


But there are always defaults and bankruptcies. There's always a recession on the horizon. The only questions revolve around how fast the next one will emerge, how long it will linger and how deep it will get. We will have a definitive answer to the first question soon. After that, we'll be able to start gathering data to answer the others. And day by day, the next boom gets closer. Throughout our investing careers and history at large, there's always been another boom. We just have to get there first.


There's always a long-term bull market here at The Bull Market Report! Gary Jefferson remains off duty for the duration but The Big Picture has good news about our recent performance along with consolation about our "defensive" recommendations. Last issue was all about finding the bottom. Now we're looking at a brighter 2021. The High Yield Investor focuses on the deepest declines and (in theory) the brightest opportunities the market has given us to lock in huge long-term income.


Again, please write Todd Shaver directly at Info@BullMarket.com with any questions you have about our stocks. His goal is to respond within 24 hours.


Key Market Indicators




BMR Companies and Commentary


The Big Picture: The Turning Point Arrives


While it will take a little more time for the BMR universe to claw its collective way back to its February peak, it's great to see our recommendations are now within a fraction of a percentage point from breaking even YTD. In the grand scheme of things, we've only rolled back our paper performance a few months now and are only 9% from all-time peak territory. On average, stocks in our portfolios are now up 74% from our initial recommendation, doing the work the S&P 500 has needed since 2013 to accomplish in roughly a third of the time.


It was a good week for us last week, with the S&P up 1% and our stocks up 6%. We are confident we will outperform the overall market by a wide margin in the future.


In the face of the worst medical crisis and economic shock in generations, that's got to be good for morale. BMR stocks have been a rollercoaster ride, but now we've shifted from deep bear market gear to something more like normal correction territory. And we've survived plenty of corrections here together, only to see a vibrant economy and corporate innovation overcome the temporary slowdowns and dislocations to keep stocks moving forward.


But the rollercoaster has taken us all on an almost absurdly exaggerated journey. Our stocks are up a stunning 43% since the market hit bottom on March 19, barely nine weeks ago. The S&P 500 has lagged by 11 percentage points, but it's hard to complain when the market as a whole moves so fast in such a short period of time. Over a dozen of our stocks have rallied 60% or more across the recovery. Square (SQ), Shopify (SHOP) and Twilio (TWLO) have each doubled, with Shopify now up over 1,000% since we first recommended it at $72 three short years ago.


With so many stocks completely shaking off the COVID impact, it's clear that investors have stopped focusing on what the outbreak has done to everyday life. Profound economic dislocation and loss of life are built into asset prices now. We all know that at least 30 million people will lose their jobs before this is over and that corporate profit growth has stalled for the immediate future. From a fundamental perspective, 2020 is now a lost year. Earnings will remain under pressure until at least the first quarter of 2021.


That's not an enormous period of time for Wall Street to wait. Six months ago, corporate leaders will start telling us their early expectations for that pivotal quarter and we'll get confirmation three months after that. As long as the world beyond 2020 looks better than it did in 2019, we'll ultimately cheer. Meanwhile, the Fed and Congress remain vigilant to an extreme, committed to doing whatever it takes to keep cash flowing while the world recovers. While some companies will shut down and not reopen, the firmss we cover are not in that category. Survival risk might have been a concern a few months ago. Now, with interest rates at zero and free money flooding the world, the big question is how fast our companies will be able to get their growth back on track.


Admittedly, our "defensive" positions have been the biggest drag on our results. Real Estate and other High Yield areas of the market suffered almost across the board and quite a few are still down 30-50% after dramatic post-plunge bounces. At best, some of those stocks have recovered half their losses. However, we suspect that these losses reflect an unwarranted lack of confidence in these companies' business models.


With the REITs, the bull argument is as simple as acknowledging that landlords will always make money. Rents might pause for a quarter or two but very few major tenants are staring at immediate bankruptcy. They'll pay their bills sooner or later until their current leases run out. Likewise, while it's possible that one or more of these real estate companies will pause its dividend payments for a quarter or two to conserve cash, the 2008-9 crash taught us that the shareholders will start receiving checks again in a short period of time. After that, history demonstrates, management will release the resources stockpiled for survival and investors will get more or less what they expected all along.


As for the more exotic High Yield portfolio, we've already come a long way back from what were harrowing losses just a few months ago. We still need the rally to continue in order to fully recover our YTD paper losses, but with the Fed stepping in to support practically all fixed income assets it's hard to ignore the fact that these stocks are priced for a collapse that looks unlikely now. Mortgages are still worth money and most people are still making their payments. Likewise, municipal bonds and other assets have intrinsic value as long as issuers keep making their payments. Until investors fully appreciate this fact, the Fed is actively buying whatever the markets don't want.


