Barron’s Weekend Summary: Cover story reveals picks from Barron’s biotech roundtable; Feature says the worst may be over at AAL and shares could soon rise
* Cover story: “Recent advances in biotechnology, from data-driven diagnostics to game-changing gene therapies, suggest we’re on the cusp of a golden age in which many feared diseases will become treatable, or even cured. Yet for all the optimism in the lab, pessimism reigns on Wall Street”; The five members of Barron’s first biotech roundtable picked stocks that could pay off for investors in the future: RGNX, QURE, KRYS, MGTX, MDCO, KOD (Gbola Amusa, Chardan Capital Markets); RGNX, SRPT (Gena Wang, Barclays); VRTX, ASND, TCDA (Ziad Bakri, T.Rowe Price Health Sciences Fund); BLFS, MGTA, NVTA, MYOK (Eli Casdin, Casdin Capital); Verve Therapeutics, Beam Therapeutics, Verana Health (David Schenkein, GV).
* Tech Trader: The year has seen a host of high-profile IPOs—including UBER, LYFT, PINS, and CHWY—that didn’t meet expectations, and WeWork’s stalled effort has spooked the market, but sentiment-driven meltdowns offer buying opportunities for long-term winners; WORK, which went public through a direct listing, has “the potential to be a best-of-breed category killer with platform-like network effects.”
* Trader: Citadel’s latest study examines whether stock-trading liquidity on exchanges has declined and aggravated the market’s mood swings—and the firm concludes it has not; Optimists note that the S&P 500 is just 2.1% away from an all-time high, despite recent bad news, while pessimists note the S&P 500 created a dreaded ‘double top’ and will probably need corporate profit growth to accelerate before picking up again; Cautious on WFC: If incoming chief executive Charles Scharf is given enough time, the strength of the bank’s franchise should give him the ability to drive a laggard in the sector back toward the front of the pack.
* Profile: John Malooly, manager of the small-cap focused Wasatch Ultra Growth fund, looks for companies with business models that are disruptive, which for him means a model or technology that creates value in a way that leaves incumbents struggling to compete (top 10 holdings: KRNT, TREX, PCTY, PODD, HUBS, KNX, FRPT, ZEN, INXN, GSHD).
* Interview: CMG chief Brian Niccol talks about the food chain’s rebound—he says the turnaround has exceeded expectations—its approach to technology, food delivery, and other issues, noting that Chipotle has renewed its focus on the fundamentals of running a strong restaurant founded on simple precepts.
* Features: 1) Positive on IBB, FBIOX, FBDIX, PRHSX, VGHCX: It has been a difficult few years for funds specializing in biotech stocks, and investors are pulling money from the sector fast—for investors betting on a biotech turnaround, pure-play mutual funds and exchange-traded funds offer less risk than picking individual stocks; 2) All of a sudden, the initial public offering market is behaving rationally—after a remarkable first half that saw newly public companies raise capital at a historic rate, there are signs everywhere that a correction has set in, though it doesn’t appear to be a 2000-style bubble; 3) Positive on AAL: The carrier has faced a range of problems, including the grounding of BA’s 737 MAX jets, but some investors are betting that things can’t get worse, and that when MAX planes return to service and the company reaches a contract with the mechanics union, shares could rise again.
* European Trader: Cautious on Compagnie Financiere Richemont: Luxury-goods company, which has had a good run during the past three years, could be overvalued due to political uncertainty in Hong Kong and slowing momentum for its star Cartier brand, as well as depreciation of the Chinese yuan and macro issues in Asia.
* Emerging Markets: Cautious on Panasonic, LG Chem, Samsung SDI, SK Innovation: Asia maintains a lead in electric vehicle technology, but betting on the sector remains tricky—the long-term problem is that it’s difficult for investors to know which company to pick in an emerging industry.
* Commodities: “Metals took the spotlight in the third quarter, with silver and nickel shaking off worries over a slowdown in the global economy to score the largest percentage gains among major commodities since the end of June.”
* Streetwise: “Wall Street has come down with a case of healthy skepticism bordering on common sense,” says columnist Jack Hough. “Until it passes, stock buyers should beware of companies that don’t generate free cash, especially if estimates for their cash burn are getting worse.”