Barron’s Weekend Summary: Cover story looks at eight companies that should be able to maintain dividends during the pandemic; Tech sector valuations are getting frothy
* Cover story: Dividend stocks have long been a foundation for steady income and a reliable pathway to accumulating wealth for retirement, but the coronavirus pandemic forced many companies cut or suspended them to conserve cash; Barron’s looks at eight companies—HD, JNJ, LRCX, MCD, NEE, PG, TXN, Roche Holdings—that should have the financial strength to keep their dividends intact, or even raise them, during the crisis.
* Tech Trader: Though tech giants such as AAPL, AMZN, FB, GOOGL, and MSFT will likely come through the Covid-19 crisis stronger than ever, tech valuations nonetheless remain in frothy territory—much like the way investors bid up the stock of Sun Microsystems during the height of the Internet bubble.
* Trader: Positive on CPB, CAG, GIS: Companies remain some of the most appealing of the big packaged food players, and while the intensity and duration of a second wave of Covid-19 cases isn’t clear, they should continue to benefit as consumers eat more at home; The US is in a much better position to handle a second wave of coronavirus infections than it was in February and March, and the potential economic consequences are much less dire.
* Profile: Duane McAllister, senior portfolio manager for the $1.1B Baird Short-Term Municipal Bond fund, prefers revenue bonds—which are issued to fund specific projects—over general-obligation bonds to avoid pension risk and track revenue streams; his team invests in investment-grade munis in the one-to-five-year segment of the yield curve and can hold up to 10 percent in non-investment-grade securities.
* Interview: Jim Covello, global co-head of single-stock research at GS, says that 121 of the 700 or so dividend-paying companies in the Russell 1000 Index, or 17 percent, have suspended or cut payouts this year, particularly in sectors such as energy, consumer discretionary, and industrials.
* Features: 1) Positive on GS: Investors who have focused on what the bank lacks are overlooking its strengths in risk management, investment banking, and leadership—chief executive David Solomon is pushing to build an online banking franchise, broaden relationships with corporate clients, and expand the firm’s alternative asset-management business; 2) Some of today’s most distressed stocks have suddenly gotten a jolt of enthusiasm from young day traders, many of whom are new to stock investing and may not have the same reverence for the advice of elder statesmen as more experienced market participants do; 3) A rebound in the initial public offering market “has been so fast and furious that even the country’s top bankers have struggled to price IPOs”; last year’s wave of offerings was a great place for investors to hide during the crisis, and bankers and private companies see new opportunity in the sector; 4) Positive on PGR: Stay-at-home orders mean fewer cars on the roads, fewer accidents, and fewer claims to pay, so profits are soaring for auto insurers—but Progressive’s stock, which already reflects a lot of bad news, has barely risen, creating an opportunity for investors to buy a growth stock at a value price; 5) Positive on MELI, JD, BABA, HCL Technologies: Emerging markets are lagging behind again as Covid-19 cases surge in India and South America, but under the vast umbrella of stocks in the sector, some world-class companies have survived the decline and are poised to keep climbing—an indication that it’s more important to pick stocks than regions; 6) Positive on WFC, JPM, C: American banks have so far beaten back calls to suspend their dividends during the coronavirus crisis, and the payouts seem likely to continue despite the recession and what figures to be a long recovery; in addition, Wells Fargo, Chase, and Citi expect to increase reserves in the second quarter.
* European Trader: Positive on Basic-Fit, The Gym Group: As the world shakes off the coronavirus, the focus on staying healthy is likely to return, along with strong demand for workouts and classes, which should boost the value of two of Europe’s biggest publicly listed gym chains.
* Emerging Markets: A rally in Brazilian stocks may be coming to and end—low interest rates and strong prices for iron ore and oil have driven up shares, but stumbles from the Bolsonaro administration, particularly in its handling of the coronavirus pandemic, make further gains difficult.
* Commodities: “Natural-gas prices trade nearly 20 percent lower this year, and analysts say they haven’t hit bottom yet, despite the early start to the Atlantic hurricane season, expected high demand for the summer season, and signs that the US economy is recovering from the Covid-19 pandemic.”
* Streetwise: RDFN chief executive Glenn Kelman says traffic growth for online listings for houses in suburbs and small towns has outpaced that for in big cities by 164% over the past two months, supporting anecdotal evidence that buyers are moving from cities out to the country.