Corona Virus Selloff an Overreaction - Now is a Good Time to Buy Stocks

Corona Virus Selloff an Overreaction - Now is a Good Time to Buy Stocks

Maybe I am missing something but world is not going to end. Flu already exists all over the world and hundreds of thousands of people die each year but life goes on for rest of the world. I think this panic with media hype is making things seem worse than they are. People will recover and a vaccine will be created in next few months and world will be fine. 

If interest rates remain low like now with US 10 year treasury bond yielding 1.18% and Euro and JPY 10 year debt yielding 0%, people will flock back to stocks of great businesses and stock market will reach heights again as good businesses continue to generate cash and grow intrinsic value. The only reliable way to retain value and to make income is to buy stocks or invest in alternative investments. 

I believe this is a good time to buy stocks of world leading companies with low debt and competitive moats.

US S&P 500 Index 1 Year Chart

US 10 Year Treasury Bond Yield 20 Year Chart

S&P 500 In Correction Territory

S&P 500 In Correction Territory after falling from 3390 to 3300 on 27Feb2020. This has been the fastest 10% correction ever for S&P 500 as the recent high was made just a week ago on 19Feb2020. 

It has to be kept it mind that this correction is happening after a strong 2019 when S&P was up 30%. However in the same time the 10 year and 30 year US Treasury Bonds have collapsed to 1.25% and 1.8% yield compared to a year ago when 10 year and 30 year US Treasury Bonds has 2% and 3% yield. Given that and low interest rates exist across the world and investors have no where to go for decent return a higher multiple in stocks is understandable. 

The worst hit sector has been Travel and Leisure with 30% correction. This includes Cruise, Travel Booking and Airline stocks. The outlook is challenging for these companies near term. Also Banks, Semiconductors, Industrials and Metals/Commodity sectors are in correction territory with 10-14% losses. Oil and major commodities are down which should help most of the economies recover. Healthcare and Consumer Staples and Utility stocks are at close to 7-10% correction. 

The all important Tech sector also has had a 10% correction with major names including AAPL, GOOGL, FB, AMZN, MSFT all retracting from 52 week highs.

The near term future is uncertain as there is some chance the Corona Virus could become a pandemic and push some regions and possibly global economy into slower growth or a recession. However I believe the long term fundamentals for strong companies outside travel sector remain good especially if interest rates remain low over next 3-5 years. In a way this correction could turn out to be healthy for the market as it shakes out complacency and resets expectations of investors. 

Top Picks on Coronavirus Selloff

Top Picks on Coronavirus Selloff

1. FB - $200 and below (20*Fwd PE ex Net Cash) (15-20% EPS Growth Rate)

2. V - $190 and below (30*Fwd PE, 13-17% EPS Growth Rate)

3. LMT - $375 and below (15.5*Fwd PE, 7-10% EPS Growth Rate)

4. RTN - $180 and below (14*Fwd PE, 7-10% EPS Growth Rate)

5. BX - $50 and below (15*Fwd PE, 10-15% EPS Growth Rate)

Berkshire Hathaway 4Q2019 Results Overview

Berkshire Hathaway 4Q2019 Results Overview Shows that Per BRK-B share an owner indirectly owns $100 per share in Stock Equity Holdings (AAPL, AXP, BAC, KO etc, excludes KHC which is $10B), $60 per share in Cash Equivalents. Considering operating Earnings per share in child companies and removing adjusted liabilities for debt and insurance float the fair value of BRK-B is in a range of $250-$300 in our opinion. BRK Insurance Float increases to $129B. 

A lot depends on how the $130+B excess cash can be invested and Buffett has done a poor job of this in last 4 years. Outlook in this regard is cloudy and this has slowed down the growth of BRK value. BRK only bought back 1% of shares in 2019 ($5B worth) which does not move the needle. BRK shares were up 11% in 2019 and S&P was up 32% including dividends. 

Berkshire Hathaway 4Q2019 Results

US 30 Year Treasury Bond Yield drops to Record Low 1.92%

US 30 Year Treasury Bond Yield drops to Record Low 1.92% and US 10 Year Bond Yield slumped to 1.47%. 

I can only imagine what will happen to stocks if US Govt bonds follow Euro and Japanese bonds with 10 year bonds yielding 0%. Stocks could go parabolic and alternative investments including infrastructure and real estate values would swell further. 

These are dangerous times in the Investing World. Most likely these manipulations would lead to a grave crisis of some sort one day. 

US 30 Year Treasury Bond Yield Drops to Record Low

Alex Umansky Baron Global Fund Manager - Top Positions.

Alex Umansky Baron Global Fund Manager - Top Positions.

This Investor has a great record in investing in Disruptor companies. He has invested in AMZN, FB, GOOGL, BABA from IPO and held them and continued to invest in them. 

