Shareholder Confidence Update… 77% Predict Recovery 3 – 6 months
Professional Investors Fix Their Sights on TopGun Names
For Immediate Release – New York, NY, April 1st, 2020 (TopGun Press)
Professional investors report that, except for an extension of the anticipated recovery period, their convictions have not changed since the crisis unfolded. The majority now envisage a three to six month restoration of stock values akin to those of January. What do the professionals intend to buy? There appear to be two prevalent choices, either top quality companies or those most severely oversold. The positive co-relation between top quality companies and out-performance has prevailed over the nine years since the BWI Shareholder Confidence Index began. On the other hand, dedicated value investors tend to find inordinate price gaps irresistible.
Based upon personal debriefs conducted over the last four weeks, investor confidence in the TopGun Companies, namely those ranked in the top decile of the Brendan Wood Investment Quality Index, has only declined about five percent while confidence in targets rated in the lower investment quality echelons have decreased far more substantially. Deep value-oriented investors will gravitate toward lowest prices but will forego their own quality ratings by so doing. If professional investment history of the last decade repeats, the buying trend will more strongly favor the highest investment quality names rated by investors. “We can already see this trend developing as the losses in TopGun names to date are substantially less than the vast majority of companies on the BWI Index. In other words the trend to quality has already begun,” says Brendan Wood.
BWI TopGun Names 2019*
Investment Returns = 44.95%
Assumes No Trades January-December 2019
Adobe Inc
Activision Blizzard
Alphabet Inc
Amazon.com Inc
ASML Holding NV
Ball Corp.
Charter Communications, Inc.
Costco Wholesale Corp
Danaher Corporation
Home Depot, Inc.
Ilinois Tool Works Inc
InterRent REIT
JP Morgan
Marsh & McLennan Companies
Mastercard Inc
Microsoft Inc
Nextera Energy Inc
Northrop Grumman Corp
Raytheon Company
Royal Bank of Canada
Sempra Energy
US Bancorp
Visa Inc
Walt Disney Co.
WEC Energy Group Inc
*All industries ex-commodities
TopGun Rated Names At March 31st, 2020
Amazon.com Inc.
Adobe Inc.
Costco Wholesale Corporation
Danaher Corporation
Franco Nevada Corp.
Illinois Tool Works Inc
Mastercard Inc.
Royal Bank of Canada
Salesforce.com
UnitedHealth Group Inc
Investor Responses:
1) Are you planning to be a net buyer in the near term 3 months? (Net buyer means own more $ in equities than you do today.)
Yes = 92% (93% last week)
No = 8% (7% last week)
2) Will you be buying using cash reserves or switching existing positions into higher quality names that were overpriced but have become cheaper?
Cash Reserves = 33% (35% last week)
Switching Existing Positions into Higher Quality Names = 59% (50% last week)
3) How long do you think that decreasing real spending, lower earnings and supply chain issues directly caused by Coronavirus will prevail as deterrents to investing?
1 Month = 0% (0% last week)
3 Months = 42% (43% last week)
6 Months = 51% (48% last week)
1 Year = 7% (9% last week)
4) Will markets/prices come back to January 2020 levels? 0-100%
Yes = 87% (89% last week)
No = 13% (11% last week)
5) How long will this recovery take?
1 Month = 1% (1% last week)
3 Months = 35% (36% last week)
6 Months = 42% (40% last week)
12 Months = 13% (12% last week)
12-18 Months = 9% (11% last week)
6) How do you rate the future effect of a change in the US administration from Trump to a democrat in November as a market performance risk 0-100%? (Risk of a negative impact on prices)
Yes = 58% (57% last week)
No = 42% (43% last week)
Average Level of added risk = 40% (40% last week)
TYPICAL INVESTOR COMMENTARY:
“With massive amounts of stimulus from the fed and the bite from the interest rates being kept basically at zero for some period of time, you could argue that valuations at some point should recover. However, the critical point is how much damage has been done to the real world economy in the meantime. We don’t have that sort of firm house view as such but our take is that the short term is going to turn out to be painful unless at some point in time there is going to be a kind of a trade off in the sense of which parts of the country can be open and keep the hospital extremely busy but not exhausted. Our risk exposure is that this poses a risk for either some sort of recovery or rolling shutdown.”
“As things progress with the stimulus and governments, I think a lot of people will be trying to migrate into stuff that they might be wanting to own for a while but considered too pricey a month or so ago. Part of the selling we have seen recently is driven by long index funds taking down exposures. Stocks such as Microsoft and Amazon would be sheltered from the short term issues with the real economy.”
“My sense is people that had some cash available are starting to redeploy, but I don’t think there’s any urgency. The risk is days like yesterday, which is not driven by the virus or any economy forecast per se, but by general government intervention that may be extremely good or extremely bad, or extremely good, but yet not enough. I think that just adds to the volatility. I have no medical training, but I think it is worse than many people including Mr. Trump would like to believe. But then at the end of the day, how do you balance the protection of the economy with the protection of human life. You can err on both sides of the spectrum. What good is an economy if there’s nobody to enjoy it and vice versa. It’s going to be a very interesting balancing act. One of the issues currently is that this is a global world, individual countries can take individual positions and ultimately they will fail if it is not coordinated. So my biggest concern right now is coordination.”
