The political imbroglios for Facebook Inc. and Twitter Inc. show they are under threat. Even though both services are widely used, they are unpopular. The same is evidently true of Inc., which is unfortunate to be even more unpopular with President Trump. Any incoming Democratic administration would be likely to step up antitrust enforcement.

To bet against the FANGs is to bet that at some point their dominance becomes unsustainable. And if big tech companies’ profitability is any guide, there does look to be a good case for antitrust intervention. The following chart is from Jim Paulsen, veteran chief investment strategist for Leuthold Group LLC:

There are risks involved in betting against companies that keep getting more profitable. But if they keep increasing their margins, and if that is perceived to be at the expense of others, the chances of a long-term antitrust challenge look strong.

And If We Really Have A V-shaped Recovery?
In the event of a strong rebound and ongoing recovery (which I still find unlikely), then value stocks should still shine. We need to be careful with definitions, though. Even in a stronger economy, it is hard to imagine banks doing particularly well, because it is a basic condition of the hopeful scenario that the Fed will keep the yield curve low and flat — terrible conditions for banks. But another group of companies that also tend to show up on value screens might do very well — those with weak balance sheets. 

To be clear, such companies are “value” to some (quants who look at value as a factor) and not to others (classic Benjamin Graham-style value investors who want a margin of safety if the worst comes to the worst). The attractive thing about these companies is that they have been ruthlessly sold down by investors since the pre-Covid top in February. In the chart that follows, we can see that Goldman Sachs Group Inc.’s basket of strong balance sheet companies is now higher than it was at the previous peak, while weak balance sheet companies have been stomped on:

Without a strong recovery, many companies with weak balance sheets will fail to raise the cash flows needed to service their debts. Hence their poor stock market performance. But if we really have a V-shaped rebound, prepare to see these companies rip once more.  So, if you believe this, find yourself some zombie companies that have leveraged themselves to the hilt, and buy them. If your scenario is right, they should make you a lot of money. And if the idea of doing this makes you queasy, maybe that shows you aren’t quite as confident about an economic resurgence after all. 

Survival Tip
Consider moving to Vancouver.

This article was provided by Bloomberg News.

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