Barron’s Weekend Summary: Bitcoin and other cryptocurrencies have reached a tipping point, and are increasingly going mainstream
* Cover Story: With Bitcoin’s market value topping $1T—following a 1,000 percent surge in the past year alone—it may be reaching an economic tipping point, with firms such as MS saying investors should add it to their portfolios; “In a climate of fear over inflation and monetary debasement, proponents say that Bitcoin will hold its value more than ‘fiat’ currencies like the dollar, yen, or euro—and eventually, they argue, it will live in harmony with paper currencies in the global economy.”
* Tech Trader: Shares of cloud computing companies rose last year during the pandemic, but they are slowing down as investors move to cheaper stocks with exposure to an expanding economy and accelerating corporate IT spending—and there is growing evidence of companies boosting their outlays for PCs, servers, disk drives, and other tech goods; Hardware stocks, already cheap, are set to rise, and MS analyst Sharon Huberty, who was bullish on this idea six months ago, likes DELL, HPQ, NCR, STX, and AAPL.
* Trader: “Value stocks, the market’s cheapest, are supposed to do well when the economy improves—and that’s been the case for much of the past six months,” though they depend on economic growth continuing to accelerate, which may be difficult if the rate of growth is peaking.
* Interview: Mary Day, president of the Federal Reserve Bank of San Francisco, talks about when the US economy will revive, why inflation isn’t a problem, and how the US can become more inclusive; She says that if the recent decline in Covid-19 caseloads and hospitalizations continues, and if vaccination rates continue to pick up, by the fall the US should see a rebound in the economy that’s pretty sharp.
* Profile: Shilpa Marda Mehra is the manager of the $3.3B Fidelity Trend Fund, launched in 1958 when trends such as air travel, mass media, and suburbanization were new; Mehra say it isn’t enough for a company to have ties to a significant secular trend, it must also have a strong competitive advantage—be it a powerful brand, technology, network effect, or beneficial regulations (top 10 holdings: AAPL, AMZN, MSFT, GOOGL, MA, TSLA, FB, NVDA, MCHP, ADBE).
* Features: 1) Cautious on CCL, NCLH, RCL: The companies raised a total of about $40B through debt and equity sales during the pandemic, giving them enough cash to ride out the downturn, but the move will cut into investor returns because of higher interest expenses and a sharp increase in shares outstanding, and it is unclear whether travelers—and particularly older ones, an important demographic—will be as eager to go on cruises as they were before the pandemic; 2) Women have borne the brunt of the Covid recession, accounting for 55 percent of net U.S. job losses since February 2020, while millions have reduced work hours or passed on career opportunities, losses that aren’t fully captured in official government statistics—and this diminished engagement could have far-reaching economic consequences, and even dent long-term portfolio returns; 3) Positive on IIVI: A wave of mergers is changing the dynamic in the laser industry, which had been a fragmented group of small players; Industry leader II-VI’s acquisition of COHR is the latest example of consolidation; Investors overreacted to the high price, sending shares down, but the stock should regain the $100 level and continue moving higher from there; 4) More than two dozen public companies now own some cryptocurrencies on their balance sheets, and many more are starting to offer services to people interested in buying Bitcoin or to companies that want to hold it or accept it for payments, and as it goes mainstream, traditional Wall Street firms are trying to update their current systems to offer the same services for crypto that they do for cash; related story offers a range of strategies for investing in Bitcoin without “getting in over your head”; 5) Positive on AFRM: Consumers aren’t shopping the way they used to—they are avoiding credit, and are increasingly likely to shop online with a digital wallet rather than use cash in a store—a shift that is fueling the “buy now, pay later” trend, an area in which Affirm Holdings is the dominant player; 6) Positive on EXAS: The company is among several that are working in the liquid biopsy sector, refining blood tests that can detect many kinds of cancers using a simple draw of blood, which could ultimately represent a major breakthrough in cancer diagnosis, making cancer screening as easy for patients as the routine blood tests of an annual physical.
* Follow-Up: President Biden’s proposed tax increases for corporations could affect companies such as LRCX, AMGN, WU, ILMN, and AAPL, all of which get a large portion of their earnings from overseas markets; Positive on GS: Shares have risen 67 percent since last June, and there’s no reason they can’t continue to go up, given the firm’s strong performance and a surge in trading and deal-making.
* European Trader: Cautious on CS: Despite a tempting price, investors should avoid the bank’s shares for now as it struggles to deal with a range of crises—the latest being the Archegos Capital Management implosion—that began about a year ago, because more challenges could well lie ahead.
* Emerging Markets: Brazil continues to face a host of challenges, including a resurgent coronavirus and political turmoil as a leftist former president prepares to challenge Jair Bolsonaro—all of which means it could be time to buy, according to some portfolio managers, who predict things will start looking better in the country soon.
* Commodities: “After suffering its biggest quarterly loss since 2016, gold stands as one of the few commodities trading lower this year—but prices still have room to run higher even if the global economy continues to recover and the pandemic moves closer to an end.”
* Streetwise: For all the hype about electric cars, investors might think that they were taking over the US market, though market share will be only 3.5 percent this year, up from 2.5 percent last year, according to researcher IHS Markit—yet shares of leaders such as TSLA and GM continue to rise.