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From Barron’s, June 29, 2020 (Part 2)

 

 

Pg 6, Up and Down Wall Street: Nobody could see Covid-19 coming, and nobody can see it going away. Recovery fueled by unprecedented monetary and fiscal stimulus is being challenged by rising Covid-19 infections after gradual reopening. As some of the previous stimulus expires, Congress may pass another $1.5 trillion stimulus in July. There are also election uncertainties.

After a great Q2, and with retail speculation growing [strangely in bankrupt companies like HTZ, GNC], consider hedging with short-term options to protect from potential selloff. Sell/write calls on holdings, or use put-collar/spread [buy ATM put and sell OTM put].

 

Pg 8, Streetwise: Nvidia [NVDA] is no longer just making chips for videogames; it is now making chips for AI and cars [autonomous driving, etc].

 

Pg 10-11: FOMC Minutes on Wednesday.

Audio streaming company Spotify/SPOT has rallied on push into exclusive celebrity podcasting, but its $45 billion market valuation is too rich [that is 2x the value of entire global recorded music industry]. SPOT may be profitable in 2022. There are free podcasts offered by others.

Dominic Rispoli [Lincoln International] suggests that Amazon/AMZN should buy Macy’s/M [market-cap $2.15 billion only; fwd P/S 0.4].

 

Data this week [bad reports keep coming but some may be better than expected]: Pending home sales, Dallas Fed Texas manufacturing outlook on Monday; Chicago PMI, consumer confidence on Tuesday; ADP employment report, manufacturing PMI, construction spending on Wednesday; trade deficit, factory orders, weekly initial jobless claims, jobs report [+3 million], unemployment rate [12.2%] on Thursday [jobs report is 1 day early due to the holiday on Friday].

Closed: US on Friday, July 3.

 

Bullish Recommendations: MLP Magellan Midstream [MMP; yield 9.5%; investment-grade bonds; pg 13].

 

Bearish Recommendations: See other stories.

 

Pg 9: Languishing DELL may benefit from spinoff of 81% owned VMW after September 2021 [due to tax reasons]. Market value of VMW stake is now more than that of entire DELL. Debt is high due to 2016 acquisition of EMC. Michael Dell owns 50% of DELL and he may take it private instead.

 

Pg 12: Stock market has tracked the progress in Covid-19 health outcomes. However, reopening is causing Covid-19 infections to rise and many states are modifying their reopening schedules [TX, FL, AZ, CA]. There are worries about different Covid-19 patterns – new cases are not limited to big population centers [NY, NJ, etc] and more younger people are affected [prior thinking was that only older people were vulnerable]. Broad stay-in-place orders may not come back but if people get scared and just stay home more, the effect will be similar. At-home group of stocks is rising again [ZM, ETSY, PTON, etc] and cyclicals [rebound plays] are falling. Investors may have been premature in looking for 2021 earnings thinking that the current crisis will blow over quickly. VIX is rising. The tug of war between bulls and bears, between optimists and pessimists, will continue. 5 FAAMG stocks [FB, AAPL, AMZN, MSFT, GOOGL] makeup 25% of SP500. Divergence between growth and value is the widest ever. A rotation into economically sensitive cyclicals may come if the Congress passes another stimulus bill and infrastructure bill. But there may be chaos if there is inaction in DC and Covid-19 crisis lingers or worsens.

 

Pg 14: Recovery? If the economy bottomed in May-June [after peaking in February], this may be the shortest recession ever. Some economic data [jobs, retail spending, industrial production, home building, restaurant sales, TSA airport checks, etc] are recovering so fast that economists cannot keep up. Continued progress would depend on health situation [new cases; preventive measures; testing; treatment(s)] and further government stimulus [what has been done so far may not be enough]. There is a potential for double-dip [in economy] and second-wave [of Covid-19 infections]. But watch these 5 sectors for signs of recovery and whether it holds: Airlines [more consolidation among LUV (largest by market-cap now), UAL, AAL, DAL?]; oil [WTI futures have rebounded from deep negative prices, but stresses remain; energy is the worst performer for 1, 3, 5, 10 years]; restaurants [fast-casuals (MCD, JACK) are rebounding fast; headwinds from supply-chain disruptions, job losses, changes in consumer habits/tastes, partial capacity operations due to social-distancing]; retail [Covid-19 hit to retail has been worse than that from AMZN; strong retailers include WMT, COST, TGT, BBY; those with flexibility (dual in-store and online channels; in-store or curbside pickups & delivery) will survive; 2020 is a lost year, so look ahead]; cruise-lines [big 3 CCL, RCL, NCLH have enough liquidity to get by until 2021; costs will be up due to health and safety protocols when operations resume; Summer 2020 season is lost].

