Barron’s Weekend Summary: Washington’s coronavirus stimulus package has bought time, but markets will face growing pressure if the outlook doesn’t improve; Food delivery services aren’t getting the same boost as other “stay-at-home” stocks
* Cover story: Solving the problems created by the coronavirus pandemic is “a race against time—and no one knows who is winning”; Washington’s stimulus “has bought us time, but not much else. And the longer the virus prevents all of us from doing what we usually do, the greater the pressure on financial markets is going to grow.”
* Tech Trader: Cautious on GRUB, UBER, DoorDash, Postmates: As the pandemic continues, investors have jumped on “stay-at-home” stocks such as AMZN, NFLX, and ZM, but food delivery isn’t getting the same boost—partly because it’s a competitive and undifferentiated business, with a difficult path to sustainable profits—and while the top players are providing a crucial service for restaurants and diners across the country, their business prospects haven’t gotten much better.
* Trader: The coronavirus outbreak has put an end to a decade-long trend toward more companies buying back an increasing amount of their own shares and has exposed the boards that have been overzealous in buyback spending in recent years instead of paying down debt—now firms are seeking ways to hoard cash wherever they can. Profile: Ernesto Ramos, manager of the BMO Low Volatility Equity fund, is part of a 13-person disciplined equity team at BMO that manages $18B across more than a dozen strategies by melding the best of both worlds—the scale and discipline of quantitative investing and the depth and nuance of fundamental analysis (top holdings: KR, COST, PEP, WMT, LLY, NEM)
* Interview: Annie Duke, former winner of the World Series of Poker Tournament of Champions and the NBC National Heads-Up Poker Championship and currently a speaker who advises clients on how to make decisions, discusses removing emotions from decision-making, how global markets are really just one giant poker table, and her biggest bluff.
* Features: 1) Cautious on MCD, SBUX, CMG, YUM, DRI: Bulls believe leading restaurant chains will gain market share because financially strapped independents lack their delivery, drive-through, and digital capabilities, but investors may be too optimistic about the group’s prospects, since social distancing is likely to be in effect for some time, and when restaurants re-open they may have limited menu options and seating; 2) Positive on FLS, EMR, URI, FLR: Low oil prices have created some nice bargains among “oily industrials”—big manufacturing firms with hefty sales to the energy industry whose shares may be down now, but are likely to rise; 3) Positive on CVX, COP, SLB, PSX: The past two weeks, when oil futures plunged so violently that they briefly fell below zero for the first time in history, have shown the limits of the US boom, and the next few months portend a reckoning in the sector—but a handful of stocks have the potential to thrive, and could pay off for patient investors; 4) Barron’s latest Big Money Poll found that most managers are anxious about the near term, given rising unemployment, falling economic output, gyrating share prices, and the ongoing toll of a so far incurable disease, but they are largely upbeat about the outlook for 2021, when they expect people to go back to work and the economy to resume growing; 5) Positive on Albertson’s: The company has twice failed to go public, but its third time “might be the charm,” since supermarkets are a rare bright spot in the coronavirus economy, and Albertson’s—the country’s second largest grocer—has trimmed debt and has shown other signs of improvement, though it has a large debt burden; 6) “Delinquencies in the municipal market—already on the rise as counties and cities get squeezed by the coronavirus crisis—are likely to worsen amid soaring unemployment, rising alarm about stressed municipalities, and Federal conflict about aid,” creating a problem for investors who rely on munis for safety and income; 7) With people social-distancing and dining in, even hoarding groceries, the rally in packaged-foods stocks that began at the end of March might just be getting started—a contrast to just a few months ago, when the industry was plagued by stagnant sales growth, declining profit margins, and high debt levels; 8) Story reports on the crisis in American nursing homes, where the family members, volunteers, and other outside visitors who play a critical role in spotting problems and ensuring residents’ well-being are for the most part unable to enter homes because of the coronavirus; 9) Cautious on CCL, RCL, NCLH: Because of the coronavirus, cruise ships are likely to be docked until mid-July, leading to the loss of millions of dollars each day, but even when ships can sail again, the companies face a challenge winning back customers to their large vessels, which are at the center of their growth prospects.
* European Trader: Positive on Rentokil Initial: The pest control and disinfection company’s businesses has plummeted because the offices, hotels, and buildings it services have been mothballed due to coronavirus., but once restrictions are lifted on global lockdowns, there’s likely to be huge demand for the company’s disinfection services.
* Emerging Markets: Prospects for a sharp rebound in Mexican equities are dim, but Mexico has always played a bigger role as a fixed-income market, and “here its stolid DNA is a plus in tough times.”
* Commodities: The coronavirus pandemic slammed demand for rare metals palladium and rhodium, which are both used for car parts, though For now a supply shortage from the shutdown of production in some areas has offered some support for prices.
* Streetwise: For stock buyers who can’t resist reduced oil prices, Devin McDermott, commodities strategist at Morgan Stanley, recommends a defensive approach in North America, with a focus on companies that have asset quality, balance sheet strength, and scale, such as CVX, COP, NBL, and HES.