Barron’s Weekend Summary: Cover story says the companies on Barron’s third annual ranking of America’s Most Sustainable Companies beat the S&P 500 in 2019; Tech Trader says the coronavirus outbreak could dent the global tech supply chain
* Cover Story: The companies on Barron’s third annual ranking of America’s Most Sustainable Companies returned 34.3%, on average, in 2019, beating the S&P 500’s 31.5%—and more than half outperformed the index, which has been nearly unbeatable for a decade; “With companies in general adopting ambitious goals for their environmental and workplace practices, returns will keep outperforming,” predicts Calvert Research & Management, which created the ranking for Barron’s; The list is topped by LRCX, KLAC, TGT, XRX, AMAT, LITE, ITRI, NVDA, MCO, and BBY.
* Tech Trader: The coronavirus is disrupting the global tech supply chain, threatening the availability of mobile phones, personal computers, and automobiles, in turn triggering concerns about March quarter financial results—and spurring worries about a potential global economic downturn.
* Trader: The NYSE advance-decline line, a cumulative measure of stocks rising versus those falling, has recently failed to trade above its January 16 high, even as the overall market rallied to records—and worse, has been making lower highs and lows, another sign that the market may not be as strong as it appears; Positive on GM: If the automaker traded like any other company in the broader market, its market value would approach $200B, up fourfold, but the market disagrees with this analysis—though its stock is more like TSLA than many investors realize.
* Profile: Mehul Trivedi and Edward O’Connor are co-managers of the Wells Fargo C&B Mid Cap Value fund, which is subadvised by Cooke & Bieler, a private money manager formed in 1949; There is no lead manager, since every co-manager is also an analyst, and they focus on finding high-quality companies first before considering valuation (picks: AEO, LDOS, HXL).
* Interview: Robert Willens—founder of Manhattan-based Robert Willens LLC, an independent tax and financial accounting firm for hedge funds and Wall Street firms—talks about tax issues of growing importance to his clients and about changes to the tax code that could reward investors.
* Features: 1) Positive on FCFS: Company, which operates more than 2,600 pawnshops in the US and Latin America, is essentially an alternative lender that for many consumers is the only way to raise money, and its “countercyclical tendencies” are a good reason to own shares, says Jefferies analyst John Hecht; 2) Wall Street may want to give up on the energy business, but investors may want to consider getting in—they can get a reasonable return simply from dividends and don’t need to see much appreciation in depressed shares; 3) Pharmaceutical supply chains depend on Chinese factories while medical-device firms, drugmakers, and high-end life-sciences tool manufacturers are reliant on Chinese buyers for a growing portion of their sales—making the coronavirus a major challenge for the health industry, though it’s too early to tell precisely how the virus will affect various businesses; 4) Cautious on KHC: The company has lost about 60 percent of its value since Berkshire Hathaway and 3G Capital acquired it, and has suffered double-digit share-price declines in each of the past three years, but if new chief executive Miguel Patricio can lay out a credible path forward, the shares could rise.
* Follow-Up: Cautious on SoftBank: “Even when you back out SoftBank’s debt and discount its equity holdings for potential tax consequences of asset sales, its value outstrips its market cap”—and Elliott Management, which now has a stake, could spur change that will lead to major improvements.
* European Trader: The Brexit hasn’t resolved issues about the future of the UK economy, but at least two uncertainties have disappeared since last year: The UK has a government supported by a solid parliamentary majority, and Brexit has finally happened, leaving investors to gauge the fate of British companies on their merits now that they are out of the largest free-trading area in the world.
* Commodities: “An economic slowdown in China following the spread of the new coronavirus, and the potential loss of demand for copper, pulled prices for the industrial metal to their lowest in almost three years—and some analysts say the worst may be yet to come.”
* Streetwise: “There’s really no justifying the TSLA math, but it’s also folly to bet against the stock,” says columnist Alex Eule. “For years, Barron’s has offered reasoned arguments for why the shares were overpriced. Many of those arguments still apply—batteries are expensive, competition is coming, the CEO is distracted. None of this has mattered.”