We aren't thrilled to see our "defense" crumple while more aggressive portfolios soar. Normally we'd expect the opposite scenario to play out in a correction, and if your risk orientation drove you to seek yield at the expense of high-tech growth, we grieve with you. The best weapons you have now are patience and clarity. Day by day, even these wounded companies are healing. As long as the dividends keep flowing, we would not sell at this stage in the recovery process.




PayPal (PYPL: $151, up 4% this week) 


What a great company. What a great stock. The stock has proven its mettle over the last couple of months. It went from $82 in March, a 52-week low, to $151 on Wednesday, an all-time high. In a quarter when the coronavirus affected results, 1Q20 revenue grew 12% year-over-year to $4.6 billion. There were higher expenses for items like G&A (16% higher to $485 million) and Technology & Development (18% higher to $605 million), but given the company’s revenue growth track record this is to be expected. Management raised the credit loss reserve from $340 million to $590 million, which is prudent. These contributed to a profit decline from $665 million to $85 million. The company may feel a temporary impact from a slowdown in consumer spending, but this will pick up again after the economy gets moving. In the meantime, PayPal will continue to benefit from electronic payments, an accelerating trend with the onset of the coronavirus. Surpassing our $140 Target Price, we are hereby raising it to $165. We don’t have a Sell Price – as we’ve seen, strong companies always bounce back.





Visa (V: $191, up 4%)


The company may not have soared to a new record high like PayPal. We’ll take going from March’s $134, a 52-week low, to $191 in just a couple of months. It is moving in the right direction and heading for $214, the all-time high reached in February. Visa reported decent fiscal 2Q20 (ended March 31, 2020) results. Revenue rose 7% from $5.5 billion to $5.9 billion and profit was up 4% to $3.0 billion. Fiscal 3Q20’s revenue and income will face short-term pressure with the coronavirus causing stay-at-home orders and consumers curtailing spending on items like restaurants, travel, and all kinds of entertainment. After all, there were no ballgames or concerts. Long-term, the company’s strong brand of credit, debit, and prepaid card, an accelerating trend towards digital payments, and global presence will allow results to quickly recover as people start leaving their homes and spending money. Our long-term view and optimism are reflected in the fact that we have no Sell Price. We love this company! It is a keeper for the long term. We are raising our Target Price from $200 to $230.





CBRE Group (CBRE: $40, up 12%)


The stock has recovered nicely after falling to $29 in late-March, the 52-week low. Well off the $65 all-time high reached in February, there is a lot more upside. What gives us this confidence? The company which has been around since 1906, has shown it can not only survive but grow into the industry’s largest revenue generator. Turning to 1Q20 results, revenue grew 15% year-over-year from $5.1 billion to $5.9 billion and income rose 5% to $170 million. With a Commercial Real Estate and Investment firm, naturally, results will come under pressure due to the coronavirus and the economic fallout. The company’s size and global presence will allow the company to ride out the storm. Based on the current price, we are changing our Target Price and Sell Price from $71 and $56, to $51 and $35, respectively.





Carlyle Group (CG: $27, up 14%)


The stock has risen 76% since dropping to $15.20, a 52-week low, in March. This Asset Management firm has a management with a deep level of expertise across its asset classes (Private Equity, Real Estate, Infrastructure, Power, Energy, and Credit), and $217 billion in assets under management. They will use this opportunity to invest in cheap assets that will earn a high return as they’ve always done during downturns. As a bonus, Carlyle pays a $0.25 quarterly dividend, which is a 4.8% yield. We have a $30 Target Price and a $20 Sell Price.





Dollar Tree (DLTR: $82, up 9%)


The stock descended from $120 in October, an all-time high, to $60 in March. Its troubles began before the coronavirus struck the U.S., going back to last year when higher costs, including from tariffs, led to FY19 earnings falling short of management’s guidance. The company reported a pick-up in store traffic due to consumers buying items like cleaning supplies and paper goods, but also announced it raised hourly pay for its workers, resulting in $75 million in extra costs. They’ve been fighting to restructure the Family Dollar stores acquisition since 2015 but have run into more troubles and expenses than anticipated. We don’t argue that this is the right thing to do and maybe the company does well during the economic downturn due to its stores’ low price points. But for us, we are tired of waiting for results to improve – after all, it’s been five years. Therefore, we are dropping coverage to focus on more profitable opportunities.





