Barrons weekend summary: positive on BHI, MGM
Cover story: Donald Trump's proposal to slash the corporate tax rate form 35% to 15% might be too much, since it could significantly reduce the government's tax haul and add to the country's large debt burden, but a cut to 22% would be revenue-neutral, allowing businesses to produce just enough additional taxable income to offset the effect of the lower rate.
1) Profile of Michael Petry, chief portfolio manager for Danske Invest Hedge Fixed Income Strategies, believes global bond investors will have to navigate markets in which more interest-rate hikes will follow the one likely to occur in December;
2) Positive on BHI: The logic behind Baker Hughes' planned merger with GE's oil-and-gas unit makes sense, and could set up the new company-which would be less tied to oil-price cycles-to profit as energy prices rise;
3) Under a Trump administration, more merger deals are likely to succeed, and M&A arbitrate could remain a profitable investment strategy, yielding annualized double-digit percentage returns;
4) Positive on MGM: Company stands to benefit from Las Vegas' move to diversify beyond gambling into areas such as entertainment and professional sports, and it should continue to see strong earnings and cash flow.
Tech Trader: Positive on PSTG, NMBL, NTNX: Promising flash-based data-storage-equipment vendors could be takeover targets for larger tech companies that are falling behind in innovation, such as HPE and CSCO; VEEV, TEAM, and NOW could also be of interest to bigger rivals.
Trader: A cut of six to seven percentage points in corporate tax rates should result in a 10% increase in earnings-per-share for small caps, says Jason Pride of Glenmede; Short-sellers have been taken by surprise by the post-election rally, and don't seem as if they're going to fight the new upward trend for now; Cautious on AXP: Card company has lagged in boosting its rewards program and could be squeezed by a trend in which consumers are paying off their balances each month.
Interview: Larry Jeddeloh, founder of TIS Group and publisher of the firm's Institutional Strategist newsletter, likes pipelines, defense stocks, and the dollar, and is betting against 10-year Treasuries (picks: UUP, ENB, ETP, ITA, GD, TBF).
Small Caps: Positive on TRCO: Chicago-based broadcaster took a hit because of a drop in political advertising during the presidential election, but the company is asset-rich, the market doesn't appear to appreciate the value of its properties-and its asset value could be twice its current share price.
1) Cautious on PG: Company has narrowed its focus with the sale of many of its brands, but the shares, which are up since last November, could stall if these efforts don't prove sufficient, and investors may want to take profits;
2) Puerto Rico's new governor, Ricardo Rossello, is viewed on Wall Street as a serious leader who wants to put the island on stronger financial footing, and his efforts to restructure its debt could benefit municipal bond holders.
European Trader: Italy's December 4 constitutional referendum-which seeks to strip the upper house of much of its power-could fail, leading to the fall of prime minister Matteo Renzi's government, which would endanger banks and put more pressure on the plummeting euro.
Asian Trader: The execution of the Indian government's unprecedented decision to take 500- and 1,000-rupee notes out of circulation was badly flawed, a situation that could derail the country's growth next year.
Emerging Markets: A stronger dollar resulting from the election of Donald Trump means emerging market currencies are likely to weaken, traders will flee risky assets, and emerging-market stocks and bonds should get cheaper.
Commodities: The cotton market has been heating up as winter "sweater season" approaches, but prices are likely to drop amid a global oversupply that hasn't been dented by shortfalls in India and bad weather in China.
Streetwise: Sentiment is crucial to the way the market operates; the fact that it matters can be seen in a recent CivicScience consumer survey, which found that American voters changed their holiday-gift plans after the election.