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The Weekly Summary


While it's been an uncharacteristically quiet summer for us, we hope you have been profitably occupied in these months of maximum market noise and minimal signal. With the Fed calling the shots, the only effective strategy for investors revolves around drifting with the current and making sure we are sitting in Wall Street's sweet spots when corporate fundamentals take over again.


For now, we don't have to worry about either piece of the puzzle. Our stocks are up a collective 23% despite all the uncertainty and outright misery radiating from some segments of the post-quarantine economy. Wherever the current takes us in the future, we like where we are today. After all, we liked most of these stocks before the pandemic emerged as a shock to all our most realistic projections for 2020. The ones we've added in recent months have proved that they have what it takes to overcome even the most dismal environments.


And we don't see a dismal future ahead at all. Sooner or later, a vaccine will come and life will get back on track, with disruptions across some industries to reflect new consumption patterns, new ways of doing business and what we've learned from this experience. Some companies may not come back. Others have already made necessary changes to their operations and are doing better than ever. A few have emerged as heroes, giving people new tools and resources to do what they need to do in a time of serious medical and economic shocks. We're proud to have several of these companies in our universe.


So what happened over the last few weeks? Everything and nothing. The political conventions came and went, generating endless chatter without rousing stocks much on any given day. Volatility remains elevated by historical standards but now feels almost "calm" compared to what we survived in February and March. Congress remains deadlocked, parts of the country keep trying to reopen with uneven results and the COVID case count keeps climbing. Kids are going back to school. We hope it goes well.


Throughout all the chatter, the most important thing is that we are another two weeks further away from the initial shock. We've seen what universal quarantine can do to corporate operations, and while we don't want to go there again, it's clear that the Fed's current level of support was enough to ensure that the experience was survivable. We haven't seen a massive wave of bankruptcies or Bank failures reminiscent of 2008. If the system was strong enough to handle six months of this without breaking down, we strongly suspect that it's going to take a lot worse to cause 2008-level damage.


Instead, we're tentatively looking at the first phase of a new economic cycle. The bear market that started in February has technically ended, leaving us in a fresh bull era with only weeks instead of years on the clock to the next inevitable downswing. And we're two weeks closer to the election, which will bring both clarity and its own set of challenges no matter how the votes stack. One way or another, we'll soon be able to see the shape of the government over the next four years. Vaccine trials are two weeks further along. The Oil market is finally recovering. Corporate realignment to deal with the new world is two weeks further along. They've got this. All we need to do is get there.



We are eager to ramp back up when the world gives us more to say. Meanwhile, as always,, please write Todd Shaver directly at Info@BullMarket.com with any questions you have about our stocks. His goal is to respond as fast as he can.


There's always a bull market here at The Bull Market Report! Gary Jefferson has tough talk about whether we're even in a recession at all while The Big Picture explores the role Big Tech now plays in the economy, index funds and our portfolios. The High Yield Investor takes a fresh look at some strong opportunities that have been applauded and reviled in their time . . . something here for everyone. And as always, we have updates on several of our recommendations.


Key Market Indicators




BMR Companies and Commentary


The Big Picture: We're A Lot More Than Big Tech


This was the month Wall Street did the math and realized that the five biggest stocks around have done all the heavy lifting in the S&P 500 YTD and that it's no coincidence that they're all companies we associate with the Technology sector. Admittedly, Facebook and Alphabet are now formally classified as Communications companies (refreshing what was otherwise the stagnant Telecom list) and Amazon is now the de facto leader of the Consumer Discretionary economy, but to a generation of investors these high-tech giants will always be representative of the best Silicon Valley has to offer. And of course Apple still makes computers and Microsoft still makes software.


But what other investors have recently discovered is that these five stocks have rallied around the pandemic to weigh in at roughly $8 trillion in market capitalization today. To put that in context, the S&P 500 as a whole accounts for $28 trillion in wealth . . . a staggering number in its own right, but when a handful of giants take up 25% of the space in the index, you can see that "the market" has gotten extremely top heavy. On the Nasdaq, the concentration is even worse, with these five stocks accounting for nearly half of the index that was their home until they got too big for Standard & Poor's to ignore.


If you're overweight any or all of these stocks, you're feeling good. We're proud to have them as long-term fixtures in our coverage and we know that they've made BMR subscribers happy over the years. But a lot of investors who shunned what we call the FAAAM group (we don't count Netflix) are having a much less cheerful year. Factor out these stocks and a net $850 billion has flowed out of the S&P 500 YTD, leaving the truncated index down 7% over the last eight months.


