22 May 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.

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.