 

Pg 16: After the bank stress-tests, big banks cannot raise dividends or start buybacks at least until Q3. WFC and COF may have to cut dividends to keep those under 4-quarter average of earnings; GS may have to boost its capital. Banks have to resubmit their capital plans. However, the long-term outlook for big banks is good.

 

Pg 18: Cover Story, “Meet Barron’s Top CEOs of 2020”. This year, crisis management was weighted more than traditional capital allocation. Covid-19 impact has been very uneven among industry sectors. Also, Barron’s editorial judgement was relied on more heavily than broad surveys of the past.

CEOs/companies: Baker/ECL, Barra/GM, Bezos/AMZN, Cook/AAPL, Culp/GE, Dimon/JPM, Ellison/LOW, Fink/BLK, Frazier/MRK, Friedman/NDAQ, Griffith/PGR, Hastings/NFLX, Huang/NVDA, Jellnek/COST, Lutke/SHOP, McMillon/WMT, Merlo/CVS, Moynihan/BAC, Musk/TSLA, Nadella/MSFT, Nicool/CMG, O’Day/GILD, Schleifer/REGN, Yuan/ZM, Zuckerberg/FB.

 

Pg 28: Doug Forsyth and Justin Kass of convertible ANZAX have 59% of the fund in growth convertibles [techs, healthcare]. Convertibles are hybrids with features of both stocks [due to conversion feature] and bonds; a convertible at par may have 60-80% of the stock upside and 50% of the downside. They may be growth oriented or busted [with high yield if conversion is unlikely]. Several growth convertibles became busted convertibles during the March crash and the fund took advantage of that.

 

Pg 29: Russell indexes completed their weird preannounced rebalancing on Friday, June 26. Since the last rebalancing in June 2019, R1000 has significantly outperformed R2000, so their relative weights in R3000 become more lopsided. This effect was opposite for R1000 Growth and R1000 Value that split R1000 evenly at rebalancing [so many stocks shifted from R1000 Growth to R1000 Value]. Sector weightings in several indexes also changed notably; healthcare weighting rose by +6% in Russell MC Growth and tech weighting declined -5% in R2000 Value.

 

Pg 30: Apple’s/AAPL 1st virtual WWDC turned out to be better than the real/live annual thing; a total of 9 million viewed Tim Cook’s keynote on YouTube over the week. HPE and CSCO also recently held virtual customer events successfully. May be the event business will adopt the virtual conference/meeting model widely. For now, CTA is planning for live CES in January 2021 but several tech executive doubt that.

 

Pg 31: Government debt will keep rising as it addresses the Covid-19 crisis. There are direct and indirect/secondary losses. Government has to makeup for some of the consumption shortfall. If people, businesses and states are left to fend for themselves, the economic consequences [from lost jobs and production] would be worse and the resulting economic collapse would cause tax revenues to decline eventually. The rescue will be expensive but the time to worry about that would be when the crisis has passed.

 

Pg 32: Aswath Damodaran, NYU. His approach to equity valuations has evolved. Basics are cash flow, growth, risk. Since 1990, many IPOs and public companies have to be analyzed as private-equity, so be careful with old metrics for mature/established companies, P/E, P/B, EV/EBITDA, CAPE, etc. It is hard to analyze UBER, ZM, Z, etc with those old metrics. Mean-reversion doesn’t always happen. Be willing to change/adjust and learn from mistakes, i.e. have a dynamic point of view. A good company may have bad price, or vice versa. He likes AAPL, FB; is skeptical of UBER [great growth but poor business model]; GOOGL has not been in his buying range; he has traded TSLA [it has benefitted from Covid-19]. This will be a terrible year for earnings, down -30% or -40%, so look at what may happen in 3-5 years? Long-term outlook is bad for cruise-lines, airlines, highly indebted telecoms.

 

Pg 34: Eric Schmidt, former Chairman & CEO of Google/GOOGL; Schmidt Futures. Last week, the US announced a ban on workers visas for the rest of 2020. Schmidt argues that the US should do the opposite to attract talented workers to fight Covid-19 and to maintain the US leadership in science, technology and engineering. Many US companies were founded during bad economic times [including GOOGL] and that isn’t the time to restrict talented foreign workers. As for abuses of the visa system, fix those; close loopholes but not stop work visas entirely.

 

Supplement on ESG. In this year of Covid-19 pandemic, S-social has taken a center stage.

