COVID-19 UPDATE: Ringworm med is a silver bullet? 2021-2023 EBIT margins likely surpass Street. Adding +19 epicenter stocks. See note

Click HERE to access the FSInsight COVID-19 Daily Chartbook.

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Our 2021 Year Ahead Outlook will be released Thursday, December 17th at 3:00 PM EST

Joining us for a webinar, which will include the Fundstrat Macro Team.  The following topics will be discussed:   

• Overall macro and strategy outlook 2021
• Economic outlook, what can we reasonably expect for GDP growth?
• Where are we in this investment cycle and what themes will dominate?
• We discuss key policy risks and upsides 
• New investment themes
• Full EPS and sector outlook
   
Don’t miss it!!!!

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Should you have any questions, please do not hesitate to contact us at (212) 293-7140 or email inquiry@fsinsight.com. 

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STRATEGY: Epicenter 2021-2023 EBIT margins likely massively beat Street consensus
The absolute number of COVID-19 cases continues to set new records and Thursday was 213,446, but the 7D delta (leading indicator) is slowing and ex-CA (which has ~30,000 per day), this 7D delta is now negative.  This is a confirmed rollover.

– but it is ‘tentative’ because post-Thanksgiving, cases can again surge
– next week is clear of those post-holiday distortions
– so it the 7D remains negative next week, the rollover is confirmed

Source: COVID-19 Tracking and Fundstrat  


You might recall the name Youyang Gu.  He is a young MIT scientist, but did a lot of well-regarded forecasting work on COVID-19, using big data.  In fact, even the IHME referenced some of his work.  Gu has shifted his focus recently (too many forecasts in his view).  He has shifted his focus to look at when the US will reach herd immunity.

Today, he made an intriguing tweet:

– Per him “I estimate a ‘return to normal’ by June/July 2021 

Check out his tweet below.  He has 3 assumptions: (1) when herd immunity (60%); (2) rate of US infected (~30% by mid-2021) and (3) % US vaccinated (~30% by mid-2021). I found his commentary quite interesting on several levels.  (Of course, this is only one person’s analysis, and not the future):

– first, if he is right, the US will not need to vaccinate >100 million of the 365 million Americans
– second, infections/cases could collapse as we move into April/May
– third, if correct, this suggests 2021 economic recovery could be a lot stronger than most expect

https://twitter.com/youyanggu/status/1337147909955964929?s=21


Epicenter margin recovery could really surprise the Street in 2021…
Over the past few weeks, a number of our clients have wondered whether a 2021 recovery in Epicenter stock earnings is too optimistic.  Mostly, many think topline levels will not recover to pre-COVID-19 levels in 2021, thus, for earnings to rebound, this requires a major margin recovery.  There are two reasons we think margins will recover quickly:

– first, in 2020, these companies massively cut costs and restructured operations, at a scale they never had to in history — the sheer collapse of the economy warranted this action

– second, in past expansion, Cyclicals, aka, Epicenter, saw pre-recession margin recovery within 12 months
– hence, in 2021, we should see EBIT margins at or above pre-2019 levels

Take a look below.  As you can see, the baseline is that EBIT margins for epicenter stocks are at the troughs seen in 2009 lows during the GFC.  So we have seen a complete 12-year round-trip on profit margins.  This is due to a sales collapse.

But in the 2002 and 2009 recoveries, look at the massive rise in EBIT margins.  This is during a time when I do not think companies were nearly as desperate.  In 2020, with a pandemic and global shutdown, these companies would have been forced to cut and rationalize expenses at a far greater rate.

– if so, we should see an even sharper rebound in margins
– demand recovery could be fierce in 2021
– plus, post-GFC, margins recovered within 4 quarters

So my guess is this rebound will surpass GFC — I think that is reasonable.

Updated Epicenter Trifecta list — adding 19 stocks and deleting 1 stock
We have updated our Trifecta Epicenter stock list.  These are the stocks which were hit the hardest by the pandemic and have the greatest operating leverage to a re-opening.  And we like the earnings upside in these stocks, because of the massive cost reset.  The stocks are based on positive views coming from the trifecta of: (i) Quant (tireless Ken), (ii) Global Portfolio Strategy (Brian Rauscher, aka Rocky) and (iii) Technicals (Rob Sluymer).  

– The total Epicenter list is growing, now >100, but adding cyclicals make sense
– FYI, this is culled from the Russell 1000
– We also added a new field ‘% of Buy ratings’ on the stock
– the fewer the % of Buys, in our view, the more contrarian the idea
– There are many stocks with <20% of ratings that are ‘Buy”-rated

Additions to the Epicenter Trifecta Stock List: 19 stock
Consumer Discretionary:
MAT

Financials:
FHN, RF, TFC, AGNC, EVR, VIRT, STT

Industrials:
GNRC, MIC, KEX, R, UHAL

Energy:
XEC

Basic Materials: EXP, ESI

Real Estate:
UDR, JBGS, RYN

Deletion to the Epicenter Trifecta Stock List: 1 stock
Consumer Discretionary: BWA

Source: Fundstrat, Bloomberg

ADDENDUM: We are attaching the stock lists for our 3 portfolios:
We get several requests to give the updated list for our stock portfolios.  We are including the links here:

– Granny Shots  –>       core stocks, based on 6 thematic/tactical portfolios
– Trifecta epicenter  –> based on the convergence of Quant (tireless Ken), Rauscher (Global strategy), Sluymer (Technicals)
– Biden vs Trump  –>   based on correlation to either candidate odds

Granny Shots:
Full stock list here –> Click here
Tickers: AAPL, AMZN, AXP, BF.B, CSCO, EBAY, GOOG, GRMN, GWW, INTC, KLAC, LEN, LOW, MNST, MSFT, MXIM, NVDA, OMC, PM, PYPL, QCOM, TSLA, XLNX

