Connect with us

Here Are The Companies That Will Benefit The Most From A Covid Vaccine

Here Are The Companies That Will Benefit The Most From A Covid Vaccine

Published

on

Here Are The Companies That Will Benefit The Most From A Covid Vaccine Tyler Durden Sun, 11/15/2020 - 19:40

In his latest Weekly Kickstart note published late on Friday, Goldman's David Kostin correctly notes that with all eyes on two major macro catalysts in recent weeks –the US elections and the potential for imminent vaccine approval – investors had mostly overlooked the 3Q earnings season. According to Kostin, this "lack of focus" was reflected in the unusual price performance of stocks beating on EPS during the recently-concluded earnings season, namely that whereas in the past, stocks that surpass consensus expectations typically outperform the S&P 500 by 100bps the trading day after reporting, this quarter those firms outperformed by just 9bp, the smallest in our 15-year history outside of 2Q 2017.

Incidentally, a few weeks earlier Bank of America put its own spin on this phenomenon, writing that the lack of upside which is due to stocks being priced to perfection, "smacks of the Tech Bubble, which was the only earnings season in history when surprises saw perverse rather than intuitive reactions – beats were not rewarded and misses were not penalized." The bank then ominously warned that "the market cracked after the 2Q earnings season when this happened."

Whether the Q3 earnings reaction is indicative of a lack of investor focus, of euphoria having been pried-in, or is simply a rehash of the previous bubble top remains to be seen, but one notable point made by Kostin is that "margins, more than sales, were the primary source of upside surprises in 3Q" which suggests that once again companies were drastically cutting back on overhead - read laying off workers aggressively.

Some more points:

  • At the start of earnings season, consensus expected S&P 500 sales to fall by 3%, and companies realized growth of -2%.
  • Analysts also forecast S&P 500 net profit margins would decline by 220 bp to 8.7%, but margins actually fell by much less than expected; net margins contracted by just 83 bp to 10.1%.
  • At the sector level, the divergence that occurred in 2Q continued into 3Q. Health Care and Info Tech delivered positiveEPS growth in the quarter (+7% and +5%), while Energy and Industrials saw EPS fall by 109% and 50%, respectively.
  • Most notably, limited reserve builds moderated the decline in Financials EPS in 3Q (-7% y/y vs. -52% in 2Q).

Kostin then shifts to recapping his "Roaring 20s thesis", which as a reminder sees the S&P hitting 4,600 in 2022...

... by using a 22x P/E forward multiple...

... by defending Goldman's hyper-optimistic EPS outlook: according to the chief strategist, "strong 3Q results and our economists’ optimistic growth outlook support our above-consensus EPS estimates for 2021." To wit, following the better-than-feared 17% decline in 2020, Kostin now forecasts S&P 500 EPS will grow by 29% in 2021 to $175, which would be 6% above the pre-pandemic level in 2019 ($165). It's all uphill from there as the following chart forecasting even more perfection until 2024 shows:

Here's how Kostin "gets" his ultra-cheerful numbers: "economic growth is the primary driver of earnings growth. Our US economists expect annual average real US GDP growth of 5.3% in 2020, 150 bp above consensus (+3.8%)." In addition to what even Kostin admits is an "optimistic outlook" based on above-consensus earnings estimates, the Goldman strategist also expects S&P 500 EPS to benefit from i) a weakening USD, representing a tailwind to sales, and ii) labor market slack, adding to the tailwind for profit margins.

Importantly, the forecast assumes at least one vaccine is approved by January and widely distributed across the US in 1H 2021, to wit: "We expect additional positive EPS revisions toward our forecasts in coming months as vaccines are approved and distributed and accelerate the economic and earnings rebound."

In addition to the top-line rebound, the cost cutting evident in 3Q earnings reports suggest higher revenues should lead to a sharp margin rebound next year. Translation: don't expect a hiring spree any time soon now that company have learned they can do more with less.

Looking even further out, Goldman forecasts S&P 500 EPS growth of 12% in 2022, 6% in 2023, and 5% in 2024, despite conceding that "in the near term, surging COVID cases and the possibility of renewed US lockdowns represent a source of downside risk to S&P 500 EPS." All of this, however,  is expected to somehow renormalize by early 2021.

One final key assumption comes in the form of Goldman's expectation that a $1 trillion fiscal package will eventually be passed "but not until early 2021, therefore posing a potential downside risk to 4Q 2020 EPS, and potentially also longer-term risks if fiscal aid is too small or too late to avoid major economic scarring."

Still, that risk too, is too small for Goldman to incorporate into its base case which, as shown above, see the S&P rising by over 1,000 points over the next two years.

In other words, in its base case projection, the bank sees nothing going wrong with the economy or markets until the next presidential election.

* * *

While we reserve judgment on whether Goldman is right or not (or right but for the wrong reasons, since none of this will matter once the Fed launches another major QE expansion in early 2021 as we previewed overnight) we will highlight on factual observation, namely which companies have been hit the hardest by covid, and thus stand to benefit the most from a vaccine.

Assuming a vaccine is approved - and one most likely will be approved in the coming weeks -  Goldman highlights a list of stocks where the largest gap exists between the current consensus expectations for 2021 EPS and pre-pandemic EPS in 2019. Goldman expects vaccine approval and distribution to serve as a catalyst to drive positive EPS revisions in many of the hardest-hit industries and most virus-exposed companies. As context, the median company in the S&P 500 is anticipated to generate 2021 EPS that is 7% above its level of last year. In contrast, the 39 stocks shown below are anticipated to generate EPS next year that is still less than half the level of EPS realized in 2019.

Ultimately, Goldman's recommendation is to go long some or all of these deep Value stocks as part of a barbell with long-term positions in secular growth stocks. Or in other words, the bank is long both the FAAMGs - which benefit from a continuation of the status quo - and the "deep value" names that will soar should the covid situation normalize or if sustainable reflation finally emerges.

Read More

Continue Reading

Government

Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

Published

on

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

Read More

Continue Reading

Government

Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

Published

on

Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

Read More

Continue Reading

Government

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

Published

on

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

Read More

Continue Reading

Trending