Barron’s Weekend Summary: Cover story says investors looking for yield should consider international dividend stocks; Tech Trader reports on the new era of competition in the chip industry
* Cover story: “While bond yields in many parts of the world are even lower than they are in the US, there’s plenty of yield available in a sometimes-overlooked corner of the market: international dividend stocks”; A list of the top 10 non-US companies in terms of total dividends paid out last year, as measured in US dollars, includes Royal Dutch Shell, BHP, RIO, China Construction Bank, HSBC, TSM, BP, TOT, CHL, Commonwealth Bank of Australia.
* Tech Trader: Cautious on AMD: The latest round of tech earnings shows there a new era of competition in the chip industry, with INTC facing a credible rival in AMD, which has gained market share for the past three years; The latter will have to deal with a more aggressive Intel, which still controls 82% of the desktop processor market—and investors may want to take a breather from AMD’s stock for now.
* Trader: Some good may come out of the chaos surrounding the coronavirus, which the market has finally had to admit it can’t ignore: For one, the stock market is no longer overbought, and in the past it has risen in the months after spikes in volatility that followed long periods of calm; Cautious on PTON: Bearish bets on the exercise cycle company could pay off if results disappoint, especially with so many bullish analysts, but “whether you think Peloton is an exercise fad, or the future of at-home training, the tug of war could be an opportunity.”
* Profile: Matt Brill, manager of the $4.5B Invesco Core Plus Bond fund, seeks high-quality bonds across asset classes, working with Invesco’s fixed income teams to identify opportunities and risks, and uses a three-dimensional approach to picking bonds, considering credit, capital structure, and duration (top 10 industries: diversified banks, airlines, thrifts and mortgage finance, wireless telecom, oil and gas storage and transportation, integrated telecom, automobile manufacturers, electronic components, semiconductors, biotech).
* Interviews: 1) Charles Royce, who manages eight funds, including Royce Premier and Royce Pennsylvania Mutual, says neither value investing nor active management are dead—and that small caps are headed for a revival; 2) Drew Zager, who runs Los Angeles–based Zager Fixed Income Management, a $11.2B in assets-under-management bond shop for Morgan Stanley Private Wealth Management clients, says he has achieved success for clients without taking undue risk by investing exclusively in investment-grade US dollar bonds, including Treasuries, corporates, municipals, and mortgage-backed securities.
* Features: 1) Positive on TMUS: A merger with S would give the telecom greater scale, new wireless spectrum, and cost synergies to help it thrive in the 5G era, but if the deal fails, T-Mobile will continue outgrowing the industry in terms of subscribers, earnings, and free cash flow—and might resume share buybacks; 2) Though the coronavirus appears to be less deadly than SARS, it’s also more contagious and with a longer incubation period—and because it’s unclear how quickly the virus can be contained, bargain hunters may want to be patient for a month or two until the scope of the crisis clarifies; 3) + PE, CXO: Some analysts think that high-quality oil producers now look more attractive in the wake of the coronavirus outbreak, which has hit airlines, travel booking companies, and retailers, and the exchange traded fund XOP, which is down on what some analysts say is indiscriminate selling; 4) “It is rare that individual investors have access to better financial products than large institutions, but in this era of low interest rates, there is an anomaly that favors the little guy: CD rates in many cases are higher than bonds of equal maturity”; 5) US investors can find higher dividend yields in many overseas companies, but they come with tax ramifications that are different from domestic issues—foreign companies withhold some of the cash owed to American investors to pay taxes on those dividends, and the withholding rates vary, or are not imposed at all, as in the UK; 6) Positive on JNJ, NVAX, INO, MRNA: Though no real business model exists to justify developing vaccines for emerging viral threats, despite the broad impact they can have, these companies are developing coronavirus vaccines, and their success could be a model for how drug developers can find incentives to work on emerging viral threats; 7) Employers have become the go-to resource for most Americans to save for retirement, yet for small businesses or companies that employ part-time or seasonal workers, traditional 401(k) plans can be too costly and complex, prompting the growth of state-sponsored programs to help private-sector workers save for retirement.
* Financial Planning: 1) After a 38-year bull market, many bond investors don’t know what a bond bear market looks like, and investors with big stakes in long-duration bonds, in particular, could get crushed if interest rates rise; 2) For many years, the bond market’s quirks have made it difficult for indexers to gain as much of an edge over active managers as has been the case for stock funds, where passive funds now dominate—but that is starting to change; 3) Analysts forecasting inflation have been crying wolf for a decade, leaving bond investors inured to warnings of rising interest rates or an inflation scare, but that complacency could harm income-hungry retirees if they’re not well positioned.
* European Trader: Cautious on Standard Life Aberdeen: The British fund manager is struggling with performance, and isn’t an easy stock to love in an industry facing immense challenges, where firms face pressure to cut fees in response to the shift to low-cost index funds and amid greater regulatory scrutiny.
* Emerging Markets: Well-meaning investors heeding the rising call to buy “sustainable” stocks might initially consider emerging markets, but the “smokestack” image of emerging markets companies is outdated—names such as BABA, TSM, and Ping An Insurance Group are surging.
* Commodities: “Oil prices recently fell to a three-month low, and U.S. benchmark crude is on track to suffer a loss of more than 12% in January as coronavirus intensifies the impact of seasonal weakness in the market, raising prospects for lower fuel prices.”
* Streetwise: Early forecasts for full-year 2020 have earnings growing by an ambitious 9%, but investors shouldn’t count on that, says columnist Jack Hough, though a first-quarter prediction of 4% growth looks reasonable.