Atlassian – It Has A Great Team On Which To Play (NASDAQ:TEAM)


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Investing in the IT space can be done many different ways. For the most part, I think investors in this space ought to be looking for managements who take intelligent risks and who seek to maximize growth at least as much as they do short-term EPS. While everyone is trying to find the next Fastly (FSLY)-well until this week perhaps, or the next Twilio (TWLO), much of any thoughtful portfolio construction is going to be all about entering a well-known name such as Atlassian (NASDAQ:TEAM) at a fairly decent price. Much of my stock selection for my Ticker Target model portfolio is highly subjective, and relates to my perceptions of management choices with regards to growth vs. profit maximization. The news from Atlassian’s latest earnings release isn’t that the company announced a beat. The news is that the company is doubling down on its technology investments during the current period of economic contraction and is willing to accelerate technology commitments to foster growth as the economic impacts of the pandemic abate. I find that the leadership team at Atlassian meets my criteria broadly speaking, with a willingness to take on risks despite the pandemic and to make sizable commitments to growth even at the cost of short-term earnings. I am also encouraged that the team at Atlassian had reported the same kind of incremental business progress that most other software companies have seen with the impacts of the economy on the company’s business tapering off progressively. I was surprised to see that one writer on SA seemingly ignored management commentary about the impact of the pandemic and how it had waned.

Here are the specifics of what Atlassian is seeing in the market: “I note on the COVID driven impacts that we saw the greatest impact in April, less of an impact in May, and then again less in June, and so as you take a step back and think about the macro economic impact and free, you know, we believe that both of these drivers will ebb over time in terms of their headwinds to customer growth.”

I do recommend buying Atlassian shares or adding to a position. I have been an Atlassian shareholder for some time now, and while I have traded around a position, I expect to maintain a holding in the shares for years to come. Today’s software pullback, engendered by some realization that the economy does produce a headwind for most enterprise software companies presents a further opportunity. While notionally, the use of Jira, the main offering of Atlassian can be used as part of a remote work solution, this company, with more than 170k customers sells to businesses of all sizes, who have experienced all kinds of impacts from the virus and the contracting economy. Atlassian had a decent beat last quarter, and provided in-line guidance for the next quarter. It showed no evidence of hitting any wall-it did show evidence that even software companies are likely to see some impact from a severe economic contraction-just far less than other kinds of businesses.

I wouldn’t necessarily recommend buying Atlassian shares because the set-up with regards to another beat in terms of reported quarterly growth is a good one. Obviously, as the passage above strongly suggests, the economic impacts brought on by the virus are progressively lightening, and yet the company has forecast minimal sequential growth in the September quarter and is not providing full year guidance. Last year the company saw sequential growth of 8.6% in the September quarter, and then achieved 12.3% growth in the December quarter. To me that indicates that the odds are pretty strong that the revenue forecast of $430-$445 million for this current quarter will be surpassed. In years past, Atlassian has raised prices for some of its products that impacted the December quarter to a certain extent. As the company has shifted more of its revenue to the cloud, with typical one year terms, that kind of strategy isn’t as feasible. This year, management articulated during the conference call that its plan is not to raise prices materially given the less than stable economic conditions of many of its customers and it advised analysts to eliminate that tailwind from current models. I believe my model, which is based on 25% full year revenue growth through June of 2021, and not much sequential improvement in percentage revenue growth until the end of the fiscal year is consistent with that sentiment.

At this point, as mentioned Atlassian is not providing full year guidance. Atlassian is a company whose products have been acquired by SMB’s and enterprises across all geos and across all verticals. In particular, Atlassian has traditionally sold Jira to a large number of development teams in smaller enterprises. The company has seen some churn in that base since the start of the economic slowdown; management doesn’t feel that it has the requisite visibility to determine just how the interplay of churn, the impact of monetizing the free tier of users, and the discounted cloud migration offers will play out over the course of the coming year to provide annual guidance. That really is not something that should greatly upset longer-term investors.

