Cover story: Positive on MA, V, AXP: Far from being disrupted by digital payment startups, legacy card companies are the bedrock upon which services such as AAPL’s Apple Pay operate; Despite countless efforts from tech companies, just one payment startup—PYPL—has managed to achieve significant scale, and it succeeded by focusing on the periphery of Visa and Mastercard’s world; Together, the three companies look virtually unassailable, and the so-called MVP—part tech and part finance—has crushed the FAANGs in terms of stock performance.
Features: 1) Positive on MGM: Shares have been hit by a slowdown in Las Vegas, concerns about the economy and China, and doubts about management, but investors are overlooking positives, such as valuation based on free cash flow and EBITDA; 2) Positive on The Texas Permanent School Fund: The 165-year-old agency is one of the jewels of the $3.9T municipal bond market, backing $79.1B of debt from more than 800 school districts statewide—offering the ultimate in safety for bond investors; 3) Cautious on CTVA: Crop-protection and seeds and traits business set to be spun off from DWDP will be the largest stand-alone company selling crop inputs to farmers in 140 countries, but smaller rival FMC looks like the better bet now, as it is less exposed to the U.S. market; 4) Profile of Tony and Dina Isola, who manage 403(b) plans at Ritholtz Asset Management, and who say many teachers are woefully misguided when it comes planning for retirement, often buying into high-cost annuities and/or tax-deferred products that don’t offer growth; 5) Asset managers are addressing the issue of financial illiteracy with a broad range of initiatives, from Prudential’s practical advice to Fidelity’s efforts to rear a financially savvy generation, but the concern remains that consumers’ lack of financial knowledge is a “slow-burning national emergency.”
Tech Trader: Mayfield Fund’s Navin Chaddha contends we’re seeing the emergence of new trillion-dollar industries in food, fuels, materials, diagnostics, therapeutics, computers, and more; he also says the renaissance of silicon will create industry giants, and that with the end of Moore’s Law, “new semiconductors are required for a cloud-native, data-dominated, AI-powered, IoT world.”
Trader: The S&P 500’s four percent drop in May doesn’t seem all that steep, says Andrew Slimmon of Morgan Stanley Investment Management, who expects the index to drop to 2750 or so—down nearly seven percent from its all-time high; Cautious on KSS, DDS, JCP, JWN, M, HD: Department stores and other retailers face problems that nicer weather isn’t going to fix—shoppers are shifting their purchases online, competition is ramping up, and inventory is sitting dormant on shelves across the country.
Interview: Glen Kacher and Jay Kahn of Light Street Capital “have identified and invested in some of the biggest changes in the tech world, from the launch of cloud computing to the growth of ride-sharing” (picks: UBER, Slack Technologies, Just Eat, FTCH).
Profile: Tom Mandel, manager of the $2B Semper MBS Total Return fund, has followed mortgage-backed securities for most of his 35-year investment career—the small size and complexity of the market translates to higher yields (top holdings: ARSI/ARGENT, Invitation Homes, STACR, L STARZ, Green Point, Long Beach, CAS).
European Trader: Positive on Renault: Shares of the French auto maker fell after then-chief executive Carlos Ghosn was arrested in Japan for misusing funds, but investors can safely look beyond that incident, and a fresh line of vehicles should put the company on the road to growth.
Emerging Markets: Fundamental reforms enacted during Indian prime minister Narendra Modi’s first term should bear fruit in his second, including a national goods and services tax, a bankruptcy law to attack India’s legion of zombie companies, and a national ID card that enables direct payments into bank accounts.
Commodities: “Gasoline prices have eased at the pump after experiencing their biggest seasonal spike in eight years. But demand for the fuel is headed toward a record this summer, and prices might rebound, hitting a new peak for the year.”
Streetwise: Cautious on TSLA: For the electric-car maker, “any loss of confidence over future resale values could add to its present sales challenges,” says columnist Jack Hough, and while delivery has long been a concern, some investors are starting to worry about demand.
