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The Weekly Summary


As the U.S. economy reopens for the summer, investors seem ready and even eager to accept a certain rhythm of new COVID-19 infections, hospitalizations and death. While human suffering is always regrettable, this particular vector of sickness has now been incorporated into Wall Street's sense of the status quo. People have always been subject to innumerable diseases and taken the appropriate precautions to remain healthy. These precautions then become part of the fabric of everyday life. And medical science develops treatments, vaccines and cures. Especially pernicious diseases can ultimately be eradicated as long as resources and willpower are available. Life will one day return to pre-COVID patterns. Every bit of progress takes us closer to that moment.


That's why the market has essentially ignored the possibility of a second wave of COVID infections eclipsing the first in areas of the country that were previously spared. The economy took a big step backward in the quarantines of the spring, spawning the first and most savage recession in over a decade. However, more recent government reports suggest that conditions are improving, month by month and even week by week. Barring substantial relapses, recovery is on the horizon.


And investors would rather focus on the recovery ahead than the recession that still grips the nation today. Even in the Federal Reserve's most gloomy forecasts, growth will pick up again in the next 18 months, which is the scenario that reflects a deep "second wave" shock, new quarantines and a double-dip recession. Otherwise, we could see a return to positive Gross Domestic Product and corporate earnings growth by the end of this year.


That isn't long to wait, especially with the Fed pumping enormous amounts of cash into the market to entice day traders and comfort long-term investors currently staring at gruesome earnings trends across the market. As long as the money is flowing, we can all grit our teeth for another six months or even another year for the fundamentals to turn around.


All in all, it isn't remarkable that our stocks are now up 12% YTD, shaking off the initial impact of the virus and even performing twice as well as the S&P 500 in a typical 6-month period. We're in the defensive and dynamic spots of the market, with only a relative handful of laggards (Financials, Energy and Real Estate) pulling what would otherwise be extremely bullish Technology returns back down to trend. As always, we applaud our home runs but do not bemoan the missed swings, because we know that the market continually rotates and today's losers can easily become tomorrow's winners.


It's all about the portfolio as a whole, and we hope that you are well-positioned. That said, we remain vigilant and will cut true weakness if it becomes clear that a stock has gone as far as it can in the post-COVID economy. On the other hand, we are also searching for new opportunities and should have another Research Report or two for you in the near future. One as early as Tuesday.


There's always a long-term bull market here at The Bull Market Report! Gary Jefferson looks hard at the COVID realities while The Big Picture has a short but sweet message on the upcoming earnings season. The High Yield Investor focuses on a few of our more esoteric recommendations, and as always we need to update you on several of the stocks we haven't checked in on lately.


We are still reviewing our COVID-19 schedule but for now expect to see you in two weeks. In order to provide you with as much flexibility as possible, we are also transitioning all annual subscriptions to a month-by-month payment system. This will give you the option to cancel at any time. However, please note that this will mean possibly unexpected charges to your account as old full-year subscriptions expire.


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: An Earnings Season To Ignore


We said it two weeks ago and we repeat it now: when the 2Q20 earnings season gets underway later this month, we won't be scrutinizing the numbers in great depth or detail. After all, this was the quarter when the pandemic had its most extreme impact on the corporate landscape and we hope the results will be an isolated aberration. When the world gets better, we expect earnings to return to trend as though the virus had never emerged.


Of course we will be watching for nuances and hints to what is happening within companies now that the economy has largely reopened. Guidance on the current quarter (3Q20) will be extremely useful as we hunt clarity on how fast the recovery will play out and where the lingering trauma will need more time to resolve. Some companies will bounce back immediately. Others will reveal that they were never impacted at all. And at least a few will drift in weakened condition for the foreseeable future.


When a company can report that operating conditions are better than expected, the stock will be rewarded. However, expectations are dismal at best. We are looking for at least 44% earnings deterioration compared to 2Q19, which is the equivalent of saying that out of every $1 in profit the S&P 500 generated a year ago, only $0.56 remains. That's not quite an apocalyptic situation, but it's decidedly painful for companies that were counting on cash flow to fund expansion plans, share buybacks and dividends. And it's painful for shareholders who ultimately depend on that money to justify their sense of what these companies are worth.


