Barron’s Weekend Summary: Barron's Roundtable, consisting of 11 value-oriented investors, has collected 48 investment picks for the second half of this year and beyond
Cover:
-Barron's Roundtable, consisting of 11 value-oriented investors, has collected 48 investment picks for the second half of this year and beyond. The picks are based on their opinions on how the world has changed since their meeting in January. The investors are not cheering for Nvidia and its ilk to fall, but rather waiting for the rest of the market to rise. The picks include Rajiv Jain, chairman and CIO of GQG Partners; Meryl Witmer, General partner of Eagle Capital Partners; Scott Black, founder and president of Delphi Management; Mario Gabelli, chairman and CEO of Gabelli Funds; Henry Ellenbogen, CIO and managing partner of Durable Capital Partners; David Giroux, CIO of T. Rowe Price Investment Management; Sonal Desai, CIO and portfolio manager of Franklin Templeton Fixed Income; Todd Ahlsten, CIO and lead portfolio manager of Parnassus Core Equity fund; William Priest, portfolio manager of TD Epoch; and John W. Rogers Jr., founder, chairman, co-CEO, and CIO of Ariel Investments.
Interview:
-No update
Tech Trader:
-The increasing pressure to regulate and break up tech companies was a prescient strategy given the ongoing regulatory efforts. Despite press conferences, high-profile hearings, exhaustive reports, investigations, and trials, nothing has happened, indicating that the regulatory process is far from complete.Big Tech remains dominant, with Microsoft, Apple, Amazon, Meta Platforms, and Alphabet making up 25% of the S&P 500. Nvidia, another upstart, makes up 32% of the large-cap index. The Department of Justice's case against Google is likely to rule on in the coming months, potentially forcing Google to change its practices. Google's search business is under threat for the first time in 20 years, with competition from Big Tech firms like Microsoft and start-ups like OpenAI and Perplexity. Any ruling from the court could be obsolete by the time it goes into effect, especially with the long timeline of inevitable appeals.
The Trader:
-The stock market has seen a shift in investor preference, with the Dow Jones Industrial Average up 1.9% and trading at its first record high since May. The S&P 500 index rose 1.3%, while the Nasdaq Composite was up 0.7%. However, the real action was in the equal-weighted S&P 500, which gives American Airlines the same weight as Apple. That index has gained 4.3%, as economically sensitive retail, industrial, materials, and banking sectors surged higher after June's weaker-than-expected consumer price index was released. Markets now anticipate a Federal Reserve interest rate cut in September, which should help extend the current economic expansion, while lower rates help smaller companies disproportionately. Active investors and those who root for the underdog cheered the rotation, as about 80% of the S&P 500's stocks have underperformed the index. However, the celebration is likely to be short-lived, as the late-week action was likely due to a rebalancing by money managers who realized they owned too much tech and not enough of everything else.
-Domino's Pizza, which was upgraded from Baird, has been caught up in a selloff of fast-food names, including McDonald's and Wendy's, which have been falling due to aggressive discounts and higher prices. The weakness has spread to fast-casual restaurants like Chipotle Mexican Grill, CAVA Group, and Domino's. The selloff in the group may be profit-taking after a strong run or something more dire. For Domino's, the drop might have created a buying opportunity. The bull case for Domino's starts with its Hungry for More strategy, which aims to generate profitable sales growth in the coming years by adding new stores worldwide. The company reported 20,755 stores in the first quarter, up 3.7% year over year, as it aims to serve a $94B global market for quick-service pizza.
Features:
-AT&T's stock dropped after it reported a breach of customer data, raising concerns about data security. The company has not found evidence that call and text history information was shared publicly. The investigation suggests that someone unlawfully accessed records of customer call and text from May 1 to October 31, 2022, and January 2, 2023, affecting nearly all of AT&T's wireless customers. The information includes telephone numbers, counts of interactions, and call durations, but does not include the content. AT&T is cooperating with law enforcement and has apprehended one person. The cloud service provider involved was Snowflake, but Snowflake has not identified evidence suggesting the breach was caused by a vulnerability, misconfiguration, or breach of their platform.
-Paramount Global's merger with Skydance Media is a significant deal, but shareholders may have no choice but to accept it. Paramount stock has fallen 20% in 2024 and 75% over the past five years, and some investors were hoping for a deal to cash them out. The terms of the Skydance merger are unlikely to make them happy. National Amusements, led by Paramount Chair Shari Redstone, is getting a far better deal than the bulk of public shareholders, who hold nonvoting Class B shares. Holders of A shares, which have voting rights, are also getting more favorable terms than B holders. Paramount is paying a stiff price to purchase assets of Skydance, which is leading the deal. Shareholders won't even get a chance to OK the merger. The Redstone family's National Amusements accepted a deal that doesn't allow a vote by holders of B shares, who control about 90% of the struggling media company. Skydance, headed by David Ellison, the son of Oracle founder Larry Ellison, apparently didn't want such a vote, which is considered good corporate governance but might not have led to shareholder approval, given the terms of the transaction.
Europe:
-Spotify's stock fell after Redburn Atlantic analyst Agnieszka Pustula warned that expectations for the music-streaming service are too high. Pustula downgraded the stock to Sell from Neutral and gave it a price target of $230, which is substantially lower than the current price above $300. Spotify and its peers have become overvalued, despite impressive growth recently. Pustula also gave rivals Universal Music Group and Warner Music Group a Sell rating. Music streaming faces competitive and structural challenges that will prevent broad-based price increases from becoming a new norm. Other analysts are still bullish on Spotify, with KeyBanc strategists raising their price target to $410 from $400 and Morgan Stanley maintaining its Overweight rating with a $370 price target. Spotify's operating momentum and new audiobook bundle strategy have allowed it to increase prices independently, but its share price discounts too much growth.
Emerging Markets:
-South Africa's political landscape is undergoing a transformation as the African National Congress forms a coalition with the Democratic Alliance. However, asset manager Allan Gray is focusing on the country's electricity supply, which has been uninterrupted for 107 days. This is a significant improvement for 61 million South Africans, who have been affected by the dysfunctional state utility Eskom and the central bank. The central bank has managed to control corruption and looting at power stations. The political signals are also positive, with the Democratic Alliance having six ministries out of 32 in the "government of national unity." Public works and infrastructure minister Dean Macpherson can focus on improving the country's ports and railways, which have hindered its commodities and food exports.
Commodities:
-Presidential contenders Joe Biden and Donald Trump are divided on the steel industry, with Biden focusing on American-owned companies and Trump on increasing tariffs on China. The steel industry is of little importance to the US's service-based economy, but it is crucial to Pennsylvania, which has a better chance of securing the White House for the next four years. Biden won the commonwealth by a small margin in 2020, leading to a bipartisan agreement to protect the industry from low-cost foreign competition. Both candidates have opposed the proposed acquisition of Pittsburgh-based United States Steel by Japan's Nippon Steel. Politics matter more than ever, but maintaining the domestic steel industry comes at a cost, as Ralph Hardt, owner of Belleville International, a precision manufacturer in Butler, Pa., is one potential casualty. Belleville has grown rapidly in recent years, turning tons of stainless steel, other types of steel, titanium, and other metals into parts for various companies.
Streetwise:
-No update this week