barrons 20201116 Barrons PDF

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INTEL AND THE FUTURE OF CHIPS • PAGES 22, 28, 30 > 63142 Progress on a coronavirus vaccine has given new life to value stocks, especially smaller ones. Five to buy now. PAGES 12, 19, M1 THE RETURN OF SMALL STOCKS VOL. C NO. 46 NOVEMBER 16, 2020 $5.00 © 2020 Dow Jones & Company, Inc. All Rights Reserved. Our newspapers are 100% sourced from sustainable certified mills. BARRON’S (USPS 044-700) (ISSN 1077-8039) Published every Monday. Editorial and Publication Headquarters: 1211 Avenue of the Americas, New York, N.Y. 10036. Periodicals postage paid at Chicopee, MA and other mailing offices. Postmaster: Send address changes to Barron’s, 200 Burnett Rd., Chicopee, MA 01020 CONTENTS 11.16.20 VOL.C NO.46 Index P.8 Review&Preview P.10 Mailbag P.39 InsideScoop P.M8 ChartingtheMarket P.M9 Winners&Losers P.M10 ResearchReports P.M12 MarketView P.M13 Cover Illustration by Alex Nabaum Small-cap value stocks look primed to reverse their underperformance of the past two years. Small Stocks, Big Hopes Russell 2000 Value S&P 500 Source: Bloomberg -50 -25 2020 2016 2017 2018 2019 0 150% 75 50 25 P. 19 5 Small Stocks for a Rebound Cover Story: The tide is turning in favor of small-cap value stocks, which tend to outperform in the early stages of an economic recovery. Better yet, their record-low valuations make them a worthy alternative to Big Tech. By DAREN FONDA P. 5 Up & Down Wall Street: Reversals of Fortune Pfizer’s vaccine news boosted companies seen benefiting from an economic reopening, while hitting highflying stay-at-home stocks. By RANDALL W. FORSYTH P. 9 Alibaba Stock Might Get Even Cheaper Follow-Up: While the long-term bull case for Alibaba is still strong, investors might want to wait until regulatory rumblings die down. By RESHMA KAPADIA P. 12 Ways to Play a Long- Awaited Value Revival Banks, energy, industrials, and other economically sensitive groups could be ready to bust out of their long slump. By ANDREW BARY P. 14 Ready to Cash In on a Covid-19 Vaccine If the Pfizer/BioNTech vaccine is as good as it seems, it could open the floodgates to other treatments that use messenger-RNA technology. By BILL ALPERT P. 22 Here’s Your Chance to Buy Chip Maker Intel The semiconductor stalwart doesn’t need Apple’s business to remain relevant. How Moore’s Law could play into the company’s resurgence. By MAX A. CHERNEY P. 28 Semiconductor Stocks With Stellar Prospects Q&A: Evercore ISI’s C.J. Muse says companies such as Nvidia and Micron will benefit from 5G, cloud computing, and industrial tech. By LESLIE P. NORTON P. 31 Covid-Hit Consumers Might Have to Wait Biden’s administration is likely to try to put some teeth back into the Consumer Financial Protection Bureau—but it won’t be easy. By ELEANOR LAISE P. 32 This Bond Maven Likes GE, Banks, and Boeing Profile: Mark Egan has cash standing by in his top-performing Carillon Reams Core Plus Bond fund, awaiting fresh opportunities. By LEWIS BRAHAM P. 7 Streetwise: Visa Is Holding Great Cards By JACK HOUGH P. 30 Economy: How Tech Could Stifle Growth By MATTHEW C. KLEIN P. 35 Funds: Cheaper Ways to Play E-Commerce By EVIE LIU P. 36 Tech Trader: Micron Stock Could Double By ERIC J. SAVITZ P. 37 Income: A Spike in Special Payouts By LAWRENCE C. STRAUSS P. 38 Other Voices: Taxing Wealth, not Income By JONATHAN SOROS P. M1 Trader: Time to Sell Some Covid Winners By BEN LEVISOHN P. M4 Euro Trader: Logitech Gets a Lockdown Lift By RUPERT STEINER P. M4 Emerging Markets: Tread Lightly in Turkey By CRAIG MELLOW P. M5 Commodities: Tips for Trading Oil and Gold By MYRA P. SAEFONG P. M7 Striking Price: Staying Nimble on Value Stocks By STEVEN M. SEARS Barron’s Roundtable on Fox Business Watch our TV show Friday at 10 p.m. or 11:30 p.m. ET; Saturday at 10 a.m. or 11:30 a.m.; or Sunday at 7 a.m., 10 a.m., or 11:30 a.m. This week, interviews with former CDC official Richard Besser and economist Torsten Sløk. November 16, 2020 BARRON’S 3 The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. Lipper Leaders fund ratings do not constitute and are not intended to constitute investment advice or an offer to sell or the solicitation of an offer to buy any security of any entity in any jurisdiction. For more information, see lipperfundawards.com. Lipper Fund Awards from Refinitiv, ©2020 Refinitiv. All rights reserved. Used under license. The award is based on a review of risk-adjusted performance of 33 companies for 2020. The award pertains only to the Nuveen funds in the fixed-income category. Certain funds have fee waivers in effect. Without such waivers ratings could be lower. Past performance does not guarantee future results. