Saturday, June 1, 2019

Barrons weekend summary

Barrons weekend summary: positive features on AVGO, CODI, OXY; cautious on BYND; cautious on cannabis names 
Cover story: When it comes to retirement, baby boomers and the younger part of the “silent generation” don’t want to be isolated—they want communities where they can pursue passions rather than retire in the traditional sense; “As a result, developers are brainstorming in preparation for the nearly 2.5 million seniors expected to move out of their homes each year starting in 2035. Already, developers are coming out with new takes on senior living.”

Features: 1) Cautious on CGC, TLRY, ACB: California-based Grupo Flor’s plan to move cannabis production to lower-cost Colombia could pose a threat to North American rivals that have invested hundreds of millions of dollars to build climate-controlled operations for growing weed up north; 2 Positive on AVGO: Semiconductor demand is soft, the company faces an antitrust probe, and the Trump administration’s Huawei ban will hit Broadcom’s bottom line—but its valuation was low even before the slump, and investors should still buy shares, which are cheaper than the S&P 500 index, relative to estimated earnings; 3) Cautious on BYND: Strong growth numbers have boosted the stock, but forecasts, and much more, are already reflected in the share price—and even if the alternative meat space explodes, it’s not clear the company can maintain the growth required to justify its current valuation; 4) Positive on CODI: Small caps are still vulnerable to economic distress and interest rate swings, so the best way to invest in them is through an experience operator such as Compass Diversified Holdings, which manages eight businesses in niche industrial and consumer markets; 5) Positive on OXY: Activist investor Carl Icahn’s pressure on the company could be bullish for its depressed stock, though there is little he can do to stop what he sees as an overpriced acquisition of APC; 6) Positive on CTRE, HCP, SBRA, SNH, VTR, WELL: Senior housing represents an enormous business opportunity and perhaps the largest growth opportunity in real estate; these seven stocks aren’t pure plays on senior housing, but own a mix of properties, and are less vulnerable to the U.S.-China trade war than most stocks. 

Tech Trader: Dismal commentary from companies and an escalating trade war have undermined the magical recovery narrative in the chip sector, and many companies may have been too optimistic with their guidance at the beginning of the year; “Almost every important end market, including cloud computing, enterprises, and China, offered disappointing commentary during the latest round of earnings. And the sector has pulled back on its second-half confidence.” 

Trader: “Now trade fears are mingling with fears that the Fed won’t lower interest rates, and the market is waiting to see if its message gets heard again—expect stocks to remain in purgatory until it does”; Cautious on KHC: The shares are 70% below their high of $97 in 2017, a huge decline for a major player in the usually stable food industry, but they could be near a bottom after the latest plunge, while the dividend—one of the highest in the sector—appears safe; Cautious on GM, F, DLPH: Auto sector shares dropped after Donald Trump’s announced of tariffs on Mexico over migration, but despite reports forecasting doom for the sector, the stock declines appear to be an overreaction. 

Interview: Carol Levenson, co-founder of Gimme Credit, has spent more than two decades covering individual companies’ credit; she talks to Barron’s about the bond-bubble debate, shareholder activism, and what investors should demand from company executives.

Profile: Gauta Khanna, lead manager of the $606M BNY Mellon Insight Core Plus bond fund, credits a rigorous investment process for the fund’s consistent returns—its institutional shares have returned an average of 3.2% a year during the past five years, better than 92% of intermediate-term bonds. 

European Trader: Cautious on Marks & Spencer: Retailer’s turnaround efforts have been largely unsuccessful, and it continues to grapple with a legacy of outdated systems, tired stores, and a hierarchical culture—but a deal with online grocer Ocado Group could transform the business. 

Emerging Markets: The policies of Donald Trump and Mexican president Andres Obrador pose problems for Mexico, but there’s still good news, including inflation that has plunged by three percentage points during the past 18 months and a hawkish central bank that has keep interest rates high. 

Commodities: This year’s hurricane season, which has seen an early start, may rattle traders’ nerves—major storms and hurricanes in the Atlantic have prompted big price moves for commodities, including oil, natural gas, gasoline, grains, cotton, oranges, and even lumber. 

Streetwise: The pet sector is thriving, says columnist Jack Hough, though the investment opportunities in pet tech—including Actijoy, which tracks pet activity, and Wagz, which makes smart collars—are mostly confined to venture capitalists for now.