Barron’s Weekend Summary: Ford shares could double if the automaker can streamline its design and procurement and ramp up its electric car development
* Cover Story: Positive on F: The world’s fifth-largest automaker is barely in the top 15 by market value, even though it sells about $150B worth of cars and trucks annually, and many Wall Street analysts consider it an also-ran, trailing rivals in the race to produce electric and autonomous vehicles—but if new chief James Farley can streamline design and procurement processes, catch up on electric vehicle development, and clearly communicate a strategy, the shares could eventually double.
* Tech Trader: Positive on AAPL: The company’s newly released line of MacBooks, powered by Apple’s new M1 chip, are drawing strong reviews—the company “has found a way to build a system-on-a-chip that combines computer processing, graphic processing, and memory, adding speed despite lower energy needs, the Holy Grail of computing,” and the new Macs “bring laptops back to parity with tablets and smartphones.”
* Trader: In addition to being added to the S&P 500, TSLA will join the S&P 500 consumer discretionary index as well, which could make the sector far riskier than it already is—investors should considering playing it through alternative indexes or even individual stocks; The S&P 500 energy sector index has gained 34 percent in November, its best month on record, and nearly 90 percent of the stocks in the index had relative-strength indicators above 70, indicating that most of them were overbought, a sign the sector may not keep moving at its current pace.
* Interview: 1) Ronald Cohen, co-founder of Apax Partners, one of the world’s oldest venture-capital firms, discusses impact investing, weighted accounting, and other topics—“Companies are beginning to realize that ignoring the arrival of impact will hold the same risks as ignoring the arrival of technology”; 2) Margrethe Vestager, one of three executive vice presidents in the European Commission, talks about her efforts to lay the groundwork for new laws to “keep Europeans just as safe online as they are in the physical world.”
* Profile: Tom Parker and Jeff Rosenberg are co-managers of the $2.9B BlackRock Systematic Multi-Strategy fund, which “behaves like a truly defensive hedge—the fund is less than half as volatile as the 60 percent stock/40 percent bond Morningstar Moderate Target Risk benchmark.”
* Features: 1) Positive on AZEK: The Chicago-based decking supplier has benefitted from the work-at-home trend, and though it has had a volatile year, its strength in trim, shingles, and other products, and its ability to recycle to create cheap raw materials for decking, should help profit margins expand briskly; 2) Positive on RGS: The owner and franchiser of barbershops and salons in the US, UK, and Canada—including Supercuts, Signature Style, SmartStyle, and Cost Cutters—is the only publicly traded company in the sector, which will help it pull through the pandemic and grow market share as smaller rivals drop off; 3) The feasibility of president-elect Joe Biden’s bold plan for sweeping tax increases on the wealthy has been vastly diminished in the absence of big Democratic wins in the House and Senate, but he could still push through changes—his focus on raising income taxes on the top one percent of earners could appeal to Republicans with a more populist agenda and get pushed through; 4) As tax planning seasons approaches, taxpayers should keep four of Joe Biden’s proposals in mind: an increase in income-tax rates for people earning more than $400,000 to 39.6 percent from 37 percent; capped deductions for top earners; a rate hike on capital gains of more than $1M to 39.6 percent from 20 percent; and a decrease in the estate-tax exemption from $11.58M per person to around $3.5M; 5) Taxable municipal bonds offer an attractive alternative to corporate bonds, with higher yields and lower historical default rates—the market’s obscurity is part of the reason for yields that can be 0.5 percentage point to 1.5 percentage points higher than those of similarly rated corporate debt.
* European Trader: Positive on B&M European Value Retail: UK discount retailer has gotten a boost from the growth of bargain hunting during the pandemic, and has benefited from soaring sales of food, home decor, and furniture because it remained open during lockdowns as an essential retailer.
* Emerging Markets: The likely success of AZN’s coronavirus vaccine, which is cheaper and more durable than those from PFE or MRNA, has “shifted the calculus” for emerging markets, which may have a better chance of getting access to the vaccine than previously; shots from China’s Sinovac project and a budget option from JNJ could also help boost global inoculation.
* Commodities: Analysts predict silver will rise to $30 an ounce in the next year from the current $23.36, and even higher given the large-scale stimulus needed to revive economies, continuing a trend this year that has led to the surge in gold and silver prices as investors hunt for havens.
* Streetwise: GS recently calculated that if shares of AAPL, AMZN, FB, GOOGL, and MSFT fall 10 percent from here, while shares of the remaining S&P 500 members rise 10 percent, the net result would be a gain for the overall index of five percent—and if the tech giants merely stall instead of decline, and the rest rise 20 percent, the index would gain 16 percent.