Financial Select Sector ETF (XLF: $22, up 4%)


Naturally, the Financial sector took it on the chin in March with the economy freefalling. But the stock has bounced from $17.50, the 52-week low reached in March. If you’re concerned about a repeat from the last recession when there was a run on investment banks and the financial system stopped functioning, the Federal Reserve took early and aggressive action to pump liquidity into the system and ensure markets continue operating. In other words, the central bank learned its lesson. This ETF is an excellent way to invest in the largest financial institutions. That’s because it tracks the financial sector portion of the S&P 500 Index. Which stocks do these include? Only the world’s biggest and best financial companies. This gives you an opportunity to own Berkshire (14% weight), JPMorgan (11%), Bank of America (7%), Citigroup (4%), and Wells Fargo (4%), among others. The ETF also has a nice 2.7% dividend yield. We are lowering our Target Price and Sell Price to reflect the current price. Our new Target Price is $25, down from $35. We are revising our Sell Price to $19 from $28.





MetLife (MET: $33, up 5%)


The stock has recovered nicely from its 52-week low a couple of months ago when MetLife fell to $23. Turning to 1Q20 results, revenue grew 12% to $18 billion and EPS more than tripled to $4.75. The company’s strong insurance operations, particularly Group Benefits of Life, Dental, and Disability, give us confidence in the company’s long-term prospects. Better yet, management showed how much confidence they have after raising the quarterly dividend by 2 cents to $0.46, giving the stock a 5.5% dividend yield. We have a $56 Target Price and $45 Sell Price. We are lowering them to $39 and $29. If you are looking for a $30 billion insurance company with a 5.5% dividend that is on sale, you have found it here in MetLife.





Salesforce.com (CRM: $178, up 4%)


In February, the company reached an all-time high, $196, before plummeting to $115 a month later. After that, the stock started shooting back up. Once the broad selloff stopped, investors jumped back into this wonderful company. For those of you asking if the stock is still an attractive price to buy at the current level, we answer with a resounding yes. It is the leading customer relations technology provider in the world. With most of its revenue generated from contracts and a large backlog, there is visibility and we don’t expect any surprises when the company reports fiscal 1Q20 results on Thursday. If you haven’t heard of its founder and CEO Marc Benioff, you will. Everyone loves him. We can see him running for President someday. He has personally given $30 million to the University of California, San Francisco, to fund a new research initiative that will identify the root causes of, and find evidence-based solutions for ending homelessness. He is a driven executive who will not be beaten.


On Monday, the stock broke through our $175 Target Price, so we are raising it to $205. We are also increasing our $145 Sell Price to $155.





US Energy ETF (IYE: $20, up 7%)


Over the last six months, the stock fell from $32 in January to $12 in March before heading up. The Energy sector had already taken it on the chin before the coronavirus caused mass stay-at-home orders that dried up demand. The environment looks healthier after Saudi Arabia and Russia agreed to cut output and more people are returning to work. The West Texas Intermediate spot price is now about $33 a barrel compared to under $20 in April and last month’s mid-teens level. If you want to invest in Energy, this ETF is a good way to diversify and buy the sector’s biggest companies with proven staying power. The biggest weightings are Exxon Mobile (24%) and Chevron (22%), followed by ConocoPhillips (6%), Phillips (4%), EOG Resources (4%), and Kinder Morgan (4%). While an improving commodity price creates upside potential there is also a 5.4% dividend yield. Our new Target Price is $23, down from $38 and we are lowering our Sell Price to $18 from $28.





Virgin Galactic (SPCE: $15.74, up 1%)


We initially recommended the stock on April 30 at $17.30. It is down 9% since then, but we aren’t the least bit worried. In early-May, the company reported 1Q20 results, with revenue a minuscule $200,000 compared to $2 million a year ago. It lost $60 million versus $45 million. Obviously, revenues and earnings are in the future. Virgin Galactic is pioneering a new field to provide space flights to individuals and researchers. The company launched its first spaceship in 2018 and followed this with a manned flight.


Since then, it has been busy booking reservations, selling well over 600 tickets and collecting $80 million at $150-250,000 apiece. There is potentially a lot more interest since it took small deposits from another 400 people beginning in February. There’s a lot to like here. For starters, there’s famed entrepreneur Richard Branson, who established and grew the Virgin brand. Virgin Galactic also doesn’t face any serious competition and there are high barriers to entry. We have a $30 Target Price, but the upside is huge as manned spaceflights get closer to reality, and revenue skyrockets. Watch for Branson himself to take the first manned flight. Our Sell Price is $12.