That 7% decline is what the pandemic did to the brick-and-mortar economy. Think about Restaurants, Airlines, Retail. Add the impact of the Oil crash on the Energy sector along with the shock of zero interest rates on the Financials and earnings "growth" has cratered for the market as a whole. The world for a lot of companies remains gloomy, which is why 56% of the S&P 500 is still down YTD and another 10% is only a few percentage points above breakeven.


But we have never bothered with a lot of those companies because we see most of the innovation and excitement in the market coming from Technology. For us, the big question isn't why we missed out on the FAAAM revolution, because we didn't. We have relentlessly urged shareholders into these stocks and now they are somewhere between a double-the-money proposition (Alphabet) to a 400% win (mighty Apple) in recent years. On that front, we're happy to cheer.


The question we now need to answer is what happens to our returns if FAAAM runs out of steam and no other theme steps up on Wall Street to carry the baton forward in their absence. Because the S&P 500 is stuffed with "old economy" positions, it depends on these stocks to keep it out of the correction zone. The Nasdaq remains rich with Technology, so even if the Big Five give back everything they've accomplished this year (a very unlikely proposition) that index would only be pushed back to breakeven. It would take a complete Silicon Valley meltdown to do more damage than that.


And our universe hews much more closely to the Nasdaq, but with some twists that balance our performance a lot better. We're up "only" 23% YTD on average because we focus on the average, not what a market-weighted portfolio like the Nasdaq would deliver. After all, every subscriber will pick a different set of our stocks and allocate money accordingly across those holdings, so every BMR portfolio is different.


Furthermore, we want to reduce the odds of one or two (or five) great stocks masking stagnant performance elsewhere, leaving those who didn't pick the winners feeling cheated. Even if the stocks you pick from our lists amounted to "luck of the draw," it's important to us that every single stock you could select has the potential to be a winner. Not every one will become the next Apple or Amazon, but if we cover a company, you can rest assured that it earned its place in our world for a reason.


Factor out FAAAM and our average position is still up 20% YTD, 3 percentage points better than the Nasdaq minus its biggest constituents. If you skipped the Big Five and built a portfolio out of our other stocks, you only gave up a few percentage points. And that's why we aren't bothered by the Big Five doing so well. They've done amazing things and will rally until they run out of steam. In the meantime, other BMR stocks that get ignored in the giants' shadows are doing even better . . . it's just that index fund investors can't see them.


Amazon is up 84% YTD. Great stuff. But PayPal has done even better throughout this wild year of pandemic and recovery. Bill.com, Zscaler, Docusign, Shopify, Square and Twilio have all doubled or tripled over the same period. We admit that we've had our share of laggards in Real Estate and, ironically, in the High Yield portfolio to weigh on overall performance, but our winners are moving fast enough to leave Big Tech in the dust. Index fund investors have a hard time capturing that performance, which is why they only have Big Tech to thank for saving them from what could have been a miserable eight months.


We have breadth of leadership as well as the heavy hitters on our side. So far, we can't complain. And when the market turns, we'll pivot with it.





Akamai Technologies (AKAM: $116, up 5% last week) 


The stock hit $118 on Friday, an all-time high if you discount the brief craziness of 1999, bouncing off the low of $106 in August. Admittedly, the vagaries of the market can frustrate the most seasoned investor. We know there’s more money for you to make in this name. All we have to do is look at 2Q20 results. Revenue was 13% higher compared to last year, reaching $795 million. EPS jumped 31% to $0.98. That’s what we like to see – a strong revenue increase driving even better EPS growth. This company secures and delivers digital content over the Internet for companies, and they will continue to post strong revenue and profit growth for a long time. When the stock makes its next major upward move, we will happily increase our $118 Target Price. Our Sell Price was $88, but are raising to $104 as we write this.





Facebook (FB: $294, up 8%) 


On Wednesday, the stock hit $305, eclipsing its previous all-time high of $279 that it reached earlier this month. Settling back over the next couple of days, the stock still had a huge week, putting its market cap at $835 billion. It is heading towards that illustrious $1 trillion club. Last month, the company posted another strong quarterly result. It derives virtually all of its revenue from advertising, which is why it is so pleasing for us to see its top line rise 11% versus the prior year, to $18.7 billion when the economy is in a recession. Profit doubled to $5.2 billion. Facebook has an eye-popping 2.5 billion daily active people on its sites, 15% higher than last year.