Alex Umansky Baron Global Fund Manager - Top Positions

India’s Telecom Sector On The Ropes - $13B Levy Due

India’s Telecom Sector On The Ropes as latest Supreme Court if India Ruling means $13B Levy is due from Vodafone Idea and Bharti Airtel. 

Vodafone Idea, Reliance Jio and Bharti Airtel each now have 30% to 33% market share. After Reliance Jio neatened the market in 2016 and offered free phone calls and cheap data plans ARPU fell for Rs 400 to Rs 80 which is not sustainable in the long run. 

Indian Govt needs to bail out the Telecom Sector for the 3 players to survive. Jio is well positioned after having sold Telecom Towers to Brookfield and deleveraged but Vodafone Idea and Bharti Airtel will struggle with debt and may be forced to sell their Telecom Towers to raise cash. The future is bright for survivors as 1.2 Billion customers await to be serviced for the next decades in India. 

India’s Telecom Sector On The Ropes - $13B Levy Due

Indian Telcos Pay Part of Dues on Supreme Court Order

SL Green Announces Sale of 315 West 33rd Street in Manhattan and Land Parcel to Brookfield for $446.5M

SL Green Announces Sale of 315 West 33rd Street in Manhattan and Land Parcel to Brookfield for $446.5M. This is very close to Manhattan West development of Brookfield. 

315 West 33rd Street Sale to Brookfield

Brookfield Asset Management 4Q2019 Results

Brookfield Asset Management (BAM) reported 4Q2019 Results that indicates the company is firing on all cylinders. The company is enhancing its moat after acquisition of Oaktree Credit Franchise and is well positioned along with BX to serve clients in this Low Interest Rate World. 

BAM Fee Paying AUM grew to $247B. FRE Excluding Performance Fees for 2020 are at a run rate of $1.3B. 

2020 Run Rate Fees Plus Target Carry could be $6B for the year which could imply $4B value creation from Asset Management Franchise. Add in the $1.7B to $2B income for BAM from listed and unlisted investments (Invested Capital Income) the total value creation could reach $6B for the year.

Overall BAM can be valued at $75 for 2020 end with $45 for Asset Management Franchise and $30 to $35 for Invested Capital Net of Liabilities. 

BAM has delivered 18% return over last 25 years and 20% over last 20 years. The company is much stronger today than ever before and has tremendous growth potential in Renewable Energy, Infrastructure, Real Estate and Credit. It is quite possible earnings and value can double over the next 5 years and continue generating compounded returns of 18-20% over next decade if business plans are executed to perfection and Low Interest Rates prevail. 

BAM 4Q2019 Letter

BAM 4Q2019 Results

Global Cloud Computing Market Analysis

Global Cloud Computing Market Analysis shows that for 2019 AWS was #1 with revenue of $35B and 36% revenue growth rate and accounting for 32% market share. MSFT was a strong #2 with $18B revenue and 64% growth rate and accounting for 17% market share. GOOGL with a late start has a presence now with $6B revenue and 88% growth rate. 

AWS with its innovation edge and MSFT with its entrenched  enterprise client relationships are well positioned to grow while GOOGL has the capital and scale to compete. 

The nascent IT Cloud market with only $110B revenue is well positioned to grow exponentially over next 2 decades as migrating to the cloud saves cost for the businesses. 

Brookfield Global Infrastructure Fund IV Raises $20B

Brookfield Global Infrastructure Fund IV Raises $20B. This fund had $15B commitments from Private Fund Investors and $5B from BIP and BEP which includes BAM contributions and Public Unit Holders Investment. 

The Fund is 40% invested and most likely rest of the fund will be invested over next 2 years so likely next fund could be raised in 2022 and beyond. Previous Infrastructure Fund that closes in 2016 raises $14B in total. If not for BX recent entry in Infrastructure I would have imagined a bigger fund for Brookfield. 

Over the last 24 months, Brookfield has raised more than $50 billion across its flagship private fund strategies, including the close of its flagship real estate fund, Brookfield Strategic Real Estate Partners III, at $15 billion, and its flagship private equity fund, Brookfield Capital Partners V, at $9 billion, and co-investment capital across each fund. All three flagship funds surpassed their fundraising targets.

Brookfield is hoping to raise $100B in next cycle of fund raising over next 3-5 years including Oaktree Credit Strategies. 

Brookfield Closes US$20 Billion Global Infrastructure Fund

Brookfield Buys 40% of India’s IndoStar Capital for $220M

Brookfield Buys 40% of India’s IndoStar Capital for $220M  . BBU will own 15% of company with rest owned by private funds managed by BAM. 

Brookfield has been eyeing Financial Services companies in India since the Financial Crisis in India of 2019. IndoStar is a financing company that lends money to small business. 

Brookfield Buys 40% of India’s IndoStar for $220M

IndoStar Finance Investor Peesentation