Barrons Saturday summary: positive on NOV, PCL, IVZ
Cover story: Interview with Nobel Prize winning economist Eugene Fama of the University of Chicago and professor and economist Kenneth French of Dartmouth, who discuss their efficient markets concept and how it differs from the behavioral finance approach of Nobel winner Robert Shiller; Profile of Dimensional Fund Advisors, a $332B mutual fund firm whose investment strategy is based on Eugene Famas research, and which has no star managers because the funds are based on computer models rather than individual security selection; New category of smart beta ETFs claims to take a more intelligent approach to generate better returns by using alternative ways to represent the market, beyond the traditional market-value weighting; Interview with Don Phillips, Managing Director, Morningstar, who says the mutual fund industry has gotten better because investors have demanded it; Profiles of four stock pickers who have had tenures of at least 10 years with above-average returns over the long haul and below-average returns over the past five years, but who seem to have promising prospects (Christopher Davis, NYVTX, SLASX; Daniel Becker, UNVGX, WLGAX; Judith Vale, NBGNX; Conrad Herrmann, FKCGX).
Features: 1) Positive on NOV: Offshore rig companys prospects seem bright, with growth in orders for aftermarket parts and replacement orders for aging drill fleets, while shale boom should pave way more for overseas plays; split-up later this year could unlock value, and shares could see 30% gain. 2) Positive on PCL: Shares could fall more than 20% to $36 unless CEO Rick Holley can figure out some new ways to sell more timber, or its markets pick up. 3) Positive on IVZ: Money-management firms smart moves have positioned it for another strong year, and a richer stock price amid streamlined operations, better technology, and the shedding of non-core businesses; buyback is also possible this year.
Tech Trader: Tiernan Ray looks at a decades worth of follow-on stock offerings in the tech sector, noting many of them helped keep questionable companies such as PRKR, PAMT, OLED, and UNXL afloat; As the secondary offering trend gains momentum, companies such as WAVX, FLTX, EOPN, FEYE, and CUDA benefit, even as they continue to struggle and/or lose money.
Trader: Cautious on AAPL, GOOG, AKAM, N, CSCO, HPQ: One of the biggest risks to earnings in the tech sector in 2014 may be increasing worry on the part of global leaders in countries such as Germany, Brazil, and China that the NSA is spying on them through equipment made in the U.S. and data centers run by U.S. companies; Cautious on GCVRZ: Following FDAs failure to approve SNYs Lemtrada treatment for relapsing forms of multiple sclerosis, value of separately traded contingent rights tied to drugs future sales remains in doubt.
Follow-Up: At current prices, Puerto Ricos bonds are starting to anticipate the possibility of a debt restructuring or default, and bears argue the commonwealth is in a debt and economic spiral; Negative on UNXL: Company has missed production expectations and rung up losses, and with shares falling recovery now seems unlikely.
European Trader: Positive on Fiat: In wake of Chrysler deal, stock could accelerate this year, but might not find its top gear until 2015, when it could double in value; conventional metrics that indicate the shares are pricey now are misleading.
Asian Trader: Research by Ayako Weissman of Horizon Kinetics finds owner-operated companies in Japan have since 2001 routinely outpaced benchmarks such as the Topix, MSCI Japan, and the Nikkei 225 (Positive on Cookpad, Unicharm, Internet Initiative Japan).
Emerging Markets: Investors in Gulf stocks are waiting to see if they can maintain their 2013 momentum, fueled by reforms and government spending that sparked a recovery and fueled increased consumption.
Commodities: Floridas orange crop is on thin ice this winter, and any hint of a freeze is likely to push futures prices higher, in addition to which there is potential for another drought to develop in Florida in the first three months of the year. Up & Down Wall Street: Consumer discretionary stocks such as NFLX, BBY, and TRIP benefitted last year from levitated stock portfolios, rehabilitated home prices, and muted gas prices.
Streetwise: There are signs more companies, including VFC and MA, could split their shares in 2014; Low-priced stocks continue to outperform, and bargain-hunters could help boost MGM, HTZ, and BTU.