Since the start of the pandemic, Atlassian has been viewed to some extent or the other as a work-from-home company deriving some benefits from the turmoil that has been the result of the reaction of enterprises to the scourge of the pandemic. Atlassian shares have risen 45% year to date, although they have been flat the last 90 days. By comparison, the IGV has risen by 33% YTD and has risen 20% in the last 3 months. So, whatever premium Atlassian has enjoyed because of some perceived tailwinds from reactions to the virus has been worn away significantly in the last 3 months

There is no real evidence that other than the advent of the economic contraction that Atlassian is seeing any long-term reduction in its growth rate. It has seen some users pause projects and seat additions, and other users churn-not, perhaps to a degree similar to that articulated by Alteryx (AYX) Thursday afternoon, but demand headwinds are blowing across most segments of the IT space with the exception of cyber-security. I will discuss some of the company’s growth drivers later in this article, but the company’s mainstream Jira product including its various flavors continues to be adopted as part of modern technology workflows. Indeed, it is my belief, that the additions this company has made to its product line have dramatically expanded its TAM, and that its highly efficient viral go to market motion continues to work well and should work well for the foreseeable future.

I think it is a mistake of the first water to view Atlassian as a middle aged software vendor with middle aged prospects. The pandemic is a headwind of indecipherable severity which is being dealt with more or less successfully by Atlassian using a variety of sales tactics which will have different impacts over different time scales. But the company is doubling down of growth investments, and those should substantially reaccelerate growth beyond the current consensus estimate of 22% shown by 1st Call as the consensus revenue growth forecast for fiscal 2021.

As mentioned, the company hasn’t provided full year guidance as a function of the uncertainties and lack of visibility caused by the pandemic and the unknowable impact of the economic contraction on its ability to achieve its sales objectives. I think that analysts who have cited the lack of full year guidance as a negative in evaluating the shares are not appropriately evaluating the company’s product set, its cloud transition strategy, and some of its newest and most unique offerings which are in the process of rolling out. This is not a company rolling into senescence; it is a company lead by two incredibly productive and knowledgeable tech entrepreneurs who are driving the business toward new opportunities.

In my own model, I have used 12 month forward revenue estimate of $2.02 billion, which is based on revenue growth of 25% year on year. That is about 5% the current consensus, and but still implies a very modest percentage growth bounce back in the 2nd half of the year.

Atlassian shares have never been cheap-at least in the years since I have followed it. The company’s EV/S ratio, currently about 22X forward sales as I have calculated them, is about 20% above average for the company’s 30% growth cohort. I think the premium is well justified as the company has a unique business model which simply expressed trades off investment in sales and marketing for investment in research and development and provides users with pricing that is low enough to foster a viral use of the company’s offerings. The net of that strategy has been much higher operating margins than most companies of Atlassian’s size and growth rate cohort and its free cash flow margin of about 34% is at the top of the range for any of the company’s I evaluate.

Despite the pullback after the numbers were reported, the shares are up by 45% year to date, having made a new high just before earnings. The shares have fallen 11% since that point-it is a decent opportunity to either initiate or add to positions in this name, and one that I have taken in the high growth portfolio of Ticker Target, the service we offer investors. For growth stock investors, Atlassian is about as good a fit as they are likely to find in the universe of IT infrastructure names. A core holding in my opinion.

The specifics of the Atlassian Quarter

Late last week, Atlassian (TEAM) released the results of its most recent quarter. Not terribly surprisingly, the company substantially beat the prior consensus. The company reported 29% revenue growth reaching $430 million in revenue in the quarter, compared to the prior consensus revenue forecast of $409 million. In addition, the company’s EPS rose 25%, and was 25% above the prior consensus estimate. The results weren’t terribly surprising because Atlassian has beaten estimates/guidance consistently for some years now. It is what they do.

Also what they do is to guide to levels that frequently engender negative reactions. I am not terribly sure why that tactic would surprise analysts or traders-it has been going on for a long time now and it usually affords investors a decent entry point into the shares. Sometimes the guidance is worse than others-and it hasn’t been unknown for the company to provide an upside to guidance. But during the economic contraction of the magnitude through which we are now moving, articulating conservative guidance for Atlassian, and failing to furnish a full year forecast was probably a foregone conclusion.