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. Before investing, carefully consider fund investment objectives, risks, charges and expenses. For this and other information that should be read carefully, please request a prospectus or summary prospectus from your financial professional or Nuveen at 800.752.8700 or visit nuveen.com. Nuveen Securities, LLC, member FINRA and SIPC. 20854 GAD-1134692CR-W0420X Income strategies as deep as our heritage • Over 120 years as an income provider • Expertise across municipal bonds, taxable fixed income and real assets • Awarded 2020 Best Fixed Income Large Fund Company nuveen.com/income 4 BARRON’S November 16, 2020 Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. For a free prospectus or a summary prospectus, which contains this and other important information about the funds, visit columbiathreadneedle.com. Read the prospectus carefully before investing. Past performance is not a guarantee of future results. Class Inst shares are sold at net asset value and have limited eligibility. Columbia Management Investment Distributors, Inc. offers multiple share classes, not all necessarily available �� Fixed-income �� Some things can endure even the toughest environments. �� columbiathreadneedle.com �� Columbia Strategic Income Fund Nontraditional Bond Category LSIZX The Overall Morningstar Rating™ is �� Columbia Strategic Municipal Income Fund Muni National Long Category CATZX The Overall Morningstar Rating™ is �� Columbia Mortgage Opportunities Fund Nontraditional Bond Category CLMZX The Overall Morningstar Rating™ is �� Columbia Total Return Bond Fund Intermediate Core-Plus Category SRBFX The Overall Morningstar Rating™ is �� COLUMBIA THREADNEEDLE FIXED-INCOME SOLUTIONS �� November 16, 2020 BARRON’S 5 UP AND DOWN WALL STREET BofA strategists believe that we’re at the secular low point in bond yields, suggesting that risk assets should be sold on the vaccine news. Why the Good News On Vaccines Could Be Bad News for Stocks W as this the beginning of the end or the end of the beginning? Investors evidently sensed the former after the stunning news early Monday morning that the Covid-19 vaccine developed by Pfizer (ticker: PFE) and its partner BioNTech (BNTX) showed an extraordinary 90% effectiveness. They responded with a record influx of dollars into equity funds, driving the broad stock market indexes higher and pushing the Dow to an intraday record Wednesday. The possibility that the first viable vaccine could be available by the end of the year and widely distributed by mid-2021 brought hope that the Prom- ised Land of normalcy might be near. Yet that optimism looked beyond the immediate effect of soaring coronavirus cases across the U.S. and Europe, with no fiscal relief in sight in America. The Pfizer vaccine news sent a shock through the markets at the open Monday, boosting stocks of companies seen benefiting from the economy’s reopening, while hitting shares of the stay-at-home winners, including the monster megacap technology leaders. The dichotomy is apparent in the weekly tally of the major indexes. The Dow industrials gained 4.08% on the week, while the S&P 500 added 2.16%, reaching a record 3585. It was the second straight weekly advance for both gauges. But the Nasdaq, the year’s big winner, shed 0.55%, to 11,829, for its third weekly loss in the past four. And the Russell 2000 benchmark of small- cap stocks rose 6.08%, to 1744, its first record close since Aug. 31, 2018. One big winner was Pfizer CEO Albert Bourla, who sold $5.6 million worth of his company’s stock after it popped 7%, to more than $40, on the vaccine news, a level it rarely had seen in this century. The sale was part of a pre-established plan, the company said in a statement, the timing of which nonetheless proved propitious. In any case, as my revered predeces- sor, Alan Abelson, often observed, there are many reasons to sell a stock, but expecting it to go higher isn’t one. The vaccine news sparked a violent shift in the positioning of leveraged players, says Julian Brigden of Macro Intelligence 2 Partners. