Barron’s Weekend Summary: Trading app Robinhood continues to benefit from the market rally and pandemic, but critics worry it encourages users to take on too much risk
* Cover story: The popular trading app Robinhood has benefited from the convergence of a stock market rally and an economy hit by the pandemic; Of the roughly six million online trading accounts opened in the first six months of the year, at least three million were at Robinhood, and it “has become the flag bearer for a tech-driven revolution in consumer finance”—but critics say it motivates users to take on too much risk, and they compare it to videogames or online gambling.
* Tech Trader: For years, CSCO has been Silicon Valley’s “canary in a coal mine,” an early warning signal about potential problems, but investors don’t seem to be paying heed despite the company’s weak outlook; Amid a recession, the market seems convinced that cloud-based software providers such as DOCU, OKTA, WORK, CRWD, and CRM are insulated from Covid-19 pain—but their connection to the wider market via the companies they sell to makes that a risky assertion.
* Trader: If the market is in a bubble, BTIG strategist Julian Emanuel says one of several catalysts could make it pop—a coronavirus vaccine could cause investors to buy economically sensitive stocks over those tied to the work-at-home trend, interest rates could rise, or China tensions could hit tech stocks; TGT and WMT benefited from the lockdown because they were able to stay open, but Target is doing a better job building on that momentum, while Walmart shares look expensive and its e-commerce efforts are lagging.
* Interview: Tucker York, head of wealth management at GS, talks about the firm’s plan to hire 250 financial advisors over the next three years and bring on lower-net-worth clients to boost its Personal Financial Management division, a strategy it previously wouldn’t have considered. Profile: Scott Davis, co-manager of the Columbia Dividend Income fund, which recently had a 15-year annual return of 8.7%, besting 97% of its Morningstar peers (top 10 holdings: MSFT, JNJ, AAPL, MRK, CSCO, LMT, JPM, UNP, CVX).
* Features: 1) Recent stock split announcements from AAPL and TSLA could prompt more companies with high-priced stocks to follow-suit; Fans of splits argue they can expand a stock’s ownership base, getting more people to buy, while critics say there’s no guarantee a stock’s value will continue to rise after the split; 2) “The escalating tension between the U.S. and China has the makings of a bad divorce, and investors and companies need to brace for long, and lasting, ripple effects,” though the situation does present opportunities for investors able to “create a new framework for profit”; 3) Positive on MRK: The pharma giant has the leading drug for harnessing the immune system to fight cancer and one of the top vaccine franchises, yet Wall Street seems fixated on the 2028 patent expiration for blockbuster Keytruda—but with a strong pipeline and reasonably priced shares, Merck deserves a look; 4) The outcome of the November election will have a significant impact on the outlook for healthcare investors—Raymond James analyst Chris Meekins says the sector would outperform the market if Joe Biden wins the presidency and the Republicans keep the Senate, but if Democrats win both, healthcare stocks could be volatile.
* European Trader: Positive on QinetiQ: Shares of the British defense-technology company have risen by 14 percent during the past year thanks to long-term government contracts that have insulated the company from coronavirus fallout, and a recent acquisition spree could further boost earnings.
* Commodities: After more than half a decade of record-busting price moves, the palladium market hit a bump in the road because of a global economic slowdown and a drop in car sales, and investors should expect neither a rally back to record prices nor a crash.
* Streetwise: The S&P 500 recently traded at 26 times this year’s depressed earnings, or 21 times last year’s earnings, versus an average historical level of closer to 15 times earnings, a trend that is likely to continue, says Jonathan Golub of CS—“For the next decade, we’re going to live with stock multiples in the mid-20s, even though that seems historically very high, and that is going to be really uncomfortable for professional investors.”