Barron’s Weekend Summary: ORCL is increasingly shifting to the cloud, and is set to compete with AMZN, MSFT, and GOOGL
* Cover Story: ORCL resembles the MSFT of ten years ago—in a rut and ready to reinvent itself; The company is shifting to the cloud, betting on a cloud-only version of its core database software business, with its “juiciest opportunity” being a public cloud offering that will compete with AMZN, MSFT, and GOOGL in a market arguably worth trillions of dollars; Chief executive Safra Catz says Oracle is the only tech company that has both a global cloud and a full set of enterprise applications.
* Tech Trader: “It might be time to start worrying about tech-stock valuations,” says columnist Eric Savitz, who found dozens of stocks trading at more than 35 times sales estimates for calendar 2021—including SNOW, ZM, FVRR, AI, and NET—though the market’s reactions to tech earnings suggest that doubts are mounting.
* Trader: “The economic data this past week largely underscored the market’s apparent conviction that a rapid recovery is under way. Cyclical equities rose, bonds fell, and investors wrung their hands about higher yields threatening the stock market”; “Bank stocks have been on a tear this year, and the rally looks to be in the early innings, giving investors ample time to buy shares.”
* Profile: James Gautrey and Simon Webber, co-managers of the Hartford Schroders International Stock fund, believe one of the best sources of consistent alpha—or outperformance—is in earnings surprises, where they can take a differentiated view to the market; The portfolio falls into two buckets: core stocks and opportunistic stocks (top holdings: MELI, EQNR, Intesa Sanpaolo, Svenska Handelsbanken, HDB, AIA Group).
* Interview: Felix Zulauf—a former Barron’s Roundtable member who continues to follow macroeconomic trends, sharing his observations and opinions with clients of Zulauf Consulting, a research firm catering to institutional investors—talks about China’s rise, Europe’s shaky union, the global meltdown in bond yields and buildup in public debt, as well as prospects for stocks, commodities, and Bitcoin.
* Features: 1) AMZN, MSFT, and GOOGL dominate the US public cloud market, and ORCL is getting into the game, but determining which company has the largest cloud offering is difficult, because the data are obfuscated by definitions that can make comparisons among them almost impossible; 2) Positive on ETN, GE, GNRC, HES, NOG, PBF: The energy crisis in Texas underscores that while software may be reinventing American life, hardware is crucial for basic services; The government response will likely involve billions of dollars in new investments to the electric grid and other basic infrastructure, benefitting equipment makers, while oil and gas companies that avoided the disruption should thrive; 3) The annual shareholder letter from Berkshire Hathaway chief Warren Buffett is likely to address a number of issues, including the underperformance of its shares during the past one, five, and 10 years, as well as Buffett’s approach to new investments and uneven acquisition track record over the past decade; 4) Positive on BX: The company has been building a multibillion dollar stake in the life sciences sector during the past ten years, putting money into a broad range of drug companies, device makers, biopharma startups, and cutting-edge research, and it is the leading landlord of laboratory space; 5) Barron’s list of the Best Fund Families of 2020 is topped by Manning & Napier Advisors, Guggenheim Investments, Vanguard Group, Fidelity Management & Research, and Morgan Stanley Investment Management.
* European Trader: Positive on IG Group Holdings: The UK-based financial network stands to benefit from the rapid growth of day trading among a new generation of retail investors—it offers online streaming of market commentary and trading strategies on its own website and other platforms, while its Tastyworks brokerage arm gives clients the ability to trade stocks, options, futures, and cryptocurrencies.
* Emerging Markets: Positive on Kaspi.kz, Safaricom, Jumia Technologies, Distribusi Voucher Nusantara, Logo Yazilim Sanayi ve Tikaret, Sinqia, Frontier Digital Ventures, Despegar: The growth of the online economy has potentially greater scope in less developed countries, because the fewer legacy banks, credit cards, and retailers, the more opportunity for new digital players—and these eight emerging market stocks offer momentum for investors as this trend plays out.
* Commodities: Food prices in 2020 increased by 3.9 percent from 2019, according to the Bureau of Labor Statistics, and prices for the food-at-home category, where the buyer is the consumer, also climbed at the same 3.9 percent rate last year, the largest yearly rise since 2011—and costs are expected to increase further in 2021.
* Streetwise: David Kostin, the US stock chief at GS, thinks that stocks can still shine, and the S&P 500 index will end the year at 4300—up about 10 percent from here, and 14 percent for the full year; Goldman expects the 10-year Treasury yield to creep from about 1.3 percent recently to 1.85 percent by the end of 2022, and that that Fed won’t change short-term rates until at least 2024.