Barron’s Weekend Summary: Cover story reports on the global rally in fixed-income markets; ITW, JNJ, NUE, PNR, GWW are"dividend aristocrats"
* Cover story: A global rally in fixed-income markets has resulted in near-record low yields on Treasuries and other debt securities in the U.S. It also has produced $15T of negative-yielding debt globally—a development that most longtime bond investors thought would never happen, and which is creating new challenges for bond investors, who are seeking for yield in a low-rate world.
* Tech Trader: Positive on ATVI, TTWO: As a new video game cycle gets under way, with SNE planning to launch a PlayStation 5 and MSFT set to unveil a new console in time for the 2020 holidays, Activision and Take-Two should do well despite new streaming services from GOOGL and AAPL—they own most of their own content, while rival EA relies on licensed sports properties that require substantial royalty payments.
* Trader: Cautious on BBBY: The retailer’s move to hire TGT chief merchandising officer Mark Tritton to oversee a turnaround is good news, and he could fix one of the chain’s biggest problems—a lack of distinctive products—but shares don’t look like a bargain after rising on the news; Cautious on GE: The company’s announcement it would substantially cut financial leverage by changing pension plans didn’t move the stock, partly because inscrutable accounting issues make assessing corporate pensions difficult.
* Profile: Steve Shigekawa, manager of the Neuberger Berman Real Estate fund, says demand for cloud computing will require more data centers, a boon to the real estate industry; the fund typically only holds about 40 stocks, and he seeks high-quality companies with low debt, diverse property portfolios, and experienced management teams (top 10 holdings: AMT, EQR, EQIX, ESS, CCI, PSA, PLD, ELS, SBAC, CONE).
* Interviews: 1) Lester Ross, head of WilmerHale’s Beijing law office, talks about advising companies on investment, trade, and regulatory matters in China; Ross says “Companies are manufacturing in China for China, but reducing reliance on China for manufacturing for export—and there is also increasing concern over the personal safety of executives and the security of communications”; 2) David Giroux, manager of the $35B T. Rowe Price Capital Appreciation fund, has beaten rivals during the past 10 years, returning 11.5% a year on average with a mist of stocks and bonds, though he hasn’t matched the total return of the S&P 500 index during that time (picks: AEP, GE, FISV, PKI, FTV).
* Features: 1) Optimism around recent high-level trade talks between the U.S. and China might have been misplaced: Not only did the “minideal” not address the thorniest issues at the heart of the dispute, but the conflict between the world’s superpowers widened in ways that could pose fresh challenges to U.S. companies and their shareholders; 2) “The money managers who run university and college endowments may be the smart money, but this year they are barely getting passing grades—the median U.S. college or university endowment returned just under five percent in fiscal 2019, lagging behind both the stock market and a diversified portfolio of stocks and bonds over the same period”; 3) + K: Under chief executive Steven Cahillane, a former KO executive who took over two years ago, the food giant has started to show signs of improvement through cost-cutting and innovation such as rolling out existing products in smaller packages, part of an effort to revive growth; 4) European bankers are realizing that negative rates are here for the long haul, a problem in a region where about 60% of the industry’s revenue comes from net interest income, and the loudest protests are coming from the country with the most troubled banking system—Germany; 5) Positive on ITW, JNJ, NUE, PNR, GWW: Companies are members of what Barron’s calls the “Dividend Aristocrats,” having increased their dividend for at least 25 straight years, and the chances of more increases appear solid, even in a slowing economy or worse.
* European Trader: Cautious on Whitbread: The British company, which owns the Premier Inn, Beefeater, Table Table, and Fayre brands and is the UK’s largest hotel operator, will face some pain before investors can expect to see solid growth again, and the shares look fully valued.
* Emerging Markets: Mexico could be the winner in the U.S.-China trade war, though president Andres Manuel Lopez Obrador isn’t capitalizing on recent market momentum despite catching tailwinds during the past few months.
* Commodities: At about a penny a gallon in many places, water might be difficult to think of as a good investment, but stocks and exchange-traded funds related to it—including AWK, XYL, DHR, and PHO—have rallied nicely this year.
* Streetwise: Investors seeking shelter from falling earnings estimates next year could look to REITS—as group, they are fully priced relative to funds from operations, a measure of profitability, but falling interest rates flatter the dividend payments, and make capital for expansion cheap.