Even if the recession hurts advertising spending, they will return in droves once the economy picks up, as the firm allows companies to be able to target this many people. There is also a new partnership with Shopify (see below) that has big potential. Facebook Shops will allow small-and-medium-sized retailers to sell their goods via its Facebook or Instagram sites. For Facebook, it gets to charge transaction fees. Really, the only thing that can stop this company is itself. So far, the company has put past controversies in its rearview window.


Earlier this year, there were some small wounds after groups urged companies to pull advertising and the company refused to pull down controversial posts made by Donald Trump. Right now, those have faded in the background. Of course, we will keep our eye on things. Zooming past our $260 Target Price, we are raising it to $315. We are also increasing our Sell Price from $235 to $255.





Roku (ROKU: $173, up 17%) 


 The stock was down 10% from $166 after reporting 2Q20 results earlier this month before this week’s huge upside move. Looking at the results, there was a lot to like. Revenue grew 42% year-over-year to $355 million, and all key metrics were significantly higher. Active accounts rose 41% to 43 million; streaming hours increased 65% to 14.6 billion; average revenue per user rose 18% to $24.92. Roku’s loss did widen from $10 million to $45 million, but we aren’t surprised since the company is increasing operating expenses while it builds out the company. These rose from $125 million to $190 million, mostly due to Sales and Marketing costs going from $35 million to $65 million.


We expect the company to continue growing and achieve scale, bringing sustained profitability once it does. When you think about Roku, its players no doubt come to mind. The company does generate revenue from selling devices but it gets most (70%) from advertising. With a rough economy, management expects this to grow at a slower pace in 2H20. But what's remarkable here is the way ad revenue i ins climbing a difficult environment, it will soar once again during the economic recovery. We have a $170 Target Price and a $145 Sell Price. We will update these once Roku shows it can sustain this level.





ServiceNow (NOW: $488, up 9%) 


The stock just keeps climbing – hitting an all-time high of $494 on Friday. Just five months ago the company sank to $239. Building applications that automate work processes and make employees more productive has resonated with companies. The numbers don’t lie. 2Q20 revenue grew 28% year-over-year to $1.1 billion and the company reported a $40 million profit versus a $10 million loss. Achieving profitability last year, it is now in the sweet spot where strong top-line growth is translating into even faster income gains. It is inking big deals, with 40 new signings worth over $1 million in annual revenue. Management’s 3Q20 guidance calls for 27% revenue growth to $1.1 billion, and a 29% increase for 2020 to $4.2 billion. We are happily raising our $450 Target to $545. To protect your downside, our new Sell Price is $430 compared to the old $345.






Shopify (SHOP: $1,042, up 2%) 


The stock’s rise has just been extraordinary. On Wednesday, the company hit another record when it went to $1,116. That is more than triple March’s $305, and we can’t even calculate the return from our $72 add price three years ago. (Yes we can.) We recognize Shopify’s run has created a high valuation, meaning its revenue and earnings will have to continue growing strongly. We previously noted its price-to-sales was extraordinarily high, and it is now 59x, more than double what it was a year ago. The Street has high expectations. Doing well before the pandemic, growth has accelerated. 2Q20 revenue doubled from $360 million to $715 million. It also posted a $35 million profit, quite a turnaround from 2Q19’s $30 million loss. The company has web-and-mobile based software that lets merchants set up online storefronts to sell their goods on the web. Shopify is operating as we expected – strong revenue growth leading to profits. We are upping our $900 Target Price to $1,175. We are also raising our Sell Price from $665 to $930. To be clear, our only issue is the valuation of price vs. sales. We are monitoring the company for any slowdown in its revenue growth since the Street will hit the stock hard for any shortfall.





Agilent Technologies (A: $100, up 2%) 


Agilent’s business is to provide critical equipment, such as software and instruments to Pharmaceutical firms, Chemical companies and Academia, which allows them to carry on their important, sometimes lifesaving work. The stock kept climbing to new records this week, and closed at an all-time high on Friday. The Street shrugged off weak fiscal 3Q20 results when it reported a couple of weeks ago. Revenue fell 1% versus a year ago to $1.3 billion. We expected a weak quarter due to the pandemic restricting access to facilities. Management did a nice job on the cost front, cutting R&D by 9% to $90 million, and SG&A by 5% to $345 million. This allowed profit to increase from $190 million to $200 million. We are keeping our $100 Target Price in place until it breaks through this level. We have a $74 Sell Price, now raising it to $88.