In our view, expectations are unrealistically negative. A lot of doom is still factored into these stocks and much of it is clustered in Energy, where Oil prices are rebounding at last, and the Consumer sector, where results will be sharply divided between winners like Amazon and the Retailers and Restaurants that were effectively forced to shut down. We are in the winners. That's what counts.





Alteryx (AYX: $174, up 7% this week) 


Remarkably, the stock keeps hitting all-time highs. On Thursday, it did it again when it jumped to $179. Just think, the company was at $75 in March, the 52-week low. The company will report 2Q20 results in a few weeks, and management’s guidance calls for a 15% revenue increase to $95 million. When it posted 1Q20 results in early May, revenue rose 43% versus a year ago to $110 million. It lost $15 million compared to a $5 million loss due to operating expenses rising 60% to $115 million. We are confident it can turn a profit down the road.


With solutions allowing companies to use data to improve decision making, this is a good space. It is even more critical in these tough days. How good? The company increased the number of customers by 30% to 6,400. The list includes more than one-third of the Global 2000. That’s why we expect big things from Alteryx. With the stock above our $158 Target Price, it is time to move it up to $188. We are also raising our $121 Sell Price to $154.





TPI Composites (TPIC: $24, up 11%) 


The stock has more than doubled from March’s $9.18. 1Q20 sales were strong, up 19% to $355 million. Earnings have hovered around breakeven and that’s what happened this quarter. Even with the stock’s movement, this is a chance for you to buy a strong long-term growth story at a good price. It makes the blades used in windmills, which aren’t talked about much since fossil fuel energy prices are low right now. This will change and individuals and companies are increasingly looking to reduce their carbon footprint with renewal energy sources like windmills.


In this era of stocks trading at huge multiples to sales (Shopify comes to mind at 60+), this stock is trading at less than 1.0! With revenues last year at a $1.4 billion, the company is only worth $900 million, giving it a P/S ration of 0.64%. This is amazingly cheap. Why, oh why, is this company trading this low? (We actually don’t know. It may be that they are lumped in with the other Energy companies which are hurting right now.) We like this company even more now! We have a $35 Target Price and an $18 Sell Price.





Universal Display (OLED: $150, up 2%) 


A 40% gain off March’s $105 low, has us feeling good. 1Q20 revenue grew 28% to $110 million and profit rose 21% to $40 million. Management withdrew 2020 guidance due to the uncertainty created by the coronavirus. That doesn’t deter us from our conviction about its long term prospects given the company’s strong position in organic light-emitting diode (OLED) technologies. These thin, lightweight, and power-efficient devices emit light and continue to gain a greater share of the display market. Thinner, brighter, better color, and more battery efficient than traditional displays, they are used in a bunch of devices like mobile phones, televisions, computers, augmented/virtual reality, and autos. With the stock at this level, it makes sense to lower our Target Price from $250 to $173. You shouldn’t read that as a shift in our viewpoint. Since the stock is below our $195 Sell Price, our practice is to put the decision in your hands since you know how much risk you can tolerate.





Occidental Petroleum (OXY: $17.78, up 1%) 


The stock is roughly double March’s 52-week low of $9. For those of you that bought it when we recommended the company in mid-January when the stock was at $47, we concede this is small comfort. For starters, the company was hit with falling crude oil prices even before the coronavirus pandemic temporarily snuffed out demand. Last fall, the crude was in the $70s and falling to the teens earlier this year.


We still like the company’s long-term prospects. With Russia and OPEC cooperating on production levels, the crude oil market has been more stable. With oil currently around $40 a barrel, this puts Occidental in a better position. Remember, energy companies are cutting back production, meaning prices are likely to go up in the future. Then, there is Carl Icahn, who owns about 10% of the company, as well as Warren Buffett’s $10 billion preferred stock investment. The stock is bumping up against our $18 Price Target. If things continue down this path, we will bump it up. We have a $12 Sell Price.