Pg S3: Stakeholder capitalism is growing. Many corporate leaders [ECL, BLK, BAC, C, NTRS, CSCO, GOOGL, T, PEP, NKE, ADDYY, EV] have embraced ESG [also, sustainability]. There are record inflows into ESG funds; there are equity and bond ESG funds now. ESG funds have outperformed broad-based and non-ESG funds over 1, 3, 5 years. Many 401k/403b are exploring adding ESG options. On the other hand, the DOL has proposed rules [in the comment period now] that will make ESG options more difficult in 401k/403b. The SEC is looking into naming rules for funds that may also impact ESG claims by funds.

Pg S6: Top 100 companies based on social metrics/S-factors [13 factors]; a column is also added for ranking based on ESG [28 factors] that was published in February.

#1-VFC, #2-KEYS, #3-NVDA, #4-UNF, #5-CRM,…, #96-IFF, #97-XYL, #98-JLL, #99-CMS, #100-ORA.

Pg S9: There are 550 ESG mutual funds/OEFs and ETFs even though there is a lack of standardization in ESG meaning. Current emphasis on soft “S” makes things more complicated as most early funds emphasized more tangible “E” and “G”; there are also overlaps among E, S, G. Impact Shares offers ESG ETFs NACP, WOMN, SDGA. Some ESG fund managers are activists [VGSRX], while others don’t tout their ESG orientation [PRBLX]. Confusingly, companies with low ESG ratings can issue green-bonds because specific uses of bond proceeds determine that designation [e.g. AAPL green-bond]. Some social bond funds such as TSBRX include bonds from private groups.

A diversified ESG portfolio may include stock funds BIAWX, PRBLX, BIASX, BCAIX, REEAX, AWTAX, VGSRX; bond funds CRATX, CGAFX, TSBRX, SEBFX.

Pg S10: Companies with people/employee-friendly orientation [a subset of ill-defined “S”] include BBY, NVDA, VZ.

 

Extras from Friday – I try to guess on Friday which features will make it in the weekend edition but the following guesses didn’t make it. Almost 75-80% of the weekend edition is now available by 9:00 PM Central on Friday. Barron’s revised website has “Interests” tabs similar to columns topics and that makes it easier to find potential items for the weekend edition. This is also the reason for earlier postings on Saturday – I do wait for my paper delivery [typically between 5:00-6:30 AM Central] to fill in some data.

Forget TINA. Look at EM debt [MEDAX], preferreds [CPXIX], HY [BHYAX, PHYAX; HYG, JNK; muni NHMAX, ORNAX; consider HY as alternative for small-caps, not broad equities].

Luckin Coffee [LK], #2 coffee chain in China, sank as it said that it won’t fight delisting by Nasdaq [NDAQ] on June 29. This May 2019 Nasdaq IPO was recently hurt by disclosure of $300 million in fake sales during its 2019 Q2-Q4.

YBB
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Re: From Barron’s, June 29, 2020 (Part 2)


@yogibearbull wrote:

 

Pg 30: Apple’s/AAPL 1st virtual WWDC turned out to be better than the real/live annual thing; a total of 9 million viewed Tim Cook’s keynote on YouTube over the week. HPE and CSCO also recently held virtual customer events successfully. May be the event business will adopt the virtual conference/meeting model widely. For now, CTA is planning for live CES in January 2021 but several tech executive doubt that.

Pg 32: Aswath Damodaran, NYU. His approach to equity valuations has evolved. Basics are cash flow, growth, risk. Since 1990, many IPOs and public companies have to be analyzed as private-equity, so be careful with old metrics for mature/established companies, P/E, P/B, EV/EBITDA, CAPE, etc. It is hard to analyze UBER, ZM, Z, etc with those old metrics. Mean-reversion doesn’t always happen. Be willing to change/adjust and learn from mistakes, i.e. have a dynamic point of view. A good company may have bad price, or vice versa. He likes AAPL, FB; is skeptical of UBER [great growth but poor business model]; GOOGL has not been in his buying range; he has traded TSLA [it has benefitted from Covid-19]. This will be a terrible year for earnings, down -30% or -40%, so look at what may happen in 3-5 years? Long-term outlook is bad for cruise-lines, airlines, highly indebted telecoms.


Another great summary. The two items above reinforced what I read this morning from other sources. Ben Carlson has a favorable view of online vs. live presentations, and Jonathan Clements tells retirees to let go of outdated investment rules that don't work anymore.

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Re: From Barron’s, June 29, 2020 (Part 2)

Thanks, YBB; insightful as usual.

