eResearch | The COVID-19 pandemic has market pundits being as unpredictable as the stock market due to CEOs of various investment firms each stating different opinions on when a recovery is expected and how to strategize current investments.
See below details on opinions from various CEOs and seasoned investors.
Warren Buffett Dumps Airline Stocks
This week, Berkshire Hathaway, Inc. (NYSE: BRK), a holdings company led by billionaire Warren Buffett, sold all airline-related stocks from its portfolio, shortly after last month when it sold US$314 million in shares of Delta Air Lines, Inc. (NYSE: DAL) and US$74 million in shares of Southwest Airlines Co. (NYSE: LUV).
- Warren Buffett said “We like those airlines but the world has changed…. and I don’t know how it’s changed”, as he speaks to the uncertainty for the airline industry in light of the emerging pandemic.
- The largest airline company, Delta, is down 59% in stock price year-to-date, with United Airlines Holdings Inc. (NASDAQ: UAL) and Southwest Airlines down 70% and 36%, respectively.
- Southwest Airlines CEO, Gary Kelly, said the first week of April was the worst period for his company during the COVID-19 pandemic, and he has low confidence for any improvement next month.
- According to Airlines of America, aircraft and passenger volume is down 90% year-over-year.
- Last month, the U.S. government bailed out airline companies with a US$25 billion program, which will be structured as part-grant and part-loan.
Leon Black Seeks Opportunities in Credit Market
Leon Black, CEO of Apollo Global Management Inc. (NYSE: APO), is confident their value-oriented investment philosophy, which emphasizes downside protection and lower leverage, has placed them in a comfortable position to navigate through the recent economic downturns.
- Apollo has more than US$300 billion in assets under management, with US$77 billion in private equity, but its stock price is down more than 20% year-to-date.
- Leon Black was a significant investor in distressed debt during the last financial crisis, and is now interested in the credit markets during the present crisis.
- Mid-April, Leon Black said, “There was a quick high-grade opportunity a few weeks ago, and that basically bounced back. It was basically a one-week window. And now, I think it will be a much longer, patient study of many, many different credits”.
- Apollo is currently looking at scenarios where the current pandemic lasts for up to 18 months and is looking at several industries including leisure and insurance.
Bill Ackman
Bill Ackman, CEO of Pershing Square Capital Management (AMS: PSH), stated optimism for an economic recovery, shortly after making significant profits through credit default swaps and sending warnings for a big drop in the stock market.
- In February, Ackman used credit-default swaps to achieve returns of US$2.6 billion from a principal of US$27 million, and a month later, Ackman said “hell is coming” on a CNBC interview as he reached out to CEOs of vested companies to increase liquidity and stop buyback programs.
- Ackman is now gaining confidence in the recovery of the markets as nearly all of U.S. is in lockdown and cases of the COVID-19 virus appear to be at peak point.
- Ackman’s optimism is also supported by prospects of new treatments such as hydroxychloroquine, reduced regulations for vaccine development, and government stimuli such as reduced interest rates.
- In an interview, Ackman shared his recent investments including Hilton Hotels Corp. (NYSE: HLT), Restaurant Brands International Inc. (TSE: QSR), and Starbucks Corporation (NASDAQ: SBUX).
Tony DeSpirito Identifies 5 Areas of Change
Tony DeSpirito, Chief Investment officer of U.S. Fundamental Active Equities at BlackRock, Inc. (NYSE: BLK), identified five areas of change that investors should focus on in light of the COVID-19 pandemic.
- The first change is a lower contact environment, in which technology will allow facilitation of remote offices, online education, online gaming, and streaming.
- The second change is a move from the current trend of globalization to localization, in which corporations and governments will focus on domestic supply chains, resulting in higher product prices.
- The third change is a redefinition of a strong balance sheet, as many companies currently in need of capital are excessively indebted without the proper liquidity to reduce risks of outlier situations that affect revenue for a long term.
- The fourth change is an acceleration in growth for Environmental, Social, and Governance (“ESG”) investments, as its importance grew during the pandemic with corporations supporting employees, customers, and communities with various initiatives.
- The fifth change is a depressed leisure industry, which is expected to have a slow rebound as a vaccine is yet to be developed.
David Rosenberg Sees Lack in Consumer Confidence
Finally, from a research perspective, David Rosenberg, the Chief Economist & Strategist of Rosenberg Research & Associates, expects the economy to continue deteriorating until consumer demand returns to normal, as without their participation there is no sustainable recovery.
- Consumer confidence is declining as businesses close and unemployment rises, with households who experience a full year of unemployment reducing discretionary spending over two to four months.
- The U.S. unemployment rate hit a 12-month high with the consensus at 16%, the highest since 1939.
- It is uncertain when consumer confidence will return, and it will take time for industries such as leisure and hospitality to recover as the discretionary industries experienced significantly high growth rates in the past 11 years.
- If a recession hits, it will take a long time to recover for most industries; after the 1980 recession, the commodity space took 10 years to recover to previous stock prices, and after the 2000 dotcom bubble, the technology industry took 17 years to recover to previous stock prices.
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Links to the article:
- Warren Buffett: Buffett says he dumped entire stake in airline-sector stocks: ‘The world changed for airlines’ amid coronavirus
- Leon Black: Leon Black says market downturn has ‘shown us the benefit’ of Apollo’s strategies
- Bill Ackman: Last month Bill Ackman said ‘hell is coming.’ Now he’s ‘optimistic.’
- Tony DeSpirito: 5 ways the world could change: An investor watchlist
- David Rosenberg: David Rosenberg: Sorry, but we won’t be spending our way out of this downturn
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