AstraZeneca (AZN: $56, flat) 


The company has pulled back since reaching an all-time high of $65, a month ago. This is just a little profit taking – it happens to the best of them. Make no mistake that AstraZeneca belongs in the elite class. 2Q20 revenue rose 8% versus last year to $6.3 billion. Higher revenue boosted profit from $105 million to $740 million. They offer a strong group of medicine used to treat Oncology, Cardiovascular, Renal, Metabolism (CVRM), and Respiratory and Immunology. Not one to rest on its laurels, its newer treatments are performing well with 42% year-over-year growth to $6.4 billion. These include Tagrissa (32% growth to $1 billion), and cardiovascular, renal and metabolism (CVRM) treatments Farxiga and Brilinta, which had 17% and 12% year-over-year growth to $445 million and $440 million, respectively. With a strong pipeline and a potential COVID-19 vaccine in the works, the future looks bright. The stock is bumping up against our $58 Target Price, and we’ll certainly raise it once it takes the next leg up. Our Sell Price is $44.





Eli Lilly (LLY: $147, down 1%) 


The stock took it on the chin after the company reported 2Q20 results in late July, falling from $162 to $149 over a couple of days. It has been hovering around that level ever since. 2Q20 revenue was $5.5 billion, down from $5.6 billion, below the Street’s $5.8 billion estimate. This year’s figure was negatively impacted by COVID-19 to the tune of $500 million. Broken out, 50% of the shortfall was due to demand that was pulled forward in 1Q20, and the other 50% was caused by delayed prescriptions. Remember, the latter are merely sales pushed back that the company will recoup.


The revenue decline didn’t stop income from rising from $1.3 billion to $1.4 billion as management pulled back spending. Trulicity (type 2 diabetes) remains a juggernaut, with a 20% increase in sales to $1.2 billion. The company’s efforts to beef up its pipeline shows, with drugs such as Verzenio’s (breast cancer) and Olumiant (rheumatoid arthritis) experiencing sales growth of 56% to $210 million and 42% to $145 million, respectively. The selloff means the stock is taking longer than we thought to get to our $170 Target Price. Mark our words, it will reach that level. This is such a great company that we don’t have a Sell Price.





Exact Sciences (EXAS: $73, down 9%) 


The stock has dropped 25%, from $98, in the month since it reported 2Q20 results. Sifting through these, revenue rose 35% to $270 million from 2Q19’s $200 million. This was due to Precision Oncology’s $103 million revenue figure, which was due to acquisitions, primarily last November’s Genomic Health and the recent Paradigm deal. Hence, if we subtract this amount from this year’s revenue, the company’s top line would have fallen to $167 million. Its loss widened from $40 million to $85 million. We’re not real happy about this.


The pandemic held down tests of its colon screening. This has been gaining market acceptance, with screening revenue (the well-known Cologuard product) rising 38% in 1Q20. We expect this to resume going forward. This is too important for people to skip, and Exact Sciences’ solution provides a simpler and cheaper option. Then, there is the Precision Oncology business, with Oncotype tests using genomics to help patients and doctors make decisions about which treatment to choose for breast, colon, and prostate cancer. In other words, important, lifesaving stuff. The stock’s recent movement has put it below our $93 Sell Price. You can certainly decide to cut the company loose.


We added the stock at $64 two years ago and were rewarded with strong price growth to $123 a year later (last summer.) Now at $73, we’ve had it. We are just tired of waiting. With the addition of Pfizer and Merck to our Healthcare Portfolio, and the existing great companies in that portfolio, like JNJ and LLY, we believe there are better places to put your money. If you really have faith for a turnaround, stick with it. But we are out. Cutting coverage.





Johnson & Johnson (JNJ: $154, up 1%)


The stock is so close to April’s $157 all-time high, and it is only a matter of time before it surpasses this level. After all, this is one of the all-time great companies. 2Q20 revenue fell 11% to $18.3 billion and earnings were down 35% to $3.6 billion. COVID-19 temporarily hurt revenue at two of its units. Consumer Health’s sales fell 7% to $3.3 billion, with the pandemic keeping people from buying certain products. With a staple of household names like Tylenol and Listerine, these sales will return. Medical Devices, which saw sales decline 34% to $4.3 billion, was affected by delayed surgeries.