The company added 3000 net customers last quarter, a substantially smaller add than in most recent quarters. Part of the reason for the low number of net adds was a function of a new free tier for pricing. This tier has substantial limitations in terms of capacity, support and overall functionality, but it is an important tool Atlassian has been using to attract new users during the current economic contraction. I have linked here to the specifics of the offer: Atlassian adds free tiers for Jira and Confluence

The company forecast Q1 revenue growth of 23%, essentially consistent with the pre-earnings release published estimate. The company’s forecast for non-IFRS EPS for the quarter was a couple of cents below the prior consensus at $.26-$.27. Essentially, the forecast is predicated on a spending plan that calls for continuing sequential investment in opex, with flat revenues. I would be surprised if Atlassian did not achieve substantially greater earnings and free cash flow than it has forecast.

Atlassian’s Pivot to the Cloud and its response to the challenges of selling in a constrained economy.

For the last several quarters, Atlassian management has been speaking about a product strategy that encompasses building what Mike Cannon-Brookes, co-CEO described as a “kick-ass” cloud offering. Of the company’s 174k customers, 150k use the company’s cloud products. That said, something like 75% of the company’s paid users continue to deploy some Atlassian products behind the firewall. The company has been offering those users specific transition assistance that allow them to migrate to the cloud without losing their investment in on-premise products that have been previously bought and paid for. By now, the company receives 60% of its revenues from subscription, and subscription revenues grew by 43% last quarter. Perpetual license revenues are no longer a major component of Atlassian’s income-they were less than 5% of revenues last quarter and fell 10% year on year and are expected to decline another 50% this coming year.. About 29% of the company’s revenues are coming from maintenance but as users transition to the cloud, maintenance revenues will probably reach an apogee sometime in this coming year.

In all, Atlassian’s transition to the cloud, which includes the aforementioned special offers for cloud migration and a free tier of cloud service as well, is probably shaving 500-800 bps of growth this year, and perhaps some lesser impact into fiscal 2021. But as with most such transitions, the costs being absorbed in the current fiscal year will positively impact revenues in future quarters. While there probably always be users of Jira who want to use it behind the firewall and supply their own infrastructure, I expect that the transition will be essentially complete within the next 12-18 months, and thereafter it will be producing benefits for the company.

At this point, revenues from Atlassian’s cloud offerings account for slightly less than 50% of Atlassian’s total revenue. On the other hand, 95% of Atlassian’s new customers sign up for the cloud versions of Jira, Confluence and other Atlassian offerings. :Last year, migrations from server to cloud increased by 60%. Atlassian management believes that its cloud users get a better experience using cloud solutions and ultimately wind up spending more on the company’s solutions and are less likely to churn and more likely to add seats and modules. So, as they describe it-a win/win. I would be surprised if the transition to cloud did not generate a substantial uplift in average revenues per user over the course of several years and self-evidently, the cloud is a more effective way for the company to distribute upgrades and enhancements to users.

Since Atlassian doesn’t have a significant direct sales force, this transition has to be fostered by product innovation, effective migration tools, partner services and discounts. Given the very long-lived nature of the infrastructure of what Atlassian offers, the economics of a transition to cloud is highly likely to produce extra growth for Atlassian that is really not yet baked into longer-term growth expectations.

Atlassian: Its parade of offerings just gets longer and longer

I think what investors sometimes miss when they consider Atlassian and its valuation is the rather unique business model the company maintains. The business model, which is part of the guiding philosophy of the founders basically since they launched the business after graduating the University of New South Wales, continues to feature an exceptionally high research and development expense ratio, and an exceptionally low sales and marketing expense metric. If I had to encapsulate the philosophy it is something to the effect that if you provide developers the tools to develop efficiently, and to enhance the experience of workgroups-or teams, you don’t need salespeople. Both of the co-CEO’s continue to be adjunct Computer Science professors at their Alma-mater and they have one of the strongest bromances I know of in the IT space. They are actually next door neighbors-although in their case that doesn’t quite mean the same thing it might mean to most readers-they own the two most expensive houses in Australia and I doubt that they borrow sugar across the back fence, although they were respectively the best man at each other’s wedding. When you buy Atlassian shares, part of what you get is a visionary management team with an exceptional track record of great decisions. It is my view that you cannot pay too much for great management-particularly in the IT space. That said, I do wish their staff would chip in and buy Messrs. Cannon-Brooks and Farquhar access to a barber and a new wardrobe. But that is just me-your 74 year old conservative writer.

