Barron’s Weekend Summary: Disney’s theme parks, television networks, and fast-growing streaming business will help the company thrive in a post-pandemic world
* Cover Story: Positive on DIS: Under chief Bob Chapek, who took the reins shortly before the pandemic started, the company faced the severest of financial stress tests and come out ahead, generating $3.6B in free cash flow during its fiscal year ending last September; Disney will do well if the pandemic lingers, but also stands to gain if commerce quickly bounces back—it expects streaming to continue showing gains in revenue and operating profits, while parks gain momentum and TV holds steady or slowly declines.
* Tech Trader: Positive on AMZN: Jefferies analyst Brent Thill believes the company can reach $5,700 a share over the next three years, a potential 70 percent gain that would boost its valuation to nearly $3T—though he’s nervous that the next few quarters will prove challenging for the e-commerce giant.
* Trader: The drop in the 10-year yield could be a sign that the bond market is finally starting to take Federal Reserve chairman Jerome Powell at his word: The Fed won’t raise rates even if the data suggests it should; “For investors with hardy constitutions, the recent plunge in SPAC prices has opened opportunities in a fast-growing sector: electric-vehicle charging companies.”
* Interview: Matthew McLennan oversees the $89B global value team at First Eagle Investment Management, including the First Eagle Overseas and First Eagle Global funds, warns of his concern over extreme economic uncertainty, speculative excess, and heady expectations for assets like tech stocks and Bitcoin.
* Profile: Gene Tannuzzo, Jason Callan, and Alex Christensen, co-managers of the $2.5B Columbia Total Return Bond fund, invest in government bonds, corporate bonds, and securitized debt, such as mortgage-backed and asset-backed securities—and while there is nuance within these groups, each provides different opportunities at different points in the economic cycle, a dynamic the fund tries to capture while building the portfolio bond by bond.
* Features: 1) Positive on PETQ: Pet-supply sales are growing by seven percent annually—they reached $11B in 2020—and retail sales are rising faster as volumes shift from vet offices to stores and online channels; PetIQ, which manufactures and distributes pet-health products and operates veterinary clinics around the country, “is flourishing in this climate, and its stock looks like one of the few bargains in the sector”; 2) An already active proxy season may turn out to be one of the most interesting in years—an array of shareholder proposals on workplace diversity and working conditions are in play, some inspired by the pandemic and the protests following George Floyd’s death, and third-party audits will be asking how companies are promoting racial equity; 3) Barron’s annual list of the Top 100 Financial Advisors and Teams; “Wealth management is organizing itself aggressively around advisory teams, a development that has myriad implications for the services that clients will receive in the coming years,” and they are increasingly a growth engine for financial firms; 4) “The disruption in the rollout of JNJ’s Covid-19 vaccine won’t derail the US vaccination campaign, nor put off an American economic recovery, at least in the short term—but it will heighten worries over the vaccine technology that is intended to inoculate much of the world outside of the US; 5) Positive on ORLY: The largest of the three major US auto-part retailers stands to win as lockdowns end and people start to drive more than they have during the past year, both for work and leisure—the company has used the downtime to improve its business and gain market share, while expanding its bricks-and-mortar footprint; 6) Positive on COIN: The cryptocurrency exchange went public at an ideal moment—the value of the cryptocurrency market has doubled in just the past two months, Bitcoin is booming, institutional investors are scrambling to get in, and Coinbase has competitive advantages that have enabled it to increase market share despite fierce competition.
* European Trader: Positive on Inditex: The Spanish-based owner of fashion retailer Zara “has developed an innovative way to manage its inventory, a move that has been overlooked by the market—the system is driving down costs and increasing profit margins, and that isn’t yet factored into the share price.”
* Emerging Markets: China’s crackdown on its 34 of its largest Internet companies—Beijing gave them a month to “correct anticompetitive practices” or face even more severe punishment—will lead to a slower rebound for the sector.
* Commodities: Demand for lumber, steel, and other commodities will get a boost from President Biden’s proposed infrastructure package, but prices for some building materials have already booked phenomenal gains in the first three months of the year, potentially limiting an extended rally.
* Streetwise: Lumber demand is up with construction booming, and sawmills are stretched to capacity; Mark Wilde of BMO Capital Markets says there was talk of a supercycle when lumber prices spiked in 2018, but the industry instead fell into a funk—this time around, he thinks companies should use their cash windfalls to reduce debt, build rainy-day funds, and pay dividends.