Barron’s Weekend Summary: The trends behind the recent GME saga aren’t going away, and are already having an impact on Wall Street
* Cover story: The trends involved in the recent GME stock saga—in which individual investors and day traders took on Wall Street hedge funds—aren’t going anywhere and are already having a ripple effect; Understanding the changes will be critical to playing the market, even for those who aren’t involved in the online wars over stocks, because the new power of retail investors is clear—and it’s shaking up traditional portfolio managers, who have lost control of the process.
* Tech Trader: Positive on AAPL, MSFT: Apple has increasingly become a broad bet on technology: in its recent earnings report, it beat expectations for every major product line, expanded margins, showed surging demand in China, and in addition has bought back more than $25B in stock—yet while shares are no longer cheap, which is also true of Microsoft, both tech giants seem poised to grow revenue and profits for many quarters to come.
* Trader: The GME short squeeze has quickly become a morality tale of little guys taking on the man, but it’s really just an example of small investors discovering the joys, and potential profitability, of day trading in a way they haven’t since the dot-com boom and bust; It might have been a mob that caused GameStop to surge more than 1,600 percent in January, but traditional investors, such as Scion Asset Management, have been making an argument for buying the stock for several years.
* Profile: Randall Dishmon, senior portfolio manager of the $914M Invesco Global Focus fund, says debates over growth versus value investing styles or whether the US or international markets will dominate miss the point, because markets are going through structural—not cyclical—changes, so he seeks companies thriving amid that scenario (top 10 holdings: CRWD, FB, TWLO, CRM, AMZN, BABA, NOW, MA, ILMN, TMO).
* Features: 1) The third and final installment of Barron’s Roundtable deals with a “seemingly increasingly arcane form of investing—the kind that draws upon rigorous analysis of company fundamentals and equity valuations,” and showcases the recommendations of James Anderson (Tencent Holdings, ASML, Delivery Hero, ILMN, MRNA), Abby Joseph Cohen (PHM, PLD, Trend Micro, Infosys, Deutsche Post DHL Group, FISV, YUMC), Henry Ellenbogen (SAM, INTU, VRM, BKI), and Todd Ahlsten (DE, AMAT, MU, BKNG, CME, DLR); 2) Commodities are starting to revive after a 10-year bear market, and natural resources such as energy, metals, and agriculture look set for an extended run that could be the beginning of a much larger structural bull market; To play the rally, investors can buy funds that hold the physical commodities or their futures contracts, or they can hold the stocks of producing companies (Positive on DBC, GSG, COMB, GLD, SLV, USO, PPLT, DBA, GDX, GDXJ, SIL, XLE, XOP, GHAAX, KGGIX); 3) Cautious on QS: The battery start-up founded by Stanford University scientists a decade ago generates no sales and says it won’t have meaningful revenue until 2026, yet its stock has rocketed 377 percent since August—even after a recent pullback of more than 60 percent from its peak—making it by any measure an overvalued stock.
* European Trader: Positive on Sika: The Swiss chemicals giant suffered from a slump in construction last year due to the pandemic, causing annual sales to fall, but the company, which fetches 38.7 times this year’s expected earnings and is valued in line with its peers, could be a post-pandemic star because of an ambitious acquisition drive and growing business from governments seeking to boost their post-Covid economies.
* Emerging Markets: Investors seem relieved that President Biden has so far not taken any steps to confront China, likely because it will take patience to work through Trump’s legacy—his administration took 200 different actions against China during his last year in office, many of which don’t make sense.
* Commodities: “Gold started the new year on a sour note, with prices trading lower for the first month of 2021, but many analysts are confident that the longer-term outlook remains promising for the precious metal”; Peter Grosskopf of Sprott sees gold prices this year rallying to more than $2,000, with a rise to fresh record highs by midyear.
* Streetwise: GME’s rise “has been attributed to a short squeeze, and to the tendency of heavy call-option buying to push share prices higher, as options market makers hedge their exposure with stock purchases,” says columnist Jack Hough. “Bigger picture, some blame zero-commission trading for a rise in speculation, the pandemic for leaving the young and homebound looking for online adventure, and years of near-zero interest rates for creating buoyant conditions for risky assets.”