Last quarter, the company’s research and development spend reached 63% of revenues on a GAAP basis, up 24% year on year. On a non-GAAP basis, the metric was 44%, up from 37% last year. In addition to spending what might only be considered a complete outlier on research and development, Atlassian buys technology-it bought Halp in May, and it announced the acquisition of Mindville in conjunction with this earnings release.

The point is that Atlassian spends a huge amount on product innovation, and that is one of the key reasons why it is not seeing any fundamental decline in percentage growth, and is unlikely to see any decline in that metric anytime soon. When investors look at Atlassian, they most often look at Jira-and so they should. But in addition to Jira, the company offers OpsGenie, a tool that is competitive with PagerDuty (PD), Datadog (DDOG), VictorOps ( owned by Splunk (SPLK), it offers Jira Service Desk, a competitor of NOW, and Trello, a list making/workflow tool. The Atlassian offering is extensive and I am not going to recapitulate all of it, but to an extent, when an investor buys Atlassian shares, they are buying far more IP per dollar” than is the case for many other IT vendors.

Atlassian doesn’t report its revenue by product type, but the products I have called out are surely components of IT infrastructure software experiencing very high growth rates, even if those growth rates are currently somewhat constrained in the economic environment wrought by the pandemic. In particular, OpsGenie, whose market is part is observability and IT asset management, has a TAM in the billions as does the company’s service desk offering.

Atlassian didn’t disclose the purchase price of either Halp or Mindville although I imagine it was barely more than trivial with Mindville somewhat larger than Halp. Halp is a tool that is said to be able to turn a Slack eco system into a kind of help desk. Mindville offers a product that models and manages assets and which was always built to integrate into Jira. Over time, a significant use case for Mindville is enabling Atlassian to be used for something called ITSM (IT service management). The service management space is quite large-the TAM is supposedly growing at 20%/year, and is supposed to reach $14 billion by 2025. In the study I have linked here: Cloud IT Service Management (ITSM) Market Size, Share 2025 Atlassian is ranked as having the highest strategic development index. The addition of Mindville’s solution, which had already been offered as part of the Atlassian Market Place probably will further cement the strong rating of Atlassian’s product offering.

The company’s business model-some specifics and thoughts about the coming year.

The company has a high, but not unusually high gross margin. Last quarter, the gross margin reached In 85% non-GAAP despite the free offerings and promotional migration pricing that was offered in the quarter. Gross margins actually improved from the 83% level reported the prior year, partially because of mix, and partially because of price increases the company has made over the course of the year.

In order to pay for the material investment the company makes in product development, it has perhaps the lowest sales and the company spent just 16% of revenues on sales and marketing in this latest fiscal year, compared to a ratio of 20% last year. I have to speculate that if this company raised its sales and marketing spend profile it could sell more product in the short term-but it relies on a viral approach to deliver leads-and overall the result of the strategy has been strong growth for years.

Overall, however, the combination of very high research spending, and very low sales and marketing spend has created a business model with a non-IFRS operating margin that was 19% last quarter, compared to 17% in the same quarter the prior year. Atlassian’s business model is certainly different, and it would not work the same way for company’s offering applications as opposed to the collaboration and infrastructure tools offered by Atlassian, I imagine.

The company has had a high-free cash flow margin; it was 33% last year, actually down slightly from 36% the prior year, mainly a function of the change in the company’s net loss on its capped call and exchange derivative transactions. That is more of a timing issue than a function of any change in cash generation; that metric more than doubled in Q4. In the past, Atlassian has not generated much deferred revenue. Many of its deals are monthly in nature, and even larger deals with enterprises have rarely seen lengthy duration and up-front payment terms. That might change over time as the company shifts more volume to the cloud where the largest users might be seeking larger, enterprise licenses. On the other hand, the company has been controlling its use of stock based comp and this will obviously limit the growth of cash flow. The company has had and will likely continue to have just minimal capex requirements.

The company has said that its plans include the hiring of 1000+ of “Atlassians” mainly in the development space. That is a huge number, given the base of about 4500 the company had at the end of the 2020 fiscal year. The company has said that it sees the pandemic as an opportunity to hire a large cohort of highly skilled developer resources. And the company is also continuing, as noted earlier, to continue to buy enterprises. Much of the focus of the company’s development efforts will be in what is called the DevOps space itself with a dozen new features, automations and integrations recently announced that promote the use of Jira as a single source of truth for developers. The company has seen its solutions in planning tools receive highly positive 3rd party evaluations.

