Barron’s Weekend Summary: Inflation may be hotter than it looks, based on the gap between reported price inflation and the experiences of businesses and consumers
* Cover story: Despite rising costs for businesses of all kinds, monetary and fiscal policy remains on autopilot, geared to an economy stuck in recession, as the Federal Reserve’s favorite inflation gauge remains close to its longstanding two percent target; “Official inflation data and policy makers’ commentary are an alternate reality…The gap between reported price inflation and the experiences of businesses and consumers is a signal to investors that inflation is hotter than it looks,” a trend that could have vast implications.
* Tech Trader: Positive on CVNA, VRM, SFT: The companies stand to benefit from the ongoing shortage of semiconductor components, which have sparked a bull market in used cars as automakers curtail production just as the economy, and demand, heats up; Wholesale used-vehicle prices jumped 8.3 percent in April from March, bringing the 12-month increase to 54.3 percent, according to auto-auction company Manheim.
* Trader: Adam Parker of Trivariate Research says that after large growth selloffs, S&P 500 growth stocks with both free cash flow and expanding margins tend to outperform in the months ahead, a trend that favors stocks such as NOW, AMD, CHGG, TWTR; Positive on DD: “Chemical stocks have been soaring, but DuPont has been lagging behind its peers—its shares look like a smart play on the coming phase of the economic recovery as it begins to play catch-up”; After a three-month run of immense popularity to start 2021, special purpose acquisition companies have seen investor appetite dry up and new issuance has slowed to a trickle—but the trend presents an opportunity for investors willing to sift through the rubble to find quality plays.
* Profile: Hua Cheng, Jens Peers, and Amber Fairbanks, co-managers of the Mirova Global Sustainable Equity fund, look for companies that fit into thematic buckets; meet fundamental investment criteria, including high barriers to entry and strong management and governance; and trade for at least a 20 percent discount to the managers’ estimates of intrinsic value (top 10 holdings: MSFT, MA, ECL, ETN, EBAY, Vestas Wind Systems, TMO, Orsted, DHR, Symrise).
* Interview: Candace Browning, head of global research at Bank of America Securities, talks about weathering the pandemic, and why Wall Street research is more important than ever before—“A vibrant, independent research function is a very important part of efficient capital markets,” she says, and “the ability to look for the next big trend is absolutely critical.”
* Features: 1) Cautious on FSLY, TDOC, ZM, DASH, PTON, CHWY, ETSY, DOCU, SHOP, NFLX, LOGI, HPQ: After a rally during the pandemic, so-called stay-at-home stocks have taken a backseat to an economic rebound, and while they all have growth potential, some are set to do better than others in the near future; 2) Positive on WHR: Robust demand and limited supply have allowed the global appliance leader to pass along price increases in steel and other raw materials to its customers; The company, whose brands include Maytag, Amana, and KitchenAid, is increasing prices by five to 12 percent across the board; 3) Investment professionals asked about inflation hedging—and profiting— strategies say to forget gold, but buy Treasury inflation-protected securities, along with stocks in sectors such as natural resources; land and real estate; luxury goods such as watches; and collectibles; 4) Positive on RLGY: The owner of familiar brands like Century 21, Coldwell Banker, and Corcoran has rebounded from pandemic lows but still trades at just a third of its all-time high, and the stock could be the one bargain left for investors in search of exposure to the housing boom; 5) Retirement story says thinking in terms of “saving for life” creates a new vision of financing the future that expands from saving for retirement to enhancing financial resilience, especially during traditional retirement years, building on four strong pillars: social security, pensions and savings, health insurance, and earnings from work.
* European Trader: Positive on DAI: The German auto giant has taken advantage of the pandemic to accelerate its restructuring plan, including spinning off its trucks and buses unit, renaming itself after its Mercedes-Benz luxury brand, and making a stronger push into electric vehicles.
* Emerging Markets: South African stocks have underperformed for a long time, but this year is different—the iShares MSCI South Africa exchange-traded fund has gained 14 percent, while global emerging markets are about flat, partly because of the country’s strength in platinum production amid growing global industrial demand.
* Commodities: “The commodities that help build an economy have rallied, with lumber, copper, and iron ore reaching record prices in recent weeks—and demand looks set to continue.”
* Streetwise: Tools that run on batteries are less noisy and noxious than those that use gasoline, and the shift to them is well under way, a trend that is good for SWK and TTI Group, which might be turning the battery-tool market into a two-horse race after five years of market-share gains.