Barrons Saturday summary: positive on INTC and CWGL; cautious on some tech firms on the impact of stock-based compensation; cautious on solar sector
- Cover Story: America is increasingly growing accustomed to the idea of legalized marijuana, with proponents saying its a matter of basic personal freedom, noting legalization would hurt drug lords, help cash-strapped states, and ease burdens on police and prisons, though Congress still needs convincing.
1) Cautious on FB, GOOG, AMZN, CRM, LNKD, VMW, ULTI, CNQR, BRCM: Among companies whose price/earnings ratios are higher than apparent because Wall Street estimates generally leave out the often very significant cost of stock-based compensation, in contrast to more conservative approach at tech companies such as MSFT, AAPL, and INTC;
2) Positive on INTC: Stock price could double in five years as it grabs more market share in tablet and smartphone chips; also boasts a healthy dividend yield;
3) Positive on CST, IR, HAWK: Companies are good options for those investing in spin-offs, which tend to outperform the broad market for up to three years, though investors shouldn't ignore parent stocks;
4) Positive on CWGL: Company, spun off from LUK, is the only sizable, U.S.-listed winemaker focused on the high end market, shares look appealing, though it is asset-rich and earnings-poor and will require investor patience.
Small Caps: Positive on QLTY: Shares, down based on problems from acquisition spree, could rally another 30% in the next year, partly aided by rising chemicals shipments.
- Tech Trader: Cautious on RSOL, SCTY, FSLR, SPWR: There is optimism in solar sector, primarily based on changed expectations and reduced forecasts as subsidies dry up, but solar shares aren't cheap for now, meaning investors shouldn't rush in; Kleiner Perkins partner Mary Meeker suggests public Internet companies try to be like LNKD by growing their user base, beating revenue expectations, and having an upside to Ebitda.
- Trader: On an equal-weighted base, cyclical stocks such as industrials, materials, energy, and technology have been outperforming defensive sectors such as healthcare, consumer staples, utilities, and telecom since later April, a sign economy may be growing stronger; Positive on A, DTV, WY: Investing in stocks with upward earnings revisions can be a successful strategy according to Will Geisdorf of NDR; Credit information embedded in corporate bond prices provides very valuable information for stock investors, says Doug Ramsay of the Leuthold Group; Positive on GM: Automaker is highly leveraged to the fastest-growing markets in the world, has net operating loss credits that will shield it from tax payments until 2018, a strong balance sheet, and a popular new truck.
- Follow-Up: Positive on GOOG: Growth may have slowed and more rivals entered the field, but though shares arent cheap, the stock should be in most portfolios, and longer-term investors might look to buy whenever the stock pulls back; Negative on IHG: Shares are approaching price targets, and positive qualities are already priced in.
- Mutual Funds: Interview with Joseph Foster, Portfolio Manager, Van Eck International Investors Gold (top ten holdings: GOLD, New Gold, Goldcorp, Silver Wheaton, Eldorado Gold, gold bullion, RGLD, Osisko Mining, Tahoe Resources, Yamana Gold); Interview with Marc Faber, Publisher, Gloom Boom & Doom Report and Director, Marc Faber Ltd. (Top holdings: DCM, Vietnam Dairy Products, Military Commercial Bank, SIA Engineering, Kingsman Creatives, China Mengniu Dairy, NVS, GDF Suez, Veolla Environnement, Iberdrola, Engergias de Portugal, NEM, CVX, TOT, Kazkommertsbank, Euphrates Iraq Fund, India Capital Fund).
- European Trader: Positive on Lanxess (LXS.DE): German specialty chemicals manufacturer should rediscover its winning formula in the next 12 months and could see 20% upside.
- Asian Trader: Investors should be in China because it is a commodity-intensive economy and the worlds largest importer and consumer of raw materials, says Sean Darby of Jefferies; Jiong Shao of Macquarie likes Brilliance China, China Gas, and China Longyuan Power.
- Emerging Markets: Weaker currencies in emerging markets could be good news for their economies but bad news for U.S. investors because currency depreciation will eat up bond yields, meaning investors should focus on bond funds that can profit in such as environment (Positive on HTRAX).
- Commodities: China expected to import 34% less cotton next year, and countrys use of fiber should be flat, weighing on future prices.
- Streetwise: Positive on SEAS, SIX: Shares of both amusement park companies are up, and given dwindling number of them and expense to build new ones, boost is understandable; some investors also think SEAS could eventually be converted to a REIT.
- CEO Spotlight: WM chief David Steiner, who has helped rebrand company and distance it from past problems.