Barron’s Weekend Summary: The space-travel business is taking off as more entrepreneurs get into the sector
* Cover Story: Entrepreneurs are increasingly creating opportunities in the space travel sector, and while tourism draws most of the attention, investors can choose from satellite makers, launch-service providers, and space logistics companies, all of which are generating revenue from new businesses; The market capitalization of pure-play space companies now totals roughly $25B, up from essentially nothing a few years ago, a figure that doesn’t include privately held SpaceX or Blue Origin; Investors can play the sector with SPCE, VSAT, LMT, BA, as well new companies set to list via SPACs, such as AST & Science, Astra, Black Sky Holdings, Momentus, Rocket Lab USA, and Spire Global.
* Tech Trader: Fast-growing cloud companies are using complex metrics such as annual recurring revenue, remaining performance obligations, net retention rate, contributions, adjusted Ebitda, and total addressable market that should be of concern to investors at a time when traditional metrics matter more than ever.
* Trader: Positive on CAT, BLMN: Buying Caterpillar now is a bet that its earnings will grow faster than expected, making its shares cheaper than they look, while Bloomin’, which trades at about $28, will benefit from its operating leverage, as well as a $40M cost-savings program; The Federal Reserve may yet find a way to keep yields from rising, but if chairman Jerome Powell continues to back away from this effort, owning banks, energy, and other value stocks will be one of the only ways to protect a portfolio.
* Interview: John Calamos, the 80-year-old founder of $35B Calamos Investments, whose flagship Calamos Convertible fund is up 87 percent over the past 12 months, talks about convertibles’ strong performance last year and their current outlook; his alternative strategies are about adjusting for the current environment, and he says that market-neutral is a good alternative to fixed income.
* Profile: Jeffrey Kolitch, manager of the Baron Real Estate fund, uses a different strategy than those of peers, most of whom invest in REITs, which offer a narrow investment opportunity set, including office buildings, malls, shopping centers, apartments, self-storage facilities, industrial warehouses, hotels, and niche categories—instead, his is a “real estate related fund,” with only 19 percent of its assets in REITs (top 10 holdings WYNN, PENN, GDS, BYD, RRR, LVS, TRIP, DEI, OPEN, BAM).
* Features: 1) Positive on SPLK: The company, which helps improve computing systems and manage system security and compliance, failed to pivot when cloud computing took off, but analysts think it can grow annual recurring revenue as much as 40 percent for years to come, topping $5B in fiscal 2025, when more than 80 percent of revenue will come from the cloud, putting Splunk on track to be one of the world’s biggest cloud companies; 2) Positive on ELF: As the pandemic comes under control and lockdowns start to ease, things are looking up for cosmetics companies and their shares, and e.l.f. Beauty, a value-priced brand sold at TGT, ULTA, and other stores is particularly well positioned to benefit from the return to normal and the next round of stimulus checks hitting bank accounts, as well as from continued product innovation; 3) Nonfungible tokens (NFTs) are the hottest asset of 2021, and have taken in more than $200M in just the past month, which doesn’t include the recent $69M sale of a digital artwork by an artist named Beeple—and while some investors are expressing disbelief, NFTs are a bridge between cryptocurrencies and the mainstream world of art and sports.
* Follow-Up: Positive on LLY: Shares fell last week on investor disappointment about Alzheimer’s disease therapy donanemab, but stock swings don’t tell the whole story: The data that Lilly presented were positive for Alzheimer’s drug development in general, and for donanemab in particular, even if the results didn’t meet investors’ high expectations, a sign the company is on the right track.
* European Trader: Positive on Flutter Entertainment: The London- and Dublin-listed company has underperformed rivals William Hill and Entain, but is benefitting as soccer and racing continue during the pandemic, and could see its stock rise further if it holds an initial public offering for US-based FanDuel.
* Emerging Markets: Some Chinese internet stocks—including BABA and Tencent—may be showing their age, but there are opportunities for investors as the country’s healthcare industry starts to come into its own, with companies such as WuXi Biologics and Ping An Healthcare & Technology set to grow much bigger as the population ages and drug development grows more sophisticated.
* Commodities: China’s efforts to drastically reduce pollution levels could lead to lower demand for iron ore, a raw material for the steel industry, which is a big source of the nation’s harmful emissions, though change isn’t on the immediate horizon.
* Streetwise: MS suggests looking for tocks whose earnings growth can more than offset declines in P/E ratios, and has screened for such stocks since September, refreshing its list about every two months—the current one, cross referenced with companies it has rated Overweight, includes GOOGL, C, DRI, XOM, and TTWO.