Fri, August 28, 2020 | 5:51PM ET

College Cases Increasing but Binary Event Catalyst on Horizon

Name: FS Insight
Price range: $$$

USA COVID-19 cases came in at 44,543 Thursday, which is +788 higher vs 7D ago. So, there is a clear “stall” in the pace of improvements. It seems like college students returning to campus is fueling another round of cases. The two states with the largest increase are Iowa and Alabama. This week, Iowa took an emergency measure to close bars. There have been widely reported outbreaks at several college campuses in Alabama. So, both states are aware of these surges and hopefully are taking sufficient corrective measures.

Colleges are going to struggle to contain COVID-19 cases. I am not sure if it is possible for cases to be zero on a campus. The reason is due to the existing prevalence of COVID-19. If we look at the University of Alabama and its 20,000 returning students, we estimate that 30 to 40 of the returning students were contagious when they arrived on campus.

Thus, the campus was not likely “COVID-19 free”. But this picture is not all negative. Florida and Arizona have large schools but there has not been a major new wave of cases reported. So, there may be some basis to believe that once a community reaches a sufficiently high level of case prevalence, COVID-19 spread naturally slows.

Abbott Labs’s announcement of a quick 15-minute COVID-19 PCR test is viewed by many as a game changer. The reason is that this cost-effective and very fast test allows much faster case detection, which in turn, provides better disease management. Any positive developments on healthcare, whether vaccine, cure, or testing, improves the safety of the US and the safety for Americans to leave their homes. Thus, this has a positive effect on the stocks most hurt by this pandemic.

Strategy: Abbott testing announcement again proves many epicenter stocks may have a “binary reaction” to healthcare developments. In my view, market participants have severely discounted the likelihood of a vaccine in the near term.

Below is our simplified graphic of companies that have a binary benefit from healthcare developments. It’s a reminder that many epicenter stocks have a binary reaction to healthcare developments. The group includes travel and leisure stocks, and even OTAs.

College Cases Increasing but Binary Event Catalyst on Horizon

The number of US counties with cases 75% of its highs is about to reach a new high. As shown below, this last peaked in early June. And we know that when this line began to rollover, the trends in COVID-19 were worsening.

– This is based upon county-level data so it gives us a clearer picture of the actual trend

– The fact this is rising suggests more counties are seeing a BIG retracement in COVID-19 cases.

– The F-CAT daily cases have utterly collapsed. And the 18 states with high prevalence are also rolling over.

– There are now only 16 states, vs 29 on 8/18, with cases <12,500 per 1mm. This is good news, in a sense. After all, we are not seeing a surge in cases in Florida or Arizona, even as these states have many colleges and universities.

Bottom Line: Epicenter stocks including travel, leisure, and OTAs are poised to do well as the prospects for a positive “binary event” improve.

Figure Comparative matrix of risk/reward drivers in 2020
Per FSInsight

Figure: FSInsight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019

Disclosures (show)

This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.

Analyst Certification (Reg AC)

Tom Lee, CFA, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Conflicts of Interest

This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.

As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of FS Insight.

This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.