Brief: Wall Street was set to open higher on Friday after tech titans Apple, Amazon.com and Facebook posted blowout quarterly earnings, helping keep nagging pandemic nerves at bay. Apple Inc surged 7% premarket, setting the stock on course to open at a record high, as it delivered year-on-year revenue gains across every category and in every geography.
Amazon.com Inc jumped 6.2% after posting the biggest profit in its 26-year history, while Facebook Inc gained 6.7% as it reported better-than-expected revenue. Trading in Alphabet Inc was more subdued as quarterly sales fell for the first time in its 16 years as a public company.
Brief: Pacific Investment Management Co. runs a hedge fund registered in the Cayman Islands, a common structure for avoiding certain U.S. taxes. But when a profit opportunity arose from the ashes of America’s coronavirus crisis, that international location did not stop it from seizing the moment. The Federal Reserve opened a highly anticipated emergency lending program in June, a revamped version of one it used during the 2008 financial crisis. This time around, Congress stipulated that only American companies could participate as borrowers in such programs. Despite being offshore, Pimco’s fund had an easy way to benefit. The offshore fund is invested in an entity registered in Delaware. That entity can be used by investment managers to buy and sell bonds. The Delaware operation borrowed $13.1 million from the Fed program by pledging a bundle of debt as collateral. Investors in the Cayman-based hedge fund ultimately stand to profit from the transaction.
Brief: The Covid-19 pandemic has produced winners from a wide array of sectors, with technology leading the charge, but there are several surprising stories that have come to the fore. Citywire + rated manager Raphael Pitoun, who runs two equity funds at CQS Investment Management, told Citywire Selector about one area that has proven its worth for his portfolios – pest control. Pitoun said Rollins Inc is a market leader in pest control but showed its ability to pivot during the crisis, switching from dealing solely with pests to redeploying its workforce to aid in the major drive to improve workplace hygiene. ‘It’s typically a business that is not particularly sexy or maybe it is less flashy than the likes of Tesla or the other Faangs [Facebook, Amazon, Apple, Netflix and Google],’ he said. ‘It’s a business that exists for a very long time with a good amount of growth. What we learned over the last few years is that people that have a leadership position in one market they tend to accentuate this position and do little else
Brief: Principal Financial Group has discovered that COVID-19-related deaths are only about half as damaging to earnings as the company once expected. The Des Moines, Iowa-based insurer has been trying to estimate how much COVID-19 will affect after-tax operating earnings. The company has now cut the predicted impact to a $10 million reduction in operating earnings per 100,000 U.S. COVID-19-related deaths. Earlier in the year, the company had estimated it might face $20 million in impact per 100,000 U.S. COVID-19-related deaths. “This reduction reflects a lower incidence of COVID-related deaths in our insured population,” Deanna Strable, Principal’s chief financial officer, said Tuesday during a conference call.
Brief: Investment bank Lazard Ltd (LAZ.N) on Friday reported an 8% fall in second-quarter adjusted earnings per share, a smaller drop than analysts had expected, as the slowdown in corporate dealmaking due to the COVID-19 pandemic weighed. The slump came as global M&A activity, one of Lazard’s main revenue drivers, tumbled to its lowest level in more than a decade in the second quarter, as companies gave up on expansion plans to focus on protecting their balance sheets and employees in the wake of the coronavirus outbreak.
Larger M&A activity has shown signs of picking up in the third quarter with 40 deals worth at least $1 billion announced during this month, down almost one third on July, 2019 but up 29% from June, according to Refinitiv data. “The one thing we’ve learned from this pandemic is that it’s reasonably difficult to predict the future. That said, it feels like Q2 probably turns out to be the low (M&A activity),” Lazard Chairman and Chief Executive Kenneth Jacobs said in an interview.
Brief: We're starting to get second-quarter investor letters from hedge funds, and as would be expected, COVID-19 features prominently in them. One fund manager pointed out that despite the recession caused by COVID-19, the bulls are running in the market. Other fund managers have highlighted the opportunities presented by share price dislocation due to the coronavirus. At least one fund manager firmly believes the concerns around COVID-19 are overdone despite the running of the bulls in the market. Bull Market Coincides With Recession: Jacobs Asset Management Managing Partner Sy Jacobs said in his second-quarter letter to investors that it's strange how the bull market has continued despite the recession triggered by COVID-19. He said a short list of story, momentum and growth stocks has been leading the bull market.