The net of these plans is likely to constrain earnings growth, or turn it negative for a quarter or two in fiscal 2021. But ultimately, this kind of investment will result in a stronger level long-term growth and wider product differentiation, leading to more pricing power, and overall stronger margins.

Valuation

I have covered many of the reasons why I believe this company should be valued at a significant premium compared to many peers. Strong leadership, high margins, major IP differentiation, a record of accretive acquisitions and a culture of innovation are all factors that should be weighed when evaluating Atlassian as an investment. Ticker Target has a portfolio weighting in the shares of more than 8%.

The shares currently have an EV/S of just less than 21X, about 20% above average for the company’s low 30% growth cohort. On the other hand, its free cash flow margin is amongst the highest of any of the companies that I follow, rivaling that of Veeva (VEEV). I think there is plenty of positive alpha in this name and I think anyone interested in a growth portfolio in the IT space should consider this name.

Disclosure: I am/we are long TEAM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Microsoft, Nike, Unilever team up to combat global carbon emissions By Reuters


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© Reuters. FILE PHOTO: Unilever headquarters in Rotterdam

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(Reuters) – Microsoft Corp (O:), Nike Inc (N:), Starbucks Corp (O:), Unilever NV (AS:) and five other industry titans from various sectors are teaming up to help businesses globally achieve zero carbon emissions.

Called “Transform to Net Zero”, the group plans to recruit other members and will work with the Environmental Defense Fund and focus on delivering guidance, research and blueprints for businesses to achieve zero carbon emissions no later than 2050.

The announcement gave no details of any investment the companies would make, outlining only initial research and other work to be completed over the next five years.

Some aims for net zero carbon emissions include reductions across the entire value chain, including impact of products and services, and the substantial commitment and willingness to invest in and speed innovation.

The current alliance also includes French food group Danone SA (PA:), German automaker Mercedes-Benz AG, top shipping container firm A.P. Moller – Maersk A/S (CO:), Indian tech firm Wipro Ltd (NS:), and Brazilian cosmetics maker Natura & Co (SA:).

While many companies have made commitments to improve, critics say action by the corporate world still falls far short of the sort of far-reaching change needed to meet UN targets on emissions and capping the global rise at 1.5 degrees Celsius.

Microsoft in January had announced plans to be carbon negative, pledging to remove as much carbon as it has emitted in its 45-year history and allocated $1 billion to create a “Climate Innovation Fund” to invest in developing carbon removal technology.

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15 women accuse Washington’s NFL team of rampant sexual harassment in front office: report



“I have never been in a more hostile, manipulative, passive-aggressive environment … and I worked in politics.”

That’s Julia Payne, a former vice president of communications with Washington, D.C.’s, NFL team, quoted in a Washington Post report late Thursday describing a “nightmare” workplace for women amid a team culture of misogyny and rampant sexual harassment.

Fifteen women told the Post they were harassed while working in the NFL team’s front office between 2006 and 2019, 14 of whom requested anonymity because they were fearful of legal reprisals from the team. The Post cited interviews with more than 40 current and former team employees, as well as internal documents and text messages.

One woman who agreed to be named, former marketing coordinator Emily Applegate, told the Post she cried at work daily due to the constant harassment and verbal abuse she and other women experienced from top team executives, and the indifference she received after she complained.

“It was the most miserable experience of my life,” she said. “And we all tolerated it, because we knew if we complained — and they reminded us of this — there were 1,000 people out there who would take our job in a heartbeat.”

Applegate and the other women gave the Post numerous examples of receiving unwelcome sexual comments or overtures, and being told to wear revealing clothing and to flirt with clients. “I was propositioned basically every day at training camp,” one woman told the Post, claiming a coach and staffers invited her to their hotel rooms.

Three male members of the team’s front office have left their jobs in the past week, all of whom were named in the Post report. Two other executives who were named left their jobs in 2015 and 2018.

The team said Thursday it has hired a law firm to review the allegations.