Amazon.com (AMZN: $2,890, up 7%) 


Amazon continues to amaze us! On Thursday, the stock reached another new all-time high when it went to $2,956. What’s not to like here? The company continues to benefit from consumers shifting purchases online, and the pandemic only accelerated the trend. It is so much more than an online purveyor of goods. There’s also Prime (shopping benefits and streaming shows) and its Amazon Web Services (AWS) that offers cloud computing services, just to name a couple. 1Q20 revenue grew 26% versus a year ago, from $60 billion to $76 billion. COVID-19 helped sales and hurt profits since expenses rose for things like hiring more people and increasing safety protocols. Profit was $2.5 billion compared to $3.6 billion. We aren’t sweating it in the least because this is a company that can take a temporary hit to income. Remember the old days when it was investing in expansion and not reporting a profit. In April, just a few short months ago, we raised our Target Price from $2,200 to $3,000. We are quickly approaching that level and when it surpasses that price, we can’t wait to lift it again. We don’t have a Sell Price – why would we ever wish to part with the stock?





Carlyle Group (CG: $28, up 6%) 


The stock has come roaring back since March when it was at $15.21. This is your chance to own a premier asset manager, a private equity firm that invests in Real Estate, Energy, Infrastructure, and Credit. If there is more volatility in asset prices ahead, we fully expect the managers to scoop them up at attractive prices. Since investment income and losses are included in Carlyle's total revenue figure, Carlyle's 1Q20 revenue was negative $745 million. This was caused by a $1.2 billion investment loss. A year ago, revenue was $1.1 billion. Fund management fees were a steady $356 million compared to 1Q19. As an added bonus, you get a $0.25 quarterly dividend, which is a 3.6% yield. We have a $30 Target Price and a $20 Sell Price. But we are moving up the Sell Price to $24.






Agilent Technologies (A: $89, up 3%) 


The stock is trading close to last month’s $93 all-time high. That’s what quality companies do after the market sells off. COVID-19 did impact fiscal 2Q20 results, with revenue at $1.2 billion, flat compared to a year ago, and profit fell from $180 million to $100 million. This is only a temporary hiccup with the pandemic restricting its customers’ access to facilities. With Agilent providing such important items like instruments and software that Pharmaceutical companies, Chemical companies, and Academics need in order to do their work, this is sure to pick up. Our $100 Target Price shows our optimism and we have a $74 Sell Price.





AstraZeneca (AZN: $54, up 2%) 


This is another stock that is hovering near its all-time high, $57, which it reached in May.  Here are the 1Q20 highlights: 16% revenue growth to $6.4 billion and a 27% gain in EPS to $0.59. Suffice to say, with leading Oncology, Cardiovascular, Renal, Metabolism, and Respiratory and Immunology treatments, this is an exciting company to own. It keeps making important drugs that save people’s lives. We can’t wait to see the company’s 2Q20 results when it reports on July 30. If things go the way we expect, the company will leave our $58 Target Price in the dust. We have a $44 Sell Price.





Facebook (FB: $233, up 8%) 


The stock continues to surge, up 8% this week, and 5% off June’s all-time high. This is even more impressive considering Facebook has had a rough time lately. First, CEO Mark Zuckerberg created an uproar, including among his own employees, when he refused to delete controversial posts from Donald Trump. Perhaps more seriously, the company got itself in hot water after groups urged companies to pull advertising from the site, and several major companies have done so. With advertising generating virtually all of the company’s revenue, this has the potential to disrupt its business. Fortunately, Facebook agreed to make changes. With an incredible 2.4 billion daily active people on its sites, which increased by 12% in 1Q20, we aren’t concerned about Facebook’s long-term revenue prospects. 1Q20 revenue rose from $15.1 billion to $17.7 billion and income more than doubled to $4.9 billion. We will keep an eye out to see if additional users start dropping out. Right now, we don’t see it as a problem. Our Price Target is $260. We have never had a Sell Price on the stock, but with the anti-Facebook movement gaining strength we would suggest you be especially vigilant going forward. Thus we are adding a Sell Price today at $215.





