Barrons weekend summary:
Cover story on VZ and AT&T; positive feature on DWDP
* Cover story: After years spent running their businesses in virtual lockstep, T and VZ—America’s largest phone companies—are heading in opposite directions, with Verizon doubling down on its network and AT&T diversifying beyond the phone business with its Time Warner deal; For now, investors prefer Verizon’s strategy, but AT&T believes that combining distribution, content, and some advertising will boost all the businesses and prove successful in the long run, and investors can collect its handsome dividend while the strategy plays out.
* Features: 1) As pet ownership increases—about 57% of U.S. households owned a pet in 2016, according to the American Veterinary Medical Association—dogs and cats are living longer and being treated more like humans by their owners in terms of medical care, boosting the $36B global animal-health market; related story says cats are the hot growth area in animal health because their illnesses are harder to diagnose than those in dogs; 2) Positive on DWDP: Company’s spin-off of the commodity chemical business Dow increasingly looks like a winning strategy to unlock value—the new company will have a low valuation and an expected dividend yield of more than five percent, while DowDuPont itself also remains appealing; 3) Positive on APH: Company, which makes connectors for electronics, has returned an average of 16 percent a year over the past five years, which is five points better than the S&P 500 index, and the shares could do that well or even better over the coming year; 4) “The geopolitical challenges that Europe faces this year raise the question of whether it would find the political will and ability to react swiftly to an economic shock” such as the Brexit; 5) Two trends could pose problems for retirees planning to downsize: More older Americans are carrying debt, typically mortgages, into retirement, while baby boomers looking to sell large, suburban homes to pay off their mortgage and shore up retirement savings may face difficulties.
* Tech Trader: Cautious on AAPL: With Wall Street predicting a double-digit percentage decline for iPhone unit sales this year, the company sees services as a huge and untapped monetization opportunity, but investors felt its recent announcement of new offerings was incremental and weak—raising the question of why it isn’t being bolder with its $130B cash hoard.
* Trader: A recession may not be on the immediate horizon, but the bond market was at least hinting as if it were for much of the week, as the three-month Treasury yield traded above the 10-year yield, a so-called inversion; Cautious on WFC: Getting regulators to believe management understands the scope of necessary reforms and has the skill to implement them is the bank’s single biggest challenge, and some argue that a new CEO is the best chance to make that happen; For nervous investors, the one-year Treasury beckons, paying 2.4 percent, but for investors who prefer to stick with stocks and avoid big sector bets while adding a dash of caution, there are funds such as DEF, which overweights stocks that outperform during periods of market weakness.
* Profile: Brian Flanagan, lead manager of the $2.1B Thrivent Mid Cap Stock fund, tries to identify medium-size companies that are positioned to improve their return on invested capital, or maintain return levels they already have (top 10 holdings: ZION, LUV, HII, AKAM, AGO, ETFC, ADS, EW, KEY, UAL).
* Interview: Vivien Azer, who covers the cannabis business for Cowen & Co., talks about the timetable for U.S. marijuana reform and why she likes ACB, CGC, and TLRY.
* European Trader: Positive on Reckitt Benckiser: After several rough years, the company could turn investor sentiment around—chief Rakesh Kapoor plans to retire by year’s end, and a change in management could help unlock more value, possibly through a spin off.
* Emerging Markets: Cautious on Naspers: Company is essentially asking investors to believe it can find the next Tencent with money it gets from selling bits of the existing one—but mountains of capital from investors, including Tencent itself, are chasing the same goal.
* Commodities: “The corn market looks ripe for gains, based on increased use of the commodity to make ethanol and flooding in the U.S. Midwest, which both threaten to significantly tighten global supplies.”
* Streetwise: The stock market, not politicians, will drive true change in the U.S. healthcare market, says columnist Jack Hough, and the country’s “self-imposed crisis” is a golden opportunity to forge a new system.