Saturday, July 14, 2018

Barrons weekend summary

Barrons weekend summary: Cover story on headwinds for corporate profits; article suggests XLNX and ADI would make better M&A targets for AVGO 
Cover story: With rising interest rates, a growing federal deficit, and trade and tariff battles, corporate profit growth could take a hit in the coming months, limiting investors’ gains; Barron’s 2018 Roundtable participants offer picks to help counter the trends. 

Features: 1) Hedge fund titan Bill Ackman has had a tough time for the past few years, but his Pershing Square Holdings could be set to make a comeback, now that it has closed out positions in VRX and HLF; 2) Critics are wary of Supreme Court nominee Brett Kavanaugh, whom they say is hostile to investor protections and eager to rein in the SEC, while supporters say he merely takes a skeptical view of the “administrative state.” 

Tech Trader: AVGO is no longer about chip innovation— it’s a deal-making machine, but continuing M&A will be difficult given the dwindling number of chip targets, though there are more appropriate candidates than CA, such as XLNX or ADI. 

Trader: Investors aren’t ignoring the trade war, but they’ve stopped “trading the market,” avoiding the risk-on/risk-off trading that has been dominant since the financial crisis. 

Profile: Ryan Kohan, Rick Richert, and Stephen Ketchum of the American Beacon Sound Point Floating Rate Income fund, which has delivered a 5.7% annualized return, versus its average peer’s 3.3%. 

Barron’s Roundtable: 1) Meryl Witmer says Great Britain will move on easily after the Brexit, and that in the U.S., the S&P 500 and the Dow have 5-10% upside (picks: KMX, OEC, Dart Group, Howden Joinery Group, PKG, Indivior, Tessenderlo Group); 2) Jeffrey Gundlach says a recession is on the horizon, explains why he likes commodities, and says Republicans are likely to hold onto both houses of Congress (picks: XLE, NTG, BKLN, EWZ, DXJ); 3) Mario Gabelli discusses tariffs, Treasuries, taxes, and technology (picks: MSG, BATRA, MGM, Davide Campari-Milano, ZBH, CNHI, GCP, PCAR, TXT, ENR, SNE, MIICF, NPO); 4) Oscar Schafer says the U.S. economy is doing better than Europe’s, and that unless trade talks prove disruptive, it will continue on its course (picks: CNK, ORLY, COMM, EVTC, ANIP, Whitbread); 5) Donald Trump is the dominant theme for investors, says Scott Black, and if the U.S. becomes overzealous with tariffs, it could throw the world into recession (picks: LRCX, HCLP, GTN, ARCC, HOFT, NBL, ARW, 6-month Treasury Bill); 6) Abby Joseph Cohen says the economy is at a point of inflection, and that a trade war would damage economies around the world (picks: OXY, Samsung Electronics, ABBV, China Railway & Signal Communications, MDLZ, AZO, Kingfisher, BUD, Inner Mongolia Yili Industrial Group, Midea Group, IYG); 7) Henry Ellenbogen believes Democrats will take the House in November, ramping up political tensions and preventing anything from getting through Congress (picks: EFX, MTN, BFAM, SERV, SHOP, GRUB, TRU, BWXT, RDFN); 8) William Priest says the outlook for earnings and dividends is excellent this year, and that the market faces two big issues: the budget deficit and the trade backdrop (picks: OLED, AMAT, SBUX, MLM, MET, KR, PSX); 9) It’s pretty routine now for companies to trade for eight to 14 times revenue, says Paul Wick, a sign there isn’t much price discipline among investors (long on MU, WDC, MRVL, ORCL, AVGO, IDTI; short on SNAP, XON, CGC, SHOP). 

Follow-Up: Trucking companies across the U.S. are struggling to find drivers, particularly for long-haul routes, forcing wages and rates higher, with costs rising nearly 8% in June. 

Emerging Markets: “Nothing Donald Trump can do will derail China’s continuing economic growth and diversification, with all of the financial opportunity that entails.” 

Commodities: “Record U.S. supplies of cheese have contributed to a drop in prices this year, and traders predict more of the same for the rest of 2018,” but trade wars could pose long-term problems that may cause some dairy farms to close. 

Streetwise: It’s going to take a long time for the online sports betting industry to scale, says Kip Levin of Paddy Power Betfair, and it will come down to how quickly states allow the legal regulated market to compete with the illegal market.