Twitter (TWTR: $31, up 6%) 


After a good week, the stock is still off about 20% from a month ago. The company reports 2Q20 results on July 23 and we will look at the results closely. Twitter generates 85% of its revenue from advertising, and COVID-19 had an impact on 1Q20 results. Revenue increased 3% to $810 million and higher expenses created a $10 million loss compared to 1Q19’s $190 million profit. We expect 2Q20 revenue to remain under pressure and we anticipate what management says about the 2H20 advertising climate. We are cautious since we are officially in a recession. Remember, we have the company on a short leash. There’s a lot going on – including a peace agreement with activists Elliott Management that left Jack Dorsey in place as CEO. Sometimes these battles work out and other times it is a distraction. For now, we’re waiting to see what happens. We have a tight range on the stock – a $34 Target Price and a $28 Sell Price.






A Word From Gary Jefferson

Jefferson Financial Group
First Vice-President, Investments
UBS Financial Services, Inc.


We read a recent article titled “The Media Got COVID Wrong But Investors Got It Right” which buttressed our ongoing contention that long-term investors stay in the market despite the panic being spread by the media. The media headline of today seems to be about "the massive disconnect" between the real economy and the stock market.  The gist of the article was to explain how and why the media has been wrong all along, and why the “smart money” realized this fairly soon and began buying stocks. The market only crashed in the first quarter when investors believed the media's alarmist claims. But it rallied strongly as new data failed to support them.


As you’ve heard us comment many times, the mainstream media delivers the world through a dark prism of negativity 24/7, and either doesn’t report or underreports good news or positive trends. Virtually everything the mainstream media told us about coronavirus has turned out to be exaggerated, alarmist or just plain wrong. You’ll likely be surprised with these statistics:


  • About 80% of Americans who have died of COVID-19 are over age 65. The median age is 80.
  • Even still, most people over the age of 65 who are in generally good health are unlikely to die or even get seriously ill from the virus
  • In hard-hit states like California and Florida, the fatality risk for those under 65 is about equal to the risk of driving 17 miles a day. Practically negligible, in other words.


And today, experts and the media are proclaiming that there will be a “second wave” that shuts down the economy again and thus the “disconnect” appears. Why isn’t the market nosediving like it did the first time? It’s because the smart money, who have been perfectly right so far, don’t believe this is going to happen.


Professional investors have always tried to gauge what lies approximately six to nine months out. The market experienced a tremendous bounce off the March lows because investors looked out 6 to 9 months and saw states reopening, businesses rehiring, consumers spending and millions of researchers hard at work on a coronavirus therapy and vaccine. And investors had ultra-low interest rates, cheap energy and massive monetary and fiscal stimulus from both the government and the Fed on their side. In those terms, the future is less about sickness, permanent high unemployment, business closures and economic decay than the ultimate return to "normal."


Of course the market anticipating the economy will return to normal doesn’t guarantee it will happen. Things will have to continue to progress. Even though new cases of coronavirus seem to be accelerating in some states, if we read the news carefully, most of these are asymptomatic and hospitalizations are not increasing at an alarming rate. In fact, a few weeks ago Tyson Foods announced that 95% of its poultry workers had tested positive for the virus, even though nearly all of them were asymptomatic.


And what investors are betting on . . .  to the stunned disbelief of "journalists" and other opinion makers nationwide . . .  is a rapid and powerful economic recovery. Well, we are not enamored with the term “betting,” but the gist of it is that long-term investors are “investing” in the belief that the economy will, as it has in every single recession in history, make a recovery.  (Besides, if we could bet on something with a 100% chance of winning, we would take it all day long. But we wouldn’t consider that much of a bet, but rather an investment.)


PS – With regard to the coronavirus, we thought you might like to see what treatments have become available. Three companies are moving into Phase 3 trials with coronavirus vaccines this month. Hopefully, at least one will be available this year. One of these companies predicts that its vaccine will be available for emergency authorization this year - and has already ramped up manufacturing to produce over a billion doses. And there are now three proven treatments for COVID-19: dexamethasone (a cheap, widely available steroid), remdesivir (a broad-spectrum antiviral developed by Gilead Sciences) and convalescent plasma therapy, which involves transferring a component of the blood of recovered patients to those who are still sick.




