Barron’s Weekend Summary: Industrials increasingly resemble tech companies because of their use of data and automation—and they are set for a rebound.
* Cover Story: Industrial companies such as CAT and ROK are increasingly becoming technology companies, harnessing the powers of data, analytics, and automation in ways that should make their sales more consistent and their bottom lines more profitable in the years to come, while a shift toward renewable energy and electric vehicles provides the catalyst for companies with electrification technologies, like PWR, ETN, and Schneider Electric; The industrial sector, which has lagged behind the S&P 500’s 14 percent return over the past 10 years, is set to outperform again.
* Tech Trader: It has become easy for investors to dismiss the threat of tech regulation, but the upcoming vote on California’s Proposition 22—a referendum that would overturn Assembly Bill 5, a state law passed in 2019 that forces gig-economy companies to classify drivers as employees, rather than contractors—could have a material impact on LYFT, UBER, and other important tech stocks.
* Trader: JPM’s results mark the unofficial start of earnings season, but investors should keep an eye on GS, whose stock has fallen less than peers because of its strong investment banking and trading businesses and less exposure to possible credit losses.
* Interview: Jack Wild, founder of JW Asset Management, one of the first US institutional investors in legal cannabis companies, assembled a specialty pharmaceutical business that his JW Partners fund sold for a huge profit, and is now building the Canada-listed cannabis company TerrAscend—and investing in healthcare companies such as ESTA and HZNP.
* Profile: Jeff Kripke, manager of the $6B Pioneer Fund, updated the fund’s investment approach when he took over, reducing the number of holdings by more than half and making ESG factors a focal point of the strategy; The fund is prohibited from owning stocks that rank in the bottom 15% of their industries and bottom 30% of the S&P 500 index based on ESG research (top 10 holdings: AAPL, AMZN, MSFT, UPS, MA, V, GOOGL, VZ, UNP, FB).
* Features: 1) MS’ bid for EV, which followed its acquisition of E*Trade, “marks another step in its retreat from its somewhat swashbuckling pre-financial-crisis persona, when it made much of its money from risky trading—and it fits in with a wave of consolidation reshaping the money-management industry”; 2) Positive on AB: Asset managers are hot these days, as a recent deals suggest, but AllianceBernstein generates little attention because of its partnership structure and thin public float—the public portion of the company owns 35 percent stake, while life insurer EQH holds the other 65 percent, though it could at some point decide to acquire the entire firm; 3) Cautious on AMC, CNK, MCS, Cineworld Group: Slow to reopen amid the coronavirus pandemic, theater chains are reeling from low attendance and a lack of new films to lure moviegoers, and locations are essentially shuttered in New York City, Los Angeles, and San Francisco, which represent about a quarter of domestic box-office sales and the key markets that studios need to debut their big offerings; 4) Though US companies gladly shifted manufacturing overseas to reduce cost and boost profit margins, doing so came at the expense of diversification and resiliency; With an increasingly hostile China a key hub, there are national security implications to overseas manufacturing, but fostering a revival of US factories would be a difficult task; 5) PFE’s lawsuit against the federal government seeking a judgment in favor of proposed patient-assistance programs that would allow the company to help cover copays for Medicare beneficiaries using tafamidis—which costs $225K per year—could reverberate far beyond Pfizer, since such programs hamper efforts to bring down drug prices.
- European Trader: Positive on ThyssenKrupp: The Frankfurt-listed industry conglomerate has been restructuring its various businesses in an attempt to reboot performance and address debt issues; it is also trying to consolidate its steel and shipbuilding arms, and looking to attract buyers or partners for its plant-engineering unit, all of which should boost shares.
- Emerging Markets: “A raging pandemic and five percent economic contraction might seem like a poor backdrop for initial public offerings, but Brazil’s IPO market is defying macro gravity with its hottest year since 2007”—seventeen companies have gone public as of late September.
- Commodities: “Gold was up by close to 40 percent for the year when it hit a record high in August, but it has since nearly halved that gain, and some analysts say a move to fresh all-time highs in the final quarter may be out of reach for the precious metal.”
- Streetwise: REGN’s past success developing an antibody cocktail for Ebola bodes well for its Covid-19 effort—“Whatever suspicion the president’s Regeneron endorsement has raised among the embellishment-weary, we should take it more seriously than his past Covid-19 pitch work,” says columnist Jack Hough.