Barron’s Weekend Summary: Cover story says China’s domestic market is enormous and growing rapidly, fueling demand in a range of sectors; positive features on FCAU/PGA merger; cautious on PCG
* Cover story: Despite turmoil stemming from China’s economic slowdown, its trade dispute with the U.S., and pro-democracy protests in Hong Kong, Chinese stocks have done remarkably well; According to Barron’s China Roundtable, the country’s domestic market is enormous and growing rapidly, fueling demand for education, life insurance, media, sportswear, and other sectors; The panelists put various risks in context, explain why China’s market beckons, and offer insights into their favorite Chinese stocks; Picks: China Education Group Holdings, Ping An Insurance, TME, Anta Sports Products, Fu Shou Yuan International Group, YUYA (David Semple, VanEck Emerging Markets Fund); BABA, Tencent, AVIC Jonhon Optronic Technology, MOMO, JD (Winnie Chwang, Matthews China Fund); AIA Group, NVDA, Remy Cointreau, LVMH (Lewis Kaufman, Artisan Developing World Fund).
* Tech Trader: Positive on GRMN: The company once known for its automobile GPS devices has never stopped innovating despite a lack of consumer and investor attention, and has introduced 80 to 100 products annually for the past six years, including a device that can land a small plane without help from a human pilot.
* Trader: Strong earnings growth may be overrated—while stocks tend to follow the direction of earnings over long periods, surges in corporate profits haven’t been good for stocks over shorter periods, says Ned Davis of Ned Davis Research; Positive on CODI: The holding company—which “takes a private-equity approach to acquiring, operating, and eventually divesting small and midmarket companies in a variety of niche industrial and consumer markets”—has a strong balance sheet and pays a generous dividend; Positive on GE: In addition to moving away from a top-down approach and giving responsibility to individual business units, chief Larry Culp is cutting corporate costs and pushing “lean” thinking at all levels of the organization to help improve business performance.
* Profile: Jeff John, senior manager of the American Century Small Cap Value fund, looks for companies with strong balance sheets and consistent free cash flow—he holds back during fallow periods and moves when small caps are beating more popular growth stocks (top 10 holdings: CODI, VLY, GPK, BKU, HOMB, PRA, AXS, SPB, TDC, TKR).
* Features: 1) Positive on SLB, ABBV, SPG, IRM: With more than two dozen S&P 500 stocks that pay 5% or more, it would be a bad idea to invest in all of them—many investors believe high yields are a sign payments aren’t safe—so Barron’s searched for high-yield stocks whose payouts look sustainable; 2) Positive on FCAU, Groupe PSA: Should the automakers’ proposed merger clear political and regulatory hurdles, both are likely to benefit in the long term despite facing daunting challenges—but in the short term, Fiat Chrysler investors look as if they’ll do better; 3) Salmon is increasingly in demand from health-conscious consumers around the world and the industry’s growth prospects look good, but U.S. investors may not know much about the sector because it is centered in Norway, where companies like Mowi, SalMar, and Seafood Group are leaders; 4) Cautious on PCG: As California continues to grapple with major wildfires, the company’s problems remain acute, and the PG&E trade remains a tough call—there’s still a small chance shareholders could recover some value, but that possibility could disappear once another severe wildfire starts; 5) Financial advisors and family law and caregiving experts share their tips on what grandparents should consider if they find themselves in a parenting role again.
* European Trader: The German economy has become the slowest-growing in Europe, while the German stock exchange has outperformed most other Western bourses this year, partly because large German companies have a global footprint—a benefit that could fade if a serious recession occurs.
* Emerging Markets: Argentine bond prices seem about as low as they could go, in the neighborhood of 40 cents on the dollar, but newly elected president-elect Alberto Fernandez is in no hurry to spark a rally.
* Commodities: U.S. shale oil has seen a slowdown in production growth since late 2018 that may contribute to a rise in crude prices as other major oil producers look to adjust production levels to better balance the market.
* Streetwise: Positive on FSLR: Some alternative-energy stocks have down-to-earth prices, says columnist Jack Hough—First Solar hasn’t been a steady long-term performer, but it’s up 23% this year, and trades at just 14 times next year’s earnings projection.