any Industry theme for this market.

Models
1

InspectorSector,

Your aerospace theme model is awesome for last few years.

Please, suggest any industry theme for this market. Do you plan to create any new model based on current market condition. like remote learning for school and universities, work from home, mobile payment, home delivery service, etc.,

or Ford, 3M. The industry where federal spending money now.

Thanks,
Kumar :sunglasses:

2

My theme is to buy stocks that are effected MOST by the coronavirus, but will go back to normal once it ends.

PLNT (gym)
EXPE (travel)
VVI IHG (hotels)
CGX (canadian monopoly in movie theatres)

I’m shorting stocks that have a 1-2 quarter bump from COVID19. Mostly CDNs. People will go back to work one day. Duh. Some of these stocks have gone up 50-100% more than the market just because it’s a coronavirus play. That’s just silly for a 1-2 quarter one time bump.

3

Kumar - I believe that we are in for a recession that will extend at least until a vaccine is developed and then some. So we are looking at two years or more. Even with businesses coming back, there is a chicken and egg problem. People won’t spend without jobs, and jobs won’t be created unless people spend. And the government can’t keep throwing money at the problem.

Assuming that the next couple of years are going to be slow with a lot of unemployment, I would be looking at sin stocks… cigarettes, beer, alcohol, strip clubs. And throw in cannabis, online dating, video games, and if casinos open up then gambling. There is a DM called SlingCharts.com: S&P 500 Vice https://www.portfolio123.com/app/r2g/summary?id=1396518 but has a universe of 7 S&P 500 stocks. It doesn’t have some of the suggested industries I mentioned above. But keep an eye on the DM. I bet it starts to outperform as time goes on.

Other than that, I suggest cloud stocks that are considered essential services. Unfortunately, you have to handpick them as there isn’t an industry designation. Consider data center REITs: DLR and EQIX, law enforcement AAXN (formerly TASER), Content Delivery Networks such as AKAM and NET. Cybersecurity CRWD and PANW. Remote collaboration will be a winner but watch out for extreme valuation. Zoom (ZM) is extremely overvalued.

I am not considering any more DMs as there is no interest anymore and each model costs me money.
SteveA

4

Cybersecurity is not a essential service. It is considered a secondary thing for companies with strained budgets. Something like CRM is essential because you will need to face customers in all business climates. But are these struggling retailers really going to adopt the newest and latest cybersecruity app (costs money with no obvious benefits)? I’m short ZScaler because that company is priced to be 10x it’s current revenue in sales, and it doesn’t have a path to get there. The total addressable market is not big enough.

CDN the best short here is LLNW. They have an inferior product that will lose market share over time. The stock has gone up a lot on recent 1-2 quarter prospects.

5

We can agree to disagree on this topic. Cybercrime is on the rise due to the coronavirus and work-from-home puts pressure on endpoint protection and cybersecurity in general. CDNs will also benefit with the significant increase in internet usage and will also benefit from 5G longer term.

6

SteveA,

Random ideas on this that I think are related.

Our hospital was hit with ransomware recently. No official word on whether they paid the ransom but if they did their hard drive was never decrypted. They will not be skimping on security.

But they are actively expanding their telemedicine because of the pandemic and this is being encourage with relaxation of regulations by various government agencies.

This is being led at our hospital by the urology department which has always been entrepreneurial. They joke that they won’t be able to do a prostate exam. Or remove that kidney stone I would add.

Is it legal the show that genital wart over the internet? Probably, but I am guessing there are some real cyber security issues (not to mention HIPPA laws/regulations) to deal with here.

This does not speak to any individual companies and some of this may already be priced in. But anecdotally, for one hospital, cyber security will be the last thing cut during this pandemic and it may be expanded. The laws probably would not allow them to cut back with the expanded use of telemedicine even if they wanted to and had not already learned a difficult lesson with the ransomware. I suspect you already have some thoughts on other specific situations.

Best,

Jim

7

See this video for covid-19 related increase in cybercrime: https://www.cnn.com/videos/business/2020/04/14/working-from-home-cybersecurity.cnn-business/video/playlists/business-career/

Endpoint security - CrowdStrike (CRWD) grew revenue 93% last year before the pandemic. According to their financial report albeit early on in the pandemic, they aren’t seeing a slowdown. Their guidance is for a conservative 50% growth in revenue this year.

Steve

8

I think some of the things happening in this market is going way too far.

Let’s look at a travel company. Expedia has $12 billion in revenue and $1.6 billion in EBITDA last year. We can assume they will get back to these numbers maybe in 2021 or 20222.

Then look at a online “cdn” company like Cloudflare. Has $400 million in revenue and no EBITDA.

You are telling me a company with $400 million in revenue is worth as much as a company with $12 billion in revenue with similar EBITDA type margins?? That’s just ridiculous no matter how fast the $400 million company is growing. My opinion.

The market is valuing them almost the same market cap. This is just totally and absolutely ridiculous. It’s almost you’d rather have the EBITDA in 15-20 years than now. No guarantee cloudflare can get to $12 billion in say 15 years. But it’s being valued the same as Expedia cause of near term drivers + growth.

i’m long Expedia and short ZScaler (which has similar type of revenue/growth numbers to Cloudflare). I just think there is no way to justify the second generating more after-tax cash flow discounted to today than the first. Short term the market can do whatever but I"m not selling this pair.

9

If you are a real optimist then perhaps. But we won’t be seeing a vaccine for at least 2 years. Even then it will take a long time for social distancing to be just a memory. Peoples’ habits will not change overnight. Then there is the 20+% unemployment that will disrupt the economy pretty significantly for an unknown period of time.

Let me ask you how a company’s EBITDA has benefited you as an investor in the past? Showing profits means the company is paying taxes to the government when it could be spending that money on growth instead. Jeff Bezos has demonstrated that over and over.

You must be hurting right about now.

According to DCF which many people follow, valuation is tied to future growth of cash flow. The best way to grow is by growing revenue and capturing market share. Expedia grew 7% last year. Zscaler and Cloudflare grew more than 40% and there is no reason to believe that this level of growth can’t be sustained for the next decade. We are in the early innings of digital transformation.

10

There are still a lot of things you can’t do over the cloud. If you’re a big believer that companies are going to make their supply chains more “anti fragile” and onshore, especially at the government’s behest on things that will be newly deemed “national interests” like pharmaceuticals and medical devices and god knows what else, I would look into railroads. They’re still the cheapest/most efficient way to get manufacturing components/inputs/outputs from Point A to Point B over land and maintain a lot of pricing power. The relationship between China and the rest of the world is deteriorating by the day, and beyond that I question whether the old strategies of Just In Time invetory and sourcing multiple inputs from all over the globe and bringing them to one location for assembly will be seen as feasible going forward.

11

Yes. An alternative, based on low oil cost, is FDX/UPS plus trucking firms… Although it is hard to know how this is going to play out with a recession looming. There may be a huge dropoff in the economy longer term.

12

How does the 1.6 billion in ebitda helps? Through share repurchases, making stock price go higher. Similar to AAPL MSFT etc etc. Feels like the look at Amazon thing is used to justify too high a valuation for growth companies growing without profits.

13

AAPL and MSFT each have a $1.3 trillion market cap. They understandably feel that returning money to shareholders is their best way forward. EXPE has a market cap of $8 billion so we are comparing apples to oranges. EXPE’s revenue is more than $12 billion so there is something off there. You will probably get a pretty good gain once the dust settles if the company is still around.

SteveA