Barron’s Weekend Summary: Electric vehicles may be the wave of the future, but investors in Chinese makers with high valuations should take their profits
* Cover story: Electric vehicles are the future of the auto industry and their stocks have been a hit on Wall Street, especially during the pandemic, when other businesses experienced little or no growth; Shares of three Chinese EV companies—NIO, LI, and XPEV—have made enormous gains, but they are now richly valued, and they face industry, government, and market risks that make taking profits now the prudent approach for investors.
* Tech Trader: The recent DASH and ABNB initial public offerings underscore the fact that growth is the new value, that IPOs remain a wealth transfer from issuers to institutions, and that there will be more such offerings to come even after this year’s wave—there are over 500 unicorns in the private market, according to CB Insights.
* Trader: First-day IPO pops are higher than they have been in decades, according to Bespoke Investment Group, and a basket of recent IPOs has doubled over the past 12 months—though that’s lower than the 350 percent rise such as basket saw during the dot-com bubble.
* Profile: Matt Quinlan, manager of the $2.8B Franklin Equity Income fund, looks for companies, many of them blue chips, that offer payouts and are “investing in the business to ensure the ongoing success of the business,” and prefers companies that are targeting growing markets, such as e-commerce, medical devices, and technology (top 10 holdings: JPM, PG, JNJ, DUK, NEE, MS, MDT, MSFT, TGT, VZ).
* Interview: 1) BLK president Rob Kapito—who oversees the firm’s biggest entities, including the $2.3T iShares exchange-traded-fund franchise, its $2.1T in actively managed assets, and the Aladdin risk-management unit—discusses the outlook for equities, the retirement crisis, and what’s in his personal portfolio; 2) Maria Konnikova, poker champion and author of “The Big Bluff,” talks about why it’s important to understand what factors are driving investment decisions and to develop strategies for making the best choices with the information available, even if it is confusing.
* Features: 1) It’s unclear how the SEC may implement the Holding Foreign Companies Accountable Act, which paves the way for delisting Chinese companies that don’t agree to foreign oversight of audit documentation, but while most larger investors should be able to maneuver through the various ways delisting could play out, smaller retail investors who own individual shares could have a harder time; 2) Positive on MCY: Shares of the California auto insurer—which is No, 6 in the state, with an eight percent share of the private-passenger market—run by 99-year-old chief executive George Joseph, look appealing at around $46, and the company’s lofty dividend of $2.53 a share results in a 5.4 percent yield; 3) Boldface names such as Shaquille O’Neal and baseball executive Billy Beane are increasingly getting into the SPAC market, a sign it may be in the midst of a full-throttled mania—more than 200 SPACs have gone public in 2020, raising some $75B, according to SPACInsider, more than in the previous decade; 4) Personal investing feature says “It’s impossible to know what the future holds, but there are strategies for avoiding the biggest behavioral mistakes. In fact, by focusing more on the process for making decisions and less on whether a decision is good or bad, you have a better chance for success—and a lower probability of driving yourself crazy.”
* Emerging Markets: In Saudi Arabia, a rash of new public offerings has yielded outsize returns, and there are more newcomers in the pipeline, mostly fast-growing innovators filling the consumer-facing space in a middle-income country of 34M, a market long dominated by banks and raw-materials producers.
* Commodities: “Natural gas has outperformed oil in 2020, and prices are poised to do something they haven’t done since 2016 on the heels of US production declines and rising exports: finish higher for the year.”
* Streetwise: The problem with stocks with relatively high dividend yields, says CS chief equity strategist Jonathan Golub, is that on average over the past decade, they have exhibited falling returns on equity, deteriorating sales growth, and elevated leverage and volatility—his list of companies with decent dividend yields and better fundamentals includes AVGO, BMY, JNJ, MMM, PEP, HAS, and PM.