The High Yield Investor
By Larry Rothman
VP High Yield Investments
The Bull Market Report 


You may feel comfortable taking a riskier approach to your income investments. If that’s the case, we look deeper into four stocks that offer substantial yields for taking on greater risk. The two-year Treasury yield is just 0.17% and the 10-year is 0.66%, so these provide a huge spread over risk-free yields.


Annaly Capital Management (NLY: $6.34, up 9%, yield = 15.8%)


This REIT has seen the good and bad times during its two decades. Credit risk is minimized with 93% of its portfolio invested in Agency Mortgage-Backed Securities (MBS) as of the end of 1Q20. This means governmental agencies like Ginnie Mae, Fannie Mae, and Freddie Mac guarantee the residential mortgage payments in case the borrower skips his/her monthly obligation. The company uses short-term borrowings to make its long-term investments, adding an element of risk. Therefore, the spread between short-term and long-term yields is important. The 2/10 spread is 53 basis points, a continuing positive for the company. Management stated that its book value per share is $7.50 as of March 30th, so the stock represents a bargain. We caution that asset values are still fluctuating, though. We are revising our $11 Target Price and $9.50 Sell Price to a $7 Target Price and $5 Sell Price. Annaly, still paying a $0.25 quarterly dividend, has an attractive 15.8% yield assuming they don’t cut the dividend which is quite possible.



Apollo Commercial Real Estate Finance (ARI: $8.27, up 18%, yield = 19.3%)


This REIT originates and invests in various debt such as Commercial First Lien Mortgage Loans, Subordinate Financings, and other Commercial Real Estate Related Debt Investments. The company ranks its $6.5 billion loan portfolio from 1 to 5 based on risk, 5 being highest risk, and 90% were in the middle category. 8% were ranked 5 and 2% were ranked 2 at March 30th. Office and Hotels were the two largest entities securing its loans, making up 50% of the portfolio. New York City is the largest geographic area, where properties backing 36% of its loans are located. The geographic concentration, and the use of borrowed funds raises the risk profile.


Apollo has an attractive 19.3% dividend yield, based on the new $0.40 quarterly dividend, which was cut from $0.46. If you believe Apollo can weather the current environment without further slashing the payout, the yield more than compensates you for the risk. After all, it is about your risk tolerance and whether you are adequately rewarded for it. The stock was steady as a rock at $16-19 a share from 2015 to 2020. The latest financial debacle has hurt them but we believe management can bring them back into the teens later this year or early next.


We are cutting our Price Target from $22 to $10 and our Sell Price from $15 to $7 to reflect the stock’s current level.



Ares Capital (ARCC: $14.72, up 10%, yield = 10.9%)


This business development company invests in middle market companies’ debt and equity. These are firms that generate between $10 million and $250 million of annual EBITDA. Naturally, these smaller companies are riskier investments, particularly in uncertain economic times. Ares Capital offsets this by primarily investing in first-lien and second-lien loans, which have greater security than equity due to a higher claim on the assets. As of 1Q20, 48% of its portfolio was invested in first-lien loans and 28% was placed in second-lien loans. The company also manages risk by diversifying across more than 15 sectors, including Health Care (19%), Software & Services (14%), Commercial & Professional Services (9%), Power Generation (7%), and Consumer Services (7%). Management also spreads its investments across the United States.


The company cut its 1Q20 dividend by 2 cents to $0.40, which still works out to an 11% dividend yield. Through the last recession the company continued paying dividends, albeit at a lower rate than pre-recession. We are lowering our Target Price from $21 to $18 and our Sell Price from $15 to $12.



PIMCO Dynamic Income Fund (PDI: $23, up 6%, yield = 11.4%)


This closed-end fund invests in riskier fixed-income assets. As of the end of April, 51% of the assets were invested in non-agency mortgage securities. These are riskier since the borrower’s mortgage payment is not guaranteed by an agency. Another 15% were placed in high yield bonds. The portfolio is tilted towards shorter-term securities, with 72% maturing within five years and the bulk coming due within three years. With an 11% yield, the stock offers over an 1,100 basis point spread over the five-year Treasury yield. This is an attractive risk/reward profile. We are revising our $33 Target Price and $29 Sell Price to $27 and $20.



Good Investing,
Todd Shaver, Founder and CEO
The Bull Market Report
Since 1998