While team owner Daniel Snyder was not accused of harassment, many of the women said he set a poor example and tolerated a toxic corporate atmosphere, claiming he verbally abused top executives, even allegedly forcing a male executive to do cartwheels for his entertainment during a staff meeting.

A number of women said their experiences with the team ruined lifelong ambitions. “I am done with the NFL,” one anonymous woman told the Post, saying it “has killed any dream of a career in pro sports.”

Last week, the team dropped its longtime nickname following decades of complaints that it was racist, following a revolt by team sponsors.



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Here’s why the FDA may approve a Covid-19 vaccine before the November elections, according to Jefferies’ biotech-research team


As fears of a second wave of Covid-19 weigh on stocks, here’s some potentially good news: A vaccine may be approved before the November election, according to a major biotechnology investing research firm.

The prediction is a big deal for investors for three reasons.

1. It’s credible because it comes from Jefferies, a high-profile brokerage in biotech and pharma that’s wired in to literally hundreds of companies in the group, including the major vaccine developers. Jefferies has nine analysts covering the industry.

2. Food and Drug Administration (FDA) approval of a vaccine ahead of voting could have an impact on the elections, possibly swaying the outcome in favor of President Trump.

3. For investors, early vaccine approval would be bullish for biotech stocks, cyclical stocks, travel stocks, the economy and the market overall. The S&P 500 Index
US:SPX
and the Dow Jones Industrial Average
US:DJIA
have recovered most of their March losses, and the Nasdaq Composite Index
US:COMP
recently hit new highs. They’ll need some good news to support further advances.

Ironically, early vaccine approvals probably won’t mean much for investors who have already enjoyed good runs in vaccine developers. It might not mean much for most people worried about contracting the virus, either. Weird, right? We’ll get to that later in this column.

Bold prediction

We hear time and again that vaccines take 10 to 15 years to research and bring to market. So given the limited timeline of Covid-19 vaccine safety and efficacy studies to date, the following is a bold projection.

“We believe the FDA will likely approve at least one vaccine prior to the November election,” Jefferies health-care strategist Jared Holz said in an interview. “Perhaps multiple vaccines could get the go-ahead at some point early in the fourth quarter and quell fears of a second wave of Covid-19.”

But this isn’t too off the wall, even if Covid-19 vaccines have only been investigated for under a year. That’s because Holz is basing his prediction, in part, on signals from vaccine-development companies.

He says New York-based Jefferies has heard from several vaccine developers — including Moderna
US:MRNA
and AstraZeneca
US:AZN
— that an emergency authorization may happen before the elections. And just as important, they’ll be close to having the capacity to produce millions of doses.

“That sets a very high bar, which no one is asking them to set,” says Holz.

Efficacy studies will continue. Moderna is moving into Phase II Covid-19 vaccine trials now, and it will start a larger Phase III clinical study at the beginning of July, the company has said. Both trials look at efficacy, and they will continue to examine safety. Many other vaccine companies are on a similar timeline.

Machiavellian maneuver

Here are three other reasons we may well see Covid-19 vaccine approval before early November.

1. President Trump has a penchant for timing policy decisions (such as China trade negotiation breakthroughs) to influence the markets and the electorate at key tactical turning points. So it won’t be surprising if he exerts behind-the-scenes pressure to get vaccine approval to boost ratings and his odds against the Democrats, says Holz. Sounds Machiavellian. But welcome to politics.

2. The federal government is directly funding many of the vaccine-development programs. This “raises the odds of near-term approval, given the inherent bias,” says Holz.

3. Initial approval would be for emergency use only, which lowers the research hurdles for efficacy. “The efficacy bar will be fairly low considering the toll Covid-19 has taken on the world over the past four to six months from a health and an economic standpoint,” says Holz.

Emergency-use approval seems like a letdown because it would take a lot of potential beneficiaries, including you and me, out of the equation. Health-care workers would be first in line. But limited-use approval would still be important for investors and the economy.

Here’s why.

It would help the health-care system. Our leaders shut down much of the economy when Covid-19 struck because they had failed to prepare the health-care system for a pandemic. Having vaccines that might keep more front-line health care workers on the job and healthy — boosting their morale and numbers — would take some of the pressure off politicians to reimpose fresh lockdowns to “flatten the curve” in a resurgence.

