Saturday, June 15, 2019

Barron’s weekend summary

Barron’s weekend summary: positive feature on drug distributors (MCK CAH ABC) and on upcoming IPO Slack 
Cover story: Barron’s list of the World’s Best CEOs contains 30 names selected after screening the S&P 500 index and a roster of large non-U.S. companies for standout results in recent years on growth in revenue, earnings, and shareholder returns; the names are not ranked, but separated into three groups: visionary founders, growth leaders, and change agents; New to the list this year are Mary Dillon of ULTA, Steve Easterbrook of MCD, Henry Fernandez of MSCI, Marilyn Hewson of LMT, Craig Jelinek of COST, David Lewis of Tesco, Brian Moynihan of BAC, Francois-Henri Pinault of Kering, James Robo of NEE, Stephen Schwartzman of BX, and Lisa Su of AMD. 

Features: 1) Positive on MCK, CAH, ABC: Shares of drug distributors have taken a hit amid declining prices for generic drugs, lawsuits accusing the companies of liability in the opioid crisis, and regulatory proposals that could upset their business models, but for long-term investors who can stomach risk, the shares present an opportunity; 2) Positive on WORK: There are ample reasons to be bullish about the long-term opportunity for Slack and the performance of its stock, and whether to buy or sell will come down to its valuation on day one of its direct listing, which doesn’t come with any capital raise. 

Best CEO profiles: 1) Change agent Lisa Su joined AMD in 2014 and quickly refocused it on its core high-performance computing business, establishing an ironclad policy of meeting commitments to customers, and made bold bets on chip-manufacturing technologies; 2) Growth leader Brian Moynihan of BAC follows a mantra of responsible growth, which means treating customers and borrowers fairly, controlling risk, acting to limit global warming, and creating a strong corporate culture; 3) Visionary founder Stephen Schwarzman of BX leads a firm that puts money to work for investors willing to lock up cash for years in investments that may be more attractive than stocks and bonds, such as private equity, real estate, credit strategies, and hedge funds, and alternatives. 

Tech Trader: Over the past few days, there has been an out-of-left-field revival for the IPO market following the poor performance of UBER and LYFT; The market “went gaga” for CHWY, CRWD, FVRR, likely because of “megacap fatigue” with AMZN, AAPL, FB, and GOOGL, which face intense government scrutiny. 

Trader: The small-cap Russell 2000 index has dropped 7.2% during the past 12 months, even as the S&P 500 has gained 6.2%, just the fifth time in the past 20 years that small has underperformed large by 10 percentage points or more based on monthly prices; Since the start of June, the materials sector has trounced the rest of the market, rising more than 10% in the past two weeks, but “two weeks does not a trend reversal make”; Positive on GRUB: Company stands to benefit from AMZN’s decision to shutter Amazon Restaurants and exit the meal-delivery sector to focus on groceries. 

Interview: Louis-Vincent Gave of GaveKal Research says that by weaponizing the dollar, the Trump administration has opened the door to a reversal in the global power structure that will create a new world order in which China comes out on top. 

Profile: Elisa Mazen, co-manager of the ClearBridge International Growth fund, scrutinizes whether a company can keep growing for years, and just how large that growth can be, which sometimes means taking a more conservative approach than peers (top 10 holdings: Nestle, Shiseido, SAP, DEO, London Stock Exchange Group, Rentokil Initial, LVMH Moet Hennessy, NVS, CP, ICLR). 

European Trader: Cautious on Renault: Some investors wonder if the French government can hurt the automaker’s shareholders more than it already has following a series of blunders that led FCAU to end talks for a “merger of equals.” 

Emerging Markets: Vietnam is an ascendant nation—economic growth is 6% to 7% annually, powered by a strong export sector, but making money on Vietnamese stocks isn’t so simple, and the country has yet to be recognized as an official emerging market by MSCI. 

Commodities: “U.S. farmers are millions of acres behind their usual pace of corn planting this spring because of flooding, which may lead to a supply shortage that lifts prices by year end to their highest in five years.”

Streetwise: “Autonomous driving will eventually solve for the least-scalable part of food delivery—people,” says columnist Jack Hough. “Costs will plunge. Companies that survive the thin-margin years between now and then could enjoy powerful network effects, and rich profits.”