A tool for investment portfolio analysis (8/8/2020)
Improving your stock portfolio return by just 1% per year has a big impact over time, so I am always looking for easy ways to make investing decisions just a little bit better. A filter I have been using for the past several months considers how stocks are priced today vs. immediately pre-pandemic. Has the pandemic hurt the company in a significant long term way? Has it helped? Or is there no meaningful impact given a medium to long term time horizon? I call the resulting number the “COVID Delta.”
I started by making a list of stocks I follow regularly. I thought about how their prices “should” have changed since February of 2020, given the impact of COVID and major non-pandemic news over the past six months. Finally I compared where they trade today with where I predicted they would be.
Based on my intuitive estimate of a stock’s price since the pandemic — the COVID Delta is the difference between that expectation and the actual price. A positive number indicates a stock priced below my expectation, that might be a good buying opportunity. A large negative COVID Delta makes me think twice about an investment. Here are some examples from early August.
| Analysis | 8/8/2020 Anticipated | 8/8/2020 Actual | COVID Delta | |
| AAPL | While COVID has closed Apple stores and caused minor disruptions to supply chains, work from home has driven demand for Apple devices. At the same time, Apple has continued to execute on its move to services based revenue streams. | +20% | +37% | -17% |
| AMAT | Semi equipment purchases are generally long term decisions, so COVID impact should be small. Semiconductor demand and innovation have been strong over the past six months | +10% | +0% | +10% |
| AMZN | Large near term gain on core business and medium term gain from accelerated digitization. Longer term elimination of B&M competitors. | +30% | +45% | -15% |
| AON | Short term negatives due to higher claims processing costs and business customer (business) cost cutting and lack of business volume. Medium term negative due to carrier uncertainty. Long term benefit from increase in incurable risk. | -15% | -18% | +3% |
| ARWR | Continue to advance multiple treatments through trials. Some disruption in ability to execute trials due to COVID. Have some potential COVID solutions, but seem unlikely to have a big financial impact due to a large number of competitors … some further ahead. | +0% | +0% | +0% |
| AVAV | Defence business should see minimal impact from COVID and the value of other businesses is mostly medium-long term. Advances by Starlink over the past six months cut into opportunities for HAPS. | -5% | +31% | -36% |
| CSCO | Positive impact from increased WebEx demand and accelerated digitization. Negative uncertainty from reduced on-prem business demand and back-to-work uncertainty. | +0% | +0% | +0% |
| CVA | Negative due to reduced commercial activity and depressed commodity prices. Negatives amplified by less value in future innovation/growth | -15% | -35% | +20% |
| DOW | Negative due to short term decrease in demand for manufactured goods. Positive due to increased demand for PPE materials. Positive due to cheap natural gas. Negative due to increased trade tensions with China. Negatives amplified due to lack of future growth/innovation. | -10% | -11% | +1% |
| ECL | Short term negative due to reduced hospitality, commercial, and elective medical demand. Long term positive due to cleaning focus. Positives reduced by COVID transmission being more airborne than surface | -20% | -6% | -14% |
| EXAS | Short term negative due to inability of sales teams to meet with doctors. Short term positive due to COVID testing revenue. Long term positive due to accelerated adoption of telemedicine and direct digital relationships with customers from COVID testing. | +20% | -13% | +33% |
| FSLR | COVID should have minimal direct impact on utility scale solar installation. Positive impact of increased likelihood of Biden presidency due to focus on promoting/subsidizing solar. Positive impact of reduced likelihood of improved relationship with China making near term removal of protective tariffs unlikely. Stock was already down going into CO VID, so think about the correct baseline. | +20% | +30% | -10% |
| HON | Mix of businesses that benefit (PPE and warehouse automation) and are hurt (aerospace) by COVID. Sales are off ~15% due to COVID, but likely to bounce back quickly as travel comes back. HON has also become a player in quantum computing. | +10% | -13% | +23% |
| IBM | Positive from increased digitization. Negative for services business from short term cost cutting due to uncertainty and direct COVID impact. Past six months performance to roadmap in-line. | +0% | -17% | +17% |
| ISRG | Significant negative short term impact of CO VID on elective procedures. Negative medium term impact of inability to train new doctors. Medium term positive impact of increased desire to reduce inpatient procedures, and the backlog of procedures to be performed. Competitor introduction of competing products delayed. No major changes outside of COVID. | -5% | +13% | -18% |
| KMI | Short term negative due to reduced oil and gas demand. Med-long term negative due to increased chance of Biden presidency and aggressive focus on de-carbonization. Positive due to weakness among competitors and likelihood of getting additional assets at better prices. | -10% | -34% | +24% |
| NVDA | Positive due to accelerated digitization. Short term negatives on demand and production seem minimal. Apart from COVID it has generally been doing well vs. roadmap. | +20% | +51% | -31% |
| OLED | Significant short term negative impact from COVID, but most value is in out years and future growth of OLED. Good execution against long term roadmap over past six months (e.g. new OLED TVs and phones). Also continue to advance technology (OVJP). | +0% | +5% | -5% |
| RTX | Minimal impact to defense business. Major negative impact to commercial business. Value of pre COVID baseline limited due to merger. | -10% | -36% | +26% |
| SBUX | Short term negative due to closed and limited stores. Medium term negative from more work from home. Long term positive due to less competition and cheaper real-estate. | -20% | -15% | -5% |
| SPY | Near term significant negative impact to US and global economy. Medium term some parts of the economy may be permanently diminished. Large number of workers might need to be re-trained. On the positive side likely to drive innovation and accelerate adoption of new approaches and technology. Fighting COVID also drives some economic activity. Pre COVID there was a sense that the S&P was a bit overvalued. | -10% | -10% | +0% |
| T | Positive impact of increased work from home demand for internet, mobile, and HBO. Negative from decreased on-prem demand and on-demand adoption hurting direct TV. Potential negative from difficulty producing new content. | -10% | -21% | +11% |
To see how I did, see COVID Delta Part #2.