Will we get a resurgence? Probably, but not right now. I think the current resurgence data are just noise. The case-count data are based on non-random samples, which renders them meaningless, statistically. Florida tested more and found more, in lockstep. Exactly what you would expect. The Florida data do not show a resurgence in Covid-19, only more testing.

But I do expect a meaningful resurgence starting in early October when the flu season begins. This is what happened with the swine flu in 2010 and the Spanish flu a century ago. However, the October resurgence won’t be as scary as round one, because a lot of people will already have been exposed, and we will have better testing and tracking capabilities to support selective rather than blanket lockdowns. And we might even have a vaccine.

Vaccine investors, hold the Champagne

Early approval of vaccines before the elections probably wouldn’t help investors in the companies developing them, including Moderna, AstraZeneca, Pfizer
US:PFE,
Johnson & Johnson
US:JNJ,
Sanofi
US:SNY,
Inovio Pharmaceuticals
US:INO,
Novavax
US:NVAX
and Arcturus Therapeutics
US:ARCT,
among others.

That’s because many of the stocks have already risen a lot, especially those closer to being pure plays because they are smaller.

Next, it would be bad PR for vaccine producers to be seen making a lot of profits off a global pandemic health crisis. (The same goes for Covid-19 therapy developers including Gilead
US:GILD,
which is researching remdesivir as a treatment.) Given the government’s role in funding research, it would likewise also pressure vaccine makers to cap pricing.

Winners

But many other investors would benefit from vaccine approvals. Biotech and pharma investors would get a boost if the public and politicians view them as having “saved the day” in the Covid-19 crisis. That would mean there would be less pressure for them to rein in drug pricing.

That would support biotech and pharma companies and exchange traded funds including iShares NASDAQ Biotechnology Index
US:IBB
and SPDR S&P Biotech
US:XBI.
They have been plagued for years by worries the government will regulate drug prices.

“In the end, a vaccine likely does more for the sector as whole from a sentiment standpoint,” says Jefferies’ Holz.

Vaccine approval would also help cyclical and travel stocks because it would lower the odds of another full lockdown. It would also benefit a group I call “public-gathering-place” stocks.

A portfolio of eight public gathering place stocks I suggested in my stock letter, Brush Up on Stocks, on March 17 was already up 71% by the close June 15, compared with 26.3% gains for the SPDR S&P 500 ETF Trust
US:SPY.
I wrote about this topic in MarketWatch last month.

I expect further gains from those stocks when vaccines are approved. My portfolio includes Churchill Downs
US:CHDN,
Royal Caribbean Cruises
US:RCL,
Carnival
US:CCL,
Planet Fitness
US:PLNT
and Cedar Fair
US:FUN
in amusement parks.

At the time of publication, Michael Brush owned CHDN and CCL. Brush has suggested PFE, JNJ, SNY, INO, NVAX, IBB, XBI, CHDN, RCL, CCL, PLNT and FUN in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School. Follow Brush on Twitter: @mbrushstocks.



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UBS announces global financing team By Reuters


© Reuters. FILE PHOTO: The logo of Swiss bank UBS at its Zurich headquarters

By Chuck Mikolajczak

NEW YORK (Reuters) – UBS (S:) said on Monday it has created a new global financing team, a group that will span across divisions under one group in order to serve clients in a faster and simpler fashion.

The new team will be led by Remi Mennesson, who will join the Swiss lender in November 2020, and report to the firm’s four co-presidents, said a memo seen by Reuters and confirmed by the bank.

One of the reasons for the creation of the new team was to align employees working in global wealth management, investment bank financing and risk management under one umbrella. In addition, UBS said it will increase the bank’s financing capabilities in the regions it operates and expand its product offering to meet the financing needs of all clients.

“It is creating efficiency, so any type of lending, corporate derivatives or structured financing will now go through this one team. It is a global team that is able to really, in an organized way, meet all of our clients’ needs on a local and global level,” said UBS co-president of the investment bank Rob Karofsky.

Mennesson joins UBS from Credit Suisse (S:) and previously worked at Deutsche Bank (DE:).

The team will initially focus on corporate derivatives and structured solutions developed through the bank’s Structured Equity Solutions Group and Special Situations Group.

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