Barron’s Weekend Summary: Cover story is positive on PFE, which is breaking from its long-term business model to focus on new drugs; Kubernetes is the next big wave in computing
* Cover story: Positive on PFE: The pharma giant has been steadily shedding many of its businesses, and is taking its most radical step yet by selling consumer brands Advil and Chapstick and spinning off the division that makes Viagra; The moves mark the final break with a business model of many decades as Pfizer commits to focusing almost entirely on new drugs it can build or buy, a shift that provides sharper focus and a platform for faster growth, though there are risks.
* Tech Trader: Kubernetes, the Greek word for helmsman or pilot, is set to become the next big wave in computing—it is accelerating the transition away from legacy client-server technology by making cloud-native software development faster and better, allowing users to automatically deploy, manage, and scale software workloads in the cloud; VMW is among the companies facing the most risk from the growing trend.
* Trader: “With bond yields as low as they are, and the Fed keeping interest rates steady for the foreseeable future, stock valuation multiples won’t necessarily contract—and renewed earnings growth could be the catalyst if stocks were to go higher next year”; +/- I: The satellite company lost 70% of its value in the past two weeks and things could get worse—investors may still be too optimistic about how much money Intelsat could collect from a government sale of its stake in so-called C-Band spectrum for 5G; Overall chief executive tenure is down compared with a few years ago—Barron’s identified 108 S&P 500 chief executives who have been replaced over the past two years, and 56 CEOs on the index have less than one year on the job.
* Interview: Economist Keyu Jin—an associate professor at the London School of Economics and Political Science who is frequently tapped at global economic meetings to explain change in China—offers insight into the biggest China myths, what the next era of globalization will look like, and how younger generations will shake up the country.
* Profile: Randy Pearce, lead manager of the Grandeur Peak International Stalwarts fund, has an investment staff of 29 analysts and managers, focused exclusively on small to midsize stocks globally; the fund’s largest sector allocations are to consumer stocks, 27%, financials, 24%, and technology, 19% (holdings: St. James’ Place, B&M European Value Retail, Aalberts, LULU).
* Features: 1) The current investor narrative that everything is right with the world “papers over just how weak the economic data have become. Even worse, investors appear to have thrown caution to the wind as they load up on stocks out of fear of missing out. Combined, that could be a recipe for a sharp market downturn in 2020”; 2) Positive on SCHW: The market would love to see Charles Schwab and AMTD merge—the combined company would have more than $5T in assets and vast scale across asset management, advisory services, and trading, giving Schwab stock long-term benefits; 3) Cautious on CBOE: The differing market reception to the speed bumps of IEX and Cboe reflect a difference in whose trades they delay—the IEX delays all orders by 350 millionths of a second, but the proposed speed bump at Cboe’s EDGA would be asymmetric, delaying only incoming traders who seek to hit standing orders posted on EDGA by market makers; 4) Calculating the yield on an equity-income mutual fund is difficult for individual investors, given how many pieces to the puzzle and different yield readings there are, but those who turn to sources such as Morningstar need to be aware that a fund’s yield can vary significantly depending on what metric is used.
* European Trader: Positive on Siemens: The Munich-based company is “transforming itself from a dated industrial conglomerate into a modern digital energy, transport, and infrastructure player,” a move that could boost earnings in the long run.
* Asian Trader: In a recent American Chamber of Commerce survey, 80% of respondents saw Hong Kong’s disorder weighing on investment decisions, and 90% tagged Singapore as the best alternative—but investors aren’t quite ready to bet on a Hong Kong dividend for Singapore yet.
* Commodities: “Arctic weather in much of the U.S. in November lifted prices for natural gas to their highest level since March, but ample U.S. supplies of the heating fuel have put the commodity on track for a loss for the month.”
* Streetwise: Cautious on TSLA: The auto industry can’t determine whether Tesla’s recently unveiled “cybertruck” is a mass-market vehicle going after F and GM or a niche “wow factor” model that will be limited in demand and production scale—but either way, says columnist Jack Hough, “the whole industry could be headed for a supply shock in electric vehicles. Consider watching the race from a safe distance.”