With hospitals opening up for procedures, we expect to see a rebound in 3Q20. Its largest business, Pharmaceuticals, did well with a 2% increase in sales to $10.8 billion. This is a chance to own one of the few companies with AAA-rated debt. If you like dividends, the company has raised it 58 straight years, and currently yields 2.6%. Our Target Price is $168. As you might have guessed given how much we’ve sung its praises, this belongs as a mainstay in your portfolio. That's why we don’t have a Sell Price.





A Word From Gary Jefferson

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


The pandemic has been hard on the economy and took a heavy toll on the markets early on. But our economy was so strong going into the quarantines that the recovery of Wall Street and relative resilience on Main Street have been the fastest and strongest in our lifetimes. We had the strongest economy in years on our side, with 50-year low unemployment, 20-year highs in household income and record highs in consumer confidence. This all had come about through changes in Washington: taxes were cut, business-stifling regulations were removed, unfair trade deals were axed and replaced with fairer ones, a new renaissance in manufacturing began and private enterprise replaced the government as the main creator of jobs.

Technically, two negative quarters in a row are needed for a recession, and we had that in Q1 and Q2. But, historically, recessions are the result of a “boom” as excesses accumulate, inflation and interest rates rise, growth is eventually “choked off” and a recession results. This economic environment wasn’t remotely connected with a boom/bust cycle,  but instead was manufactured by artificially enforced lockdowns. Thus, we agree with those economists who call this a “suppression," not a recession.


Regardless of the name, the recovery began in earnest in the May/June timeframe and businesses continue to reopen, bumps and all. The main evidence is found in jobs, where the latest Employment Report regained 1.76 million new jobs on the back of June's 4.8 million rebound. Retail sales are surging, factory orders and manufacturing are on the rise and housing is setting records. GDP is expected to recover an unprecedented 20% this quarter with another 10% or higher gain in Q4.


As we have said before, we all know this or any projected trend has caveats like finding a vaccine soon and holding interest rates low enough to entice the consumer to remain engaged. And, as we have previously stated, the answer to the first question is not "if" but "when," and low interest rates lie in the hands of a committed Fed who have been to date the main cog of our recovery and a steady hand at the helm.

The Fed and the recovery are why many stocks have been on a tear and should continue to climb higher unless politics change and “undo” all the things that resulted in the longest economic boom in recent memory. It seems to us that at this stage the consensus sees continued recovery as better than a  50/50 proposition. In other words, if the market saw the future as nothing but “higher taxes = lower earnings, scuttled trade deals, manufacturing being re-exported and energy relapsing into dependency," we don’t believe it would be recovering like it has.


We remember not that long ago when the “smartest economist in the world” vigorously proclaimed that if Trump won in 2016, the economy would crash and never recover. That was only four years ago, but here we all are.  People who acted in response to this lost a giant opportunity.  The bottom line is that we don’t believe long-term investors should “jump ship” based on who says what about politics and the economy.


If there is a major change in politics, there will always be distinct winners as well as losers. Long-term investors may need to make changes, but they shouldn’t abandon long-term goals and objectives based solely on politics. The government per se has more frequently than not been an obstacle to free enterprise throughout all of history, yet businesses have always figured out how to survive and thrive.

We will certainly keep a keen eye on the election, but for the time being we are a little more concerned about the recovery, the “vaccine," the strength of the dollar and a few other facts such as the biggest six constituents of the NASDAQ 100 own an aggregate weighting of roughly 51%. That’s six stocks making up more than half of the index.


One can reasonably make the argument that the index currently has very limited relevance and at some point there will be a reversion to the mean or Big Tech may be the norm for quite some time.  In any event, a reversion actually could be a good thing,  not a bad one, as the breadth of the market would, at least historically, become a lot more “reasonable."





