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The Pandemic Portfolio – Update 3

On March 25th we expanded our Pandemic Portfolio to 24 stocks we thought would benefit from the new remote economy.

Then on April 16th we checked in to see how they were going which you can read here

The market has continued to advance during that time so we thought it would be interesting to see how our portfolio is going.

This is a good indicator to show how the market is thinking. If these stocks have continued to outperform the general market then it means investors think our present socially locked-down status is here to stay awhile longer.

However, if these stocks are slipping behind the general market then it means things are getting back to normal and traditional businesses, previously out of favour are gaining attention again.

So let’s have a look at what has happened between April 16th, our last update, and May 21st.

Ticker Company Industry Gain/loss
CLX Clorox Bleach/Wipes +1.48%
GILD Gilead Corona Treatments -3.97%
REGN Regeneron Corona Treatments +3.90%
TDOC Teladoc Digital Doctor Visits +0.42%
WORK Slack Digital Workforce +7.69%
ZM Zoom Video Digital Workforce +14.49%
PTON Peleton Home Exercise +24.62%
CHGG Chegg Online Education +75.05%
TWTR Twitter Online News +21.81%
PETS 1-800-PetMeds Online Pet Healthcare +7.52%
CHWY Chewy Online Pet Shopping -10.51%
AMZN Amazon Online Shopping +1.60%
FB Facebook Social +31.29%
CPB Campbell Soup Staples Food -7.69%
HRL Hormel Staples Food -8.36%
JNJ Johnson & Johnson Staples Health -1.98%
PG Proctor & Gamble Staples Health -8.30%
NFLX Netflix Streaming Content -0.66%
ATVI Activision Video Games +6.50%
EA Electronic Arts Video Games -0.63%
TTWO Take-Two Video Games +8.97%
AKAM Akami Tech Internet Infrastructure -4.57%
ELY Callaway Golf <10 person leisure +37.29%
HD Home Depot Home Improvement +20.53%

In our last update, the average stock in our Pandemic Portfolio was up 18.80% handily beating the Dow Jones. Since then the average stock has gained a further 9.03%, but as you can see some have lost value.

As a comparison the Dow Jones Industrials index is up 4.0% over the same time period.

We are beginning to see some rotation. Take Netflix for example. This stock has gone backwards. It is easy to understand why. States are re-opening. People are going outside. That means less time spent inside watching TV. In my opinion I would be a seller of Netflix here. If you didn’t subscribe to Netflix whilst in lockdown you likely never will. With less people inside some will cancel their subscriptions and others will have watched so much content they will question if it is worth keeping a subscription when they have seen everything. Mark my words. This is the high point of Netflix subscriber numbers for some time.

The other losers were the staples. Johnson & Johnson, Proctor & Gamble, Campbell Soup and Hormel. I suspect this is simply because they got ahead of themselves and we are seeing a reversion to the mean. Nobody goes out of their way to spend more on staples. We want big TVs not cans of soup.

On the upside Chegg has a stellar run after smashing earnings numbers. But similar to Netflix I feel this one has shot its bolt and I could not bring myself to buy at these prices.

The other winner is Callaway Golf (ELY) that my colleague Paul tipped last week (read his reasons here) Again, no surprise. This stock got cut in half when the virus struck. But as restrictions relax then of course people head out to the golf course again

What this portfolio is showing us is the difference between winners and losers. How we live our lives is changing back to some kind of normalcy and so is the market. Stocks that were specifically set to gain from the virus are no longer the place to be

It is time to rebalance back to traditional companies with growing revenue streams.

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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