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


After a period of calm, volatility came back to the stock market last month. Businesses that were reopening in various states have hit the pause button or even took a step backward after coronavirus cases started spiking again. There was some positive news with 4.8 million jobs gained last month. With the survey’s period ending in mid-June, there is a reason for caution since that’s when local governments slowed things down. And there was the weekly unemployment report that showed 1.4 million initial claims, stubbornly remaining well over one million.


Looking at U.S. Treasury yields, yields remained relatively flat at the shorter end of the curve and rose modestly at the longer end. The two-year is at 0.16% and the 10-year is 0.68% (up from 0.64%), which is a 52-basis point spread versus 47 basis points a week ago.


With this level of uncertainty, we look at a couple of our more conservative income investments. For those of you that are more venturesome, we look to choices that seek to mitigate the underlying economic risk.


AllianzGI Equity & Convertible Income Fund (NIE: $23, up 3%, yield = 6.7%)


Investing a portion of its assets in equities and convertibles, the fund is on the more conservative side. The managers invest between 40% and 80% of the assets in stocks and the remainder in convertible securities. At the end of May, the portfolio was 63% equity and 34% converts with the remaining 2% in cash). Convertible securities, which have a weighted average maturity of 4.5 years in their portfolio, typically provide more downside protection and greater income than equities. To generate higher income, the fund writes call options on its underlying equity positions. It has diverse equity holdings with its top five in Apple (3%), Microsoft (3%), Amazon (2%), Google (2%), Visa (2%), and Facebook (2%). AllianzGI Equity & Convertible Income Fund’s attractive 6.7% yield is 640 basis points over the five-year Treasury. Plus, you get upside potential from the equities. Our Target Price is $26.



Apollo Commercial Real Estate Finance (ARI: $9.35, down 3%, yield = 15.0%)


Apollo Commercial Real Estate Finance is a REIT that originates and invests in debt markets, such as Commercial First Lien Mortgages, Subordinate Loans, and other Commercial Real Estate debt. These are backed by the property, providing strong security. With a $6.5 billion portfolio comprised of Offices and Hotels, these are the two largest categories backing more than 50% of its loans. NYC is the largest geographic region at 36% and the U.K. is 21%. Ranking its loans from low risk to high on a five-point scale, 90% of its portfolio falls in the middle category. There is 8% ranked 5, and 2% has a 2 rank.


Of course, despite the risk management, the overall economy affects this company. Under these circumstances, it is unsurprising that it cut the quarterly dividend twice this year, from $0.46 to $0.40 in April and down to $0.35 in July. The firm ($10 Target Price) offers an attractive 15.0% yield at the new rate. Of course, this is dependent on Apollo maintaining the dividend, which we’ve seen is no sure thing. In its favor, the company does have a long history and lived through the last recession more than a decade ago. The stock bottomed out at $4.12 in March and we expect it to hold its own until economic times improve. Then, you will get rewarded with share price appreciation to go along with your dividends.



Ares Capital (ARCC: $14.48, up 4%, yield = 11.0%)


This business development company invests in Middle Market companies. Ares minimizes the higher risk these present by investing most of its portfolio in first-lien and second-lien loans that have a greater claim on the assets. These are 48% and 28% of 1Q20 assets. There are other steps management takes to manage the risk, including diversifying across 15 sectors and across the United States. Ares Capital (Target Price: $18) cut its dividend by 2 cents to $0.40 earlier this year, which is still an 11.0% dividend yield. You can take comfort in the fact this company, over two decades old with $150 billion of assets under management, is seasoned and seen all kinds of events and lived to tell about it.



Blackrock Income Trust (BKT: $6.23, flat, yield = 6.6%)


This fund leans towards the more conservative side. It invests at least 65% of its assets in mortgage-backed securities and a minimum of 80% in high-quality securities that are issued by the U.S. government, one of its agencies (e.g. Fannie Mae and Freddie Mac), or that have a AAA rating. As of the end of May, 99% of its portfolio had the coveted and ultra-safe top rating. Blackrock (Target Price: $6.50) offers a 6.6% yield. This isn’t the highest yielding security in our universe, but as you know, it is all about risk and reward. With about a 600-basis point spread over the 10-year Treasury for a fund that seeks safety, this is exciting for those of you that want some comfort at night.



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