Barrons weekend summary: positive features on BPY and TW.UK; Says AMZN is unlikely to acquire FDX FT:
Cover story: “As recently as the end of September, Wall Street analysts had been predicting 10% growth in S&P 500 earnings in 2019. Today, the latest 2019 consensus estimate is just under 6%, compared with a hefty 21% in 2018. Analysts expect S&P 500 component earnings to $170, compared with an estimated $161 for 2018. For the first quarter of 2019, the outlook is dismal”; Amid all this, investors should consider SYK, MSFT, APTV, SAVE, BUD, and BLL to “outsmart a dimming outlook for profits.”
Features: 1) Positive on BPY: Company, one of the world’s largest property owners, has a powerful strategy and a lofty yield, and comes at a depressed price because of debt, complexity, and an expensive external management structure, as well as exposure to malls—but shrewd management should help it overcome those challenges; 2) The political pressure and a broader public backlash against drug price increases have rattled the pharmaceutical industry, and several companies that have raised rates in past years are backing off, leaving no easy path for investors paying the sector (+ MRK, REGN; +/- ABBV, NVO); 3) Exchange-traded funds pose a serious threat to actively managed mutual funds, but more important than the active versus passive debate is the issue of tax efficiency and fund structure, and the annual—but somewhat hidden—costs for actively managed mutual funds.
Tech Trader: Positive on AMD: Chip stock could be “the next product-led story that could overcome brewing macro worries,” and the company may be just starting a multiyear roll as it continues to build the foundation for PCs, servers, and graphics cards.
Trader: “The Institutional View’s Andrew Addison notes that the S&P 500’s cumulative advance/decline line—a measure of the number of stocks trading up versus those trading down—hit a new all-time high last week”—and will follow its A/D to new highs eventually; Even in the age of exchange-traded funds that let people buy diverse portfolios for cheap, there may still be some appetite for buying stocks, according to BAC strategists who’ve seen clients moving to single stocks over ETFs; AMZN is unlikely to acquire FDX, says Barron’s, because of market issues and business issues—FedEx is “a completely different, economically sensitive company.”
Interview: Steve Romick, who runs the FPA Crescent fund with Mark Landecker and Brian Selmo, is a consummate stock picker, but the fund also holds cash and bonds, reflecting broader views (picks: AIG, JEF, CHTR, CMCSA).
Profile: Scott Moore, manager of Nuance Mid Cap Value, Nuance Concentrated Value, and Nuance Concentrated Value Long-Short, is a value investor with an intense focus on specific companies and risk control (top 10 holdings: XRAY, SAFM, SNN, TRV, EQC, SJW, RGA, UNM, APH, Edison International 5% Perpetual Preferred).
Follow-Up: + GLW: Share of the company—which makes optical fiber, glass used in LCD display panels for TVs and computers, and Gorilla glass for cellphones—should have room to run even after recently beating Wall Street expectations.
European Trader: + Taylor Wimpey: Shares of British homebuilder could provide a solid foundation for a portfolio, offering a double-digit dividend yield, the chance of capital appreciation, and a possible boost from the U.K. government’s favorable homeownership policy.
Emerging Markets: In Brazil, the unorthodox presidency of Jair Bolsonaro, who took office Jan. 1, is off to a market-friendly start overall, but the market is pricing in reform more or less on the government’s terms—far from a done deal, and a potential problem.
Commodities: “Venezuela is home to the world’s largest crude-oil reserves, but the sorry state of its oil industry means that U.S. sanctions on the country may have only a limited impact on the global crude market.”
Streetwise: “The U.S. is the most polarized it has been in 40 years (as is the United Kingdom on the issue of the European Union). The two sides are further apart than ever, and centrists are finding themselves having to stretch themselves further and further to cover the distance.”