Trifecta Epicenter (*):
Full stock list here –> Click here
Tickers: AN, GM, F, HOG, GRMN, LEG, TPX, PHM, TOL, NWL, HAS, MAT, PII, MGM, HLT, MAR, NCLH, RCL, WH, WYND, SIX, DRI, SBUX, FL, GPS, LB, CRI, VFC, GPC, BBY, FITB, WTFC, ASB, BOH, FHN, FNB, PB, PBCT, RF, STL, TFC, WBS, PNFP, SBNY, NYCB, MTG, AGNC, EVR, IBKR, VIRT, BK, STT, SYF, BHF, AGCO, OC, ACM, WAB, EMR, GNRC, NVT, CSL, GE, MMM, IEX, PNR, CFX, DOV, MIDD, SNA, XYL, FLS, DAL, JBLU, LUV, MIC, KEX, UNP, JBHT, R, UBER, UHAL, HP, NOV, SLB, EOG, PXD, HFC, MPC, PSX, XEC, LYB, EXP, MLM, CF, MOS, ESI, NEU, NUE, RS, SON, STOR, HIW, CPT, UDR, KIM, NNN, VNO, JBGS, RYN

Biden White House vs. Trump White House:
Full stock list here –> Click here

(*) Please note that the stocks rated OW on this list meet the requirements of our investment theme as of the publication date. We do not monitor this list day by day. A stock taken off this list means it no longer meets our investment criteria, but not necessarily that it is neutral rated or should be sold. Please consult your financial advisor to discuss your risk tolerance and other factors that characterize your unique investment profile.

POINT 1: Daily cases 213,446, +7,554 vs 7D ago.  Ex-CA, 7D delta turned negative
The latest COVID-19 daily cases came in at 213,446, up +7,554 vs 7D ago. 

– we are in the early stages of a possible roll-over of Wave 3
– ex-CA, the 7D delta turned negative
– but the absolute level of cases is still elevated

Source: COVID-19 Tracking Project  and Fundstrat


7D delta at +7,554..slowing
Again, the daily change vs 7D ago, in our view, is the leading indicator as it is what influences the 7D moving average. 

– as shown below, the 7D delta ex-CA is actually negative
– but we are still in a period of distortion from post-Thanksgiving
– next week will provide a much clearer picture

Source: COVID-19 Tracking and Fundstrat  



CA remains the state with the highest daily count in cases and also the biggest 7D jump in cases.  But COVID-19 is pretty bad everywhere.

 

Source: COVID-19 Tracking and Fundstrat  

Source: COVID-19 Tracking and Fundstrat  



POINT 2: Is this another ‘silver bullet’?  A drug to treat ringworm might stop COVID-19
A long time client in Westport, CT (thanks TR and SW for sending this) sent along a really interesting study about Ivermectin and its effectiveness in stopping COVID-19.

Ever heard of this drug?  If you google it, this is what appears on my search results — some ads from Chewy.com

Source: Google


According to WebMD, this drug is commonly used to treat ringworm infections.  It works by stopping the ability of a virus to replicate.

Source: WebMD


This same drug now appears to be quite effective in stopping the spread of COVID-19, in both preventing catching the disease (prophylaxis) and in treating patients.  This study was presented by the FLCCC Alliance, or the Front Line COVID-19 Critical Care Alliance

– this is not a joke entity — it is the real deal group
– their meta study showed the odds of catching COVID-19, if taking this drug, is essentially ZERO% 
– Yup. Zero

https://www.newswise.com/coronavirus/flccc-alliance-calls-on-national-health-authorities-to-immediately-review-medical-evidence-showing-the-efficacy-of-ivermectin-for-the-prevention-of-covid-19-and-as-an-early-outpatient-treatment


They looked at multiple studies and those on Ivermectin essentially had zero chances of catching COVID compared to those on other medications/non-medicated.

https://www.newswise.com/coronavirus/flccc-alliance-calls-on-national-health-authorities-to-immediately-review-medical-evidence-showing-the-efficacy-of-ivermectin-for-the-prevention-of-covid-19-and-as-an-early-outpatient-treatment


Ivermectin is ridiculously cheap…
Here is the catch.  This drug is ridiculously cheap.  Good RX shows that a pack of this drug is $20.  I guess this is a packet to cover what would be a normal ringworm infection.  But suffice it to say, this is a low-cost solution.

– hopefully, this will get more media attention

Source: GoodRX




POINT 3: Will only 30% US need vaccines to reach ‘herd immunity’?
One of the key questions we all want to know is when will COVID-19 have diminished enough to be out of our lives.

One fairly credible research, Youyang Gu, has created a new model to look at herd immunity.  We have referred to his work in the past, because he had built some big-data models that really well explained COVID-19 forecasted deaths — in fact, more accurately than the IHME.

Today, he made an intriguing tweet:

– Per him “I estimate a ‘return to normal’ by June/July 2021

Wow.  Check out his tweet below.

https://twitter.com/youyanggu/status/1337147909955964929?s=21



His rationale is straight forward.  And there are basically three moving parts to his model:

– herd immunity threshold –> 60% of US population
– already infected (ergo, immune) –> 30% by June 2021
– required vaccinated population –> 30% by June 2021



His assumptions are described in his tweet thread (check out his web page as well).  He forecasts that 1 million Americans will be vaccinated daily.

– the rate of Americans getting infected is around 600,000 daily currently (purple line)
– vaccinations ramp up (blue line)
– so as you can see on the chart below, these numbers really start to add up 

https://twitter.com/youyanggu/status/1337147909955964929?s=21


Stay tuned.  We are going to try to arrange a call with him for you in the coming weeks.