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


Our analysis this week has investments that run the gamut and appeal to a wide range of investors. In other words, it has something for everyone. We look at Welltower, a REIT that offers even better long-term prospects now that the stock has been beaten up a bit. This week’s hit list also includes REITs that don’t own property. Annaly Capital Management invests in residential mortgages. Using a tricky strategy to goose returns, this company has proven itself over its more than two-decade existence. Then there is Apollo Commercial Real Estate Finance, which invests in commercial mortgages. We also analyze a non-REIT, AllianzGI Equity & Convertible Income Fund, a more conservative income investment


Welltower (WELL: $59, up 6%, yield = 4.1%) 


This REIT is a large owner of Senior Housing Operating Properties, which encompass Seniors Apartments, Independent Living, Continuing Care Retirement Communities, Assisted Living, and Alzheimer’s/Dementia Care. There are also Long-Term/Post-Acute Care and Outpatient Medical Buildings. They own a total of nearly 1,700 properties. In the short run, this space has been hurt by overbuilding that puts the demand and supply out of whack.


Then COVID-19 struck, hurting property owners like Welltower since the elderly moved out and the company had to raise expenses to implement safety protocols. Its occupancy kept sliding this year, from 86% in February down to about 79% in July. The good news is that it collected 98% of the rent due under its triple-net leases and 87% of the rent (another 12% is deferred, which the company expects to collect by year end) at its Outpatient Medical facilities.


2Q20 revenue slipped to $1.2 billion from 2Q19’s $1.3 billion. Income rose to $160 million from $150 million, much of it due to a gain from selling real estate. Welltower (Target Price: $65) cut its 2Q20 dividend by $0.16 to $0.61. This is still a 4.1% yield, which is 335 basis point over the 10-year Treasury yield. Make no mistake, we don’t like to see a company lower its dividend. But with strong fundamentals and favorable demographics, Welltower has what it takes to bounce back.




AllianzGI Equity & Convertible Income Fund (NIE: $25, up 3%, yield = 6.0%) 


This is an excellent choice for those of you that want less volatility in your portfolio. That’s because it typically places 20% to 60% of the portfolio in income-producing convertible securities. At the end of July 61% of the fund’s asset were in common stocks, 34% in converts with a weighted average maturity of about 4.5 years, and the remaining is in cash.


The equities are some of the biggest and best companies – Apple, Amazon, Microsoft, Alphabet, and Facebook. These top five stocks have weights in their portfolio ranging from 2.3% to 3.5%. Then the portfolio managers further enhance income by writing call options on stocks in the equity portion of the portfolio. They don’t borrow money, either. The company (Target Price: $26) offers a 6.0% yield. This is a nice 570 basis point spread over the 5-year Treasury plus you get upside potential from the equity exposure.



Annaly Capital Management (NLY: $7.46, up 2%, yield = 11.8%) 


This REIT mostly invests in Mortgage-Backed Securities (MBS). For those of you not looking for a lot of credit risk, 93% of its portfolio is invested in Agency MBS, which are packaged residential mortgages that are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.


The risk comes in Annaly’s use of leverage. Specifically, it borrows short-term funds to buy these longer-term securities. This means the spread between short-term and long-term Treasury yields is important. With long-term rates rising, this is good for Annaly. The 2/10 spread sits at 60 basis points, 15 basis points wider than at the start of August, and 33 bp lower than the long term average.


Book value was $8.39 as of June 30 so the stock presents a real bargain. Recently Annaly Capital Management (Target Price: $9) cut the dividend from $0.25 to $0.22. At the new level, this is a still attractive 11.8% yield. And we fully expect them to raise the dividend back to the 25 cent level in 2021.



Apollo Commercial Real Estate Finance (ARI: $9.28, up 4%, yield = 15.1%) 


This is a REIT that originates and invests in debt markets, such as Commercial First Lien Mortgages, Subordinate Loans, and other Commercial Real Estate debt. More than half of its $6.4 billion loan portfolio, 52%, is invested in mortgages backing Office and Hotel properties. Other major categories include Urban Retail (10%) and Healthcare (6%). New York City is the largest geographic area of investment, at 37% of its portfolio, followed by the U.K.’s 19%. Based on management’s risk assessment, 93% of the loan value is rated 3, the middle category. There is 6% in the riskiest category, which is a 5 rating, down from 8% in 1Q20. There is less than 1% of the portfolio in the 2 and 4 categories.


The company has been affected by the pandemic and recession. 2Q20 revenue fell to $70 million from $85 million and income was essentially flat at $60 million. Apollo Commercial Real Estate Finance (Target Price: $10) has cut the dividend twice this year. The latest move was in July when it reduced the payout by a nickel to $0.35. At this reduced rate, it still offers a hefty 15.1% yield, a return that compensates for the economic risk.



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