Cover story: Today’s IPO market in no way resembles the dot-com boom of the 1990s, which saw companies such as Pets.com crash; “The resurgence of IPOs is no flash in the pan, no signal of a bubble reinflated—instead, it reflects a shift in the way that investors and entrepreneurs approach company creation, the rich supply of mature companies that have yet to come public, and investors’ insatiable hunger for growth stories,” even if some recent IPOs aren’t profitable yet.
Features: 1) Cautious on ABBV: With AbbVie’s acquisition of AGN at a 45% premium over the latter’s share price, it gets a company whose problems resemble its own, and if shareholders had been given a chance to vote on the deal they should have rejected it; 2) Positive on CCL: Shares plummeted following reduced 2019 financial guidance, but they now appear to be a bargain—they carry a 4.4% dividend and the cruise-line operator has the best balance sheet among the industry’s three big players; 3) IPOs can encourage risk-taking, which tends to drive up valuation multiples across the board—even for older stocks, thus benefiting investors who aren’t interested in taking risks with new issues such as BYND, ZM, or WORK, whose high valuations make the rest of the software sector look like a bargain; 4) Price targets may not always be useful for forecasts—many professional money managers say targets aren’t anything more than a marketing tool for the brokerage industry to generate interest in a stock, and for investors the assumptions behind them may not be obvious; 5) Proposed legislation would make it easier for employers to offer annuities in 401(k) retirement plans that provide retirees fixed payments for as long as they live, but such a move won’t necessarily solve the retirement crisis.
Tech Trader: JPM and Bernstein recently asked hundreds of corporate executives for their 2019 purchasing plans, hinting at likely winners and losers in technology; Among the winners in both surveys are MSFT and AMZN, with the former topping the list of companies deemed indispensable, while the growing cloud business is likely to take mind share away from IBM and ORCL.
Trader: Donald Trump and Xi Jinping may reach a trade deal, and the Fed may deliver what the market wants at its June meeting, but the economy continues to slow, and the yield curve remains inverted, a reliable indicator of a recession; Cautious on ROKU: A recent share-price drop could stem from concern about AMZN’s ability to use pricing power to take on Roku’s smart TV platform share, but investors could also simply be worried about the stock’s rapid gain; Positive on WMT, PG, PEP, COST, KO: The so-called WPPCK consumer staple stocks may become more appealing as economic conditions get tougher and the market outlook becomes clouded by trade wars and other crises that could ding the FAANGs.
Profile: David King of the Columbia Flexible Capital Income fund developed a flexible income strategy that doesn’t employ a high-level allocation strategy like most, but drills down to the security level to find better opportunities (top 10 holdings: JNJ, LMT, GIS, PFE, JPM, AVTRA, MRK, AEP-B, BP, BDX-A).
Interview: Barry Bannister, head of institutional equity strategy at Stifel, believes the decade-long bull market has left investors too accustomed to unsustainable high returns, and he predicts smaller gains in the coming years, as well as move favorable conditions for active investing.
European Trader: The UK is deeply divided over consequences of leaving the European Union—Remainers believe a no-deal Brexit will leave the country in ruins, while Leavers say Brexit will eventually fuel growth and produce a thriving U.K.
Emerging Markets: “U.S. markets jumped to near-record highs when the Federal Reserve reiterated its loosening bias in mid-June. Central banks around the world are positioned to follow the Fed’s lead, spelling opportunity particularly in bonds that thrive on falling interest rates.”
Commodities: Commodities have done well in the first half of 2019, with iron ore leading the majors, along with reformulated gasoline, U.S. benchmark crude, and gold, while steel and natural gas have taken hits.
Streetwise: Columnist Jack Hough discusses the “Fed put,” noting that “Futures markets are now pricing in a near certainty of a July rate cut. If investors don’t get one, they are likely to huff and sell stocks. If they do get one, it is unlikely to help and might even hurt, setting off a tantrum just the same.”