Some Specialist Skills Required

Some Specialist Skills Required

It took around 24 hours for market participants to start asking questions about the viability of stocks running into the stratosphere on what might fairly be described as the most exciting scientific breakthrough of the pandemic era. It's not that anyone "wants" to be pessimistic, it's just that even under the most optimistic scenarios for distribution of a shot, the economic impact likely won't be felt for quite a while. And the news itself seems to have prompted some reluctant GOP lawmakers i
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3 thoughts on “Some Specialist Skills Required

  1. Here is what confuses me. Is having a vaccine a surprise? Yeah, 90% effective is incredible, if it can be believed. But still how does this qualify as not discounted. Maybe it is just the needed excuse to blowout weak shorts and for retail longs to buy in at the top. IDK, but just saying, there is a great deal of faulty logic being applied here

    1. There is a difference between knowing intellectually that the tunnel has an end and seeing a distant glimmer of light in the darkness. One is logical the other emotional. Despite all the robo-traders in the market emotions still matter.

  2. Couple comments.

    First, a lot of investors and a lot of people in general believed the “it takes a decade to develop a vaccine” talk. I don’t mean had it as a remote risk, but they actually treated that as the most likely case. So they have to re-assess.

    Second, the Pfizer news has made the analytical job easier, for a type of stock. This would be the companies laboring under “shutdown” conditions – airlines, etc. The scenario of pandemic shutdowns stretching into 2022 is now off the table, the scenario of shutdowns lifting in 2H21 becomes very high probability. So you can focus on cash burn, opex structure, attainable margins assuming revenue returns to some percent of previous, and maybe some competitors going away. That last remains quite uncertain – we really “should” see AMC disappear to the benefit of CNK, AAL disappear to the benefit of LUV, countless independents disappear to the benefit of DRI, etc etc – but government largess might still save some of the walking dead. So, you assume the competitive landscape will remain unchanged, and then BKs are gravy.

    Third, the news has made the analytic job harder, for another type of stock. This would be the “Covid forever” companies – the PTONs and NFLXs. How much will revenue growth be reduced in a re-opened world? Granted, it is just as hard to figure out as how much will revenues recover in a re-opened world for the “shutdown” companies. But the sensitivity of valuations to the answer is so much higher for the “Covid forever” names, due to multiples, duration, and expectations. If investors decide that DIS’ 2022 park revenue will be -20% less than 2019 revenue, the stock still has upside. If investors cut PTON’s 2022 revenue by 20%, the stock will be bottomless.

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