Barron's Saturday summary: Positive CAT, NEE, COH; Cautious ESRX, CMG
Cover story: Positive on CAT; Company has taken a hit from a drop in commodity prices and a number of ill-fated acquisitions, but is getting back on track; Few companies are likely to benefit as much as Caterpillar from Trump administration policies, and shares are likely to rebound.
Tech Trader: Fiber-optic stocks rose during the dot-com bubble and have since imploded, but a new generation of them—including OCLR, ACIA, NPTN and LITE—stand to benefit from trends such as cloud computing, even though their shares are currently down.
Trader: If the GOP can push a tax plan through, it will probably mean a further boost for corporate earnings, especially if the border-adjusted tax remains sidelined; Despite recent gains in tech stocks such as GOOGL, MSFT, and AMZN, their valuations don’t seem worrisome; Positive on COH: Shares are down amid slumping retail sales, but they’re set to reverse course because of the company’s strong brand and wide range of products.
Profile: Philippe Langham of RBC Global Asset Management looks for companies around the world that can produce sustainable, long-term growth (top 10 holdings: Housing Development Finance, Samsung Electronics, Naspers, TWM, AIA Group, DRY, UL, Antofagasta, BBD, SM Investments).
Interview: Paul Wick, manager of the Columbia Seligman Communications and Information fund, thinks tech stocks aren’t in a bubble and that fundamentals appear to be in excellent shape (picks: LRCX, MU, WDC; pans: IBM, NFLX, TSLA).
Features:
1) Donald Trump’s tax plan would likely benefit banks, restaurants, retailers, telecoms, and health insurers, industries that have a domestic focus; The plan includes good ideas, such as cutting corporate taxes, but could cost too much revenue;
2) Positive on NEE: Even if the company fails to acquire Texas-based Oncor Electric, it remains well-positioned in the energy sector, with a balanced portfolio of stable and growing businesses and a strong dividend yield;
3) Barron’s annual Big Money poll found that top money managers favor the tech and finance sectors, and more are bullish about the outlook for stocks than in the prior two polls;
4) Large money managers “are upbeat about the global economy, and see U.S. economic growth accelerating modestly in coming months” amid higher interest rates and tax cuts.
Follow Up: Cautious on ESRX: Shares of the pharmacy benefit manager will probably continue to drop because of ongoing problems related to ANTM and the growing strength of lower-cost rivals; Cautious on CMG: Shares of the food chain have risen, but it needs to keep spending on food safety and advertising to return to growth, and investors for now should stay away; Cautious on Home Capital: Even at C$8.00, the risk in the troubled company’s shares is to the downside, and they could eventually hit zero.
European Trader: “Old-World markets rebounded last week as fears of a European Union breakup eased, and investors focused instead on the region’s generally improved economic outlook.”
Asian Trader: The Hong Kong market is up 200% since the financial crisis, but amid the euphoria some experts think the good times are about to end.
Emerging Markets: “Venezuela has about $10B left, mostly gold, to pay its debts as inflation mounts, imports dwindle, and basic supplies disappear from shelves.”
Commodities Corner: Rice is set for a rally because of a combination of low levels of usable inventory and the light likelihood that poor growing conditions could cause futures prices to go up.
Streetwise: Real estate stocks can serve as an inflation hedge and as an income source, especially if weak economic growth keeps interest rates lower for longer.