“As an investor myself having lost a meaningful amount of money in the market in the last month or so, of course, I was very happy to see that virtually everybody assumed that 18 months from now, we’ll be back at the January high. I would be very happy if that happens.”
“Specifically, and particularly because this is an election year, we’ve been watching Trump for the better part of four years now and this is my very naive and simplistic explanation, but Trump came out yesterday saying that it’s going to be economies first, and then people second. The market, loved it. How much of that 10% move was him saying that versus a $2 trillion he agreed with congress. The fact of the matter is he probably feels that he’s got a better chance of being re-elected if the economy is back on the rails by the end of this year, no matter how many people die. I think for that reason, purely from an investing point of view, I stress that because I do value human life and mine, but I think he and many others will do whatever it takes and will throw whatever money and resources at it to solve it and for that reason, I am somewhat optimistic that will avoid the worst. What I do not know is what could happen if Trump does this, by Easter he sends everybody back to work and to school and to whatever they were doing before. It gives you some sense of normality but then let’s not kid ourselves, the number of cases will skyrocket and what does that create? I hate to say it but if hospitals cannot cope and people are dying that’s ‘fine’ quote unquote ‘fine’, but at some point if businesses don’t even have enough people to run their businesses and businesses don’t have customers because their customers are infected, are we better off?”
“My sense is things will rebound, it is the question of how long it’s going to take to get there and how much further we have to go before we stop going down. So, I don’t think anybody’s going to be back at work in office for another four to five weeks. If you look around at what’s happening, it seems that it is going to take that long. If I was running a portfolio right now, I would be probably selectively buying things I would not be in the market at wholesale buying things because I think the volatility is going to continue for a while and the longer it goes on the more expedient they get. It’s going to take some time to get back to January highs. I don’t know that we’re going to go back to where we were. We probably shouldn’t have been where we were to begin with. I don’t think anyone’s really thinking about that right now. I think more people are just thinking about where we can recoup some of the some of the dramatic losses we’ve incurred so far, because the volatility here, when you compare it to 2008 or anything like that, we’ve dropped a lot faster and a lot further than we had any time prior to this. The only good thing about that is that all being equal, it should mean, that the rebound should be equally as quick, but we’ll see.”
“I would think that people are probably trying to, as much as possible upgrade their portfolios, so dumping the lower quality and moving to the higher quality guys with better balance sheets, more predictable earnings.”
“Well, I think Trump’s probably more worried now about re-election than he has in the past. So the stories last night and this morning, were about the White House contemplating reducing the social distancing restrictions as early as next week, which I think would be a complete disaster because if you look and see what’s happening in places like Hong Kong and Singapore as their restrictions come off, they’re seeing spikes in infection rates happening again. The US infection rates are still climbing at an exponential rate. So if you’re talking about limiting or eliminating social distancing requirements as early as next week, to me, that’s just him doing what he can to try to get the economy back, that’s what he’s most concerned about, because that’s how he sees his re-election probabilities being impacted. Quite frankly, there’s not a chance in hell of that being any kind of proven strategy.”
“In some ways, the COVID-19 crisis could help Shopify. It’s going to strengthen its business, long-term.”
“Longer term, the COVID-19 crisis is going to have a lot of businesses re-thinking their technology and their cyber-security requirements as well as considering more remote or home-based work environments for their employees, which will benefit CGI. This virus is challenging conventional thinking, a little bit.”
About Brendan Wood International:
Brendan Wood International (BWI), formed in 1970, is a private partnership generating independent performance audits globally. Brendan Wood debriefs large institutional investors worldwide on a daily basis. There are 2000 investors in the investor panel collectively managing + $40 trillion invested in the 1400 companies on the BWI Index. Relying on real time performance intelligence, the firm advises public companies, institutional and activist investors, investment banks and broker dealers on strategy, performance and recruitment of TopGun talent. The firm’s partners have formally presented at 1000+ C level strategy meetings and corporate off sites in fifty cities. Brendan Wood founded the exclusive TopGun Club, a performance based institution.
We wish to emphasize that all reports, evaluations and assessments contained herein, represent Brendan Wood International’s subjective judgment and opinions, based on our years of experience and on information obtained by us in the course of our research. Much of the factual information contained in the reports has been obtained by us from third parties on whose responses we have relied in good faith, independent verification by Brendan Wood International being, under the circumstances, impossible. While we believe that you will find our reports to be an invaluable tool in formulating your own strategies and judgments, the foregoing should be borne in mind. Under no circumstances should any ratings or evaluations of individuals’ performances in these reports be considered as a sufficient basis for making decisions concerning the careers of individuals, including such matters as promotions, compensation arrangements, terminations, etc.
This report is not meant as investment advice and should not be interpreted as advising on the value of a company’s securities, the advisability of investing in, purchasing or selling any company’s securities or any other conclusion relating to investment/divestiture of a company’s securities. Finally, this report is not intended as an offer or solicitation for the purchase or sale of any company’s securities.
Related Links:
www.TopGunPress.com
www.brendanwood.com
@BrendanWoodIntl
Contacts:
Jordan Novak
Partner
Brendan Wood International
+1 416 924 8110
jnovak@brendanwood.com
Amanda Knott
Managing Director
Brendan Wood International
+1 416 924 8110
aknott@brendanwood.com
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