Takeaway:

"Continued progress would depend on health situation [new cases; preventive measures; testing; treatment(s)] and further government stimulus [what has been done so far may not be enough]. There is a potential for double-dip [in economy] and second-wave [of Covid-19 infections]."

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Re: From Barron’s, June 29, 2020 (Part 2)

Barron's top CEOs?  I respect some names on that list but when Iceberg from Fakebook is mentioned on the same list, the credibility of the entire list goes down.  

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Re: From Barron’s, June 29, 2020 (Part 2)


@Anitya wrote:

Barron's top CEOs?  I respect some names on that list but when Iceberg from Fakebook is mentioned on the same list, the credibility of the entire list goes down.  


Ouch. LOL. It is a good one.

Besides, all their opinions and inputs from Barron or any such magazine are worthless in the current situation when the we have hit more 40k cases of the virus and the death count keeps going up and up everyday. Their inputs is based what happened yesterday or last week and not what would happen tomorrow or next week.

I saw the map from CNN. It shows that Chicago seems to have contained the virus to a reasonable level per 100k population than in my county and my town where the total population is only about 76k. On a 100k basis, the map shows bright red. It is spreading fast and some people are going to die sometime soon.  So, these reporters and columists do not have any idea what is going on in the rural and semi-rural areas. And, should you even read these things now?

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Re: From Barron’s, June 29, 2020 (Part 2)


@ECEPROF wrote:

@Anitya wrote:

Barron's top CEOs?  I respect some names on that list but when Iceberg from Fakebook is mentioned on the same list, the credibility of the entire list goes down.  


Ouch. LOL. It is a good one.

Besides, all their opinions and inputs from Barron or any such magazine are worthless in the current situation when the we have hit more 40k cases of the virus and the death count keeps going up and up everyday. Their inputs is based what happened yesterday or last week and not what would happen tomorrow or next week.

I saw the map from CNN. It shows that Chicago seems to have contained the virus to a reasonable level per 100k population than in my county and my town where the total population is only about 76k. On a 100k basis, the map shows bright red. It is spreading fast and some people are going to die sometime soon.  So, these reporters and columists do not have any idea what is going on in the rural and semi-rural areas. And, should you even read these things now?


Natural calamities happen all the time.  What we currenly have is a crisis in leadership.  So, I have been constantly looking to see who is stepping up to lead by example.  I thought that is what Barron's was doing too (with no context provided in the OP).  Some of the CEOs mentioned have shown over the years why they deserve our respect.  Barron's is tone deaf for including Iceberg on any list (except drug dealers, politicians that peddle alternative facts, etc.) when so money companies are pulling their Ad revenue from Fakebook.  Disclosure: I never had a Fakebook account.  I am told Fakebook allows a lot of hate speech and false claims (e.g., coronovirus is fake and that people should disregard all public protocols re to the virus). 

https://www.youtube.com/watch?v=TaYs4tI_ybg

Edit: Now I see you have a new thread on FB.  I had skipped over that thread before but now that I read it, it does have some healthy discussion which is rare at M* these days. 

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Re: From Barron’s, June 29, 2020 (Part 2)

What’s “TINA”?

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Re: From Barron’s, June 29, 2020 (Part 2)


@chang wrote:

What’s “TINA”?


There Is No Alternative - often used to convey that there are no good alternatives to stocks.

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Re: From Barron’s, June 29, 2020 (Part 2)

@rila3400 Aha, didn’t know that.

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Re: From Barron’s, June 29, 2020 (Part 2)

Yes, TINA is there is no alternative [to stocks]. Another good one is FOMO - fear of missing out [as the stock market train leaves/left the station]. When their uses were new, I used to spell them out but they are used widely in media now.

Posters should realize that these are summaries, or pointers. For topics of interest, posters have to go to the source online, or see the paper copy at local library [or online], or spend $5 to buy Barron's at local 7-11. It is not practical/feasible for me to provide background/color/context/details on all topics. When posters have asked for more info on particular topics in the past, I have tried to provide that.

As for the Top CEOs in this issue, the feature runs from pg 18-27 with a cover story plus features on each 25; in the online edition, there are clicks on each [but subscription may be required]. It is also mentioned that 2 most controversial for the Editors were Musk/TSLA and Zuckerberg/FB where CEO's personalities create tensions and conflicts, but that at the end, it being a business feature about their companies, they were included. It concludes, "...leave comments on our sins of omission or commission, or points of agreement", but no specific email is provided. I suppose that reference is to mail to the editors column [MAILBAG] at mail@barrons.com where it says "To be considered for publication, correspondence must bear the writer's name, address, and phone number. Letters are subject to editing."

YBB
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