Sunday, April 21, 2019

Barrons weekend summary

Barrons weekend summary: cautious cover story on SPOT; cautious feature on SAM; positive on health insurers 
Cover story: Investors love Spotify because it’s a fast-growing, youth-focused, cloud-based streaming service with a visionary founder—and it’s investing heavily in podcasting, a growing business; But for the company to become indispensable for investors, the music industry’s underlying structure must change radically in the coming decade and the tech giants competing aggressively with Spotify must lose interest, an unlikely scenario; At current prices, the stock’s potential reward isn’t worth the risk.

Features: 1) Cautious on SAM: Shares of the company have climbed during the past two years while those of rivals TAP and BUD slipped, but much of the growth came from hard cider and spiked tea and seltzer, areas in which the company will soon face growing competition; 2) Podcasting appears similar to other forms of digital media that have gained prominence and big money in the era of portable, on-demand consumption, but it remains a “strange niche phenomenon” and won’t likely scale like other digital formats; 3) Positive on ANTM, CI, CVS, HUM, UNH: Shares of the leading insurers look appealing, given the long odds of an industry-killing plan such as Bernie Sanders’ Medicare for All becoming law, though the shares could “be under a cloud” until the 2020 presidential election is over; 4) Large mergers and acquisitions typically generate the most goodwill, and are the biggest destroyers of it as buyers overpay, such as in the deal that led to KHC; savvy investors should focus on companies’ return on assets, which could indicate whether a buyer is squeezing more profit out of an acquisition. 

Tech Trader: Positive on INTC: Company’s move to exit the smartphone modem business following the resolution of the AAPL–QCOM lawsuit gets the chipmaker out of a money-losing business and will allow it to focus more on core strengths. 

Trader: A drop in XLV could push investors out of defensive growth stocks, where health care makes up 57% of the universe, and into cyclical growth stocks, says Thomas Lee, head of research at Fundstrat—and the same pattern might play out in the quality universe as well; PINS may have “surged” after its debut, but since only a select institutional investors get IPO stock at the offering price, regular investors who have to buy on the secondary market didn’t see the same bump. Interview: Don Bilson of Gordon Haskett takes a less traditional approach than many of his peers with what he calls “event driven” research, though some investors prefer the term “special situations.” 

Profile: Jason Callan of Columbia Mortgage Opportunities has done well in the unloved sector of non-agency mortgage-backed securities, but he says the strategies involved have time limits and investors who fail to adapt will be left behind. 

Advisor Rankings: 1) Barron’s list of the Top 100 Financial Advisors is topped by Lyon Polk, Gregory Vaughan, Andy Chase of Morgan Stanley PWM; the ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms, and the quality of the advisors’ practices; 2) Demand for institutional consulting services has soared over the past couple of years, increasing the competition and the need for firms to cater to the more-specialized needs of institutions instead of being generalists; 3) Profile of the Jones Zafari Group, which caters to ultrahigh-net-worth individuals and serves as a “virtual family office”; 4) San Francisco-based Elaine Meyers, a managing director and financial advisor at J.P. Morgan Securities, has transformed her traditional advisory practice into one of the top family-office-style teams in the industry; 5) Lyon Polk, founder and managing director of Morgan Stanley’s Polk Wealth Management Group, has $15.4B under management and 20 employees in three areas—family and client services, investments, and business development. 

European Investor: Cautious on Lindt & Sprungli: Confectionary company’s stock is the second-most-expensive consumer stock in Europe behind Hermes; analysts are “unsure whether the company is undergoing a brief rough patch or suffering from a more serious secular downturn.”

Emerging Markets: Indonesian President Joko Widodo’s apparent re-election to a second five-year term April 17 was welcomed by investors, but the country lags peers economically and in growth, a situation that will demand structural reforms such as loosening labor restrictions and limiting minimum wage hikes. 

Commodities: Oil prices this month touched the highest levels of the year, but the market now faces a number of key tests, including tightening crude supplies and violence in Libya that could cut off the flow of more oil. 

Streetwise: “The U.S. stock market is approaching an all-time high. Relative to earnings, it is pricier than average. And in the next few weeks, we’ll learn whether first-quarter earnings have merely stalled versus a year ago, or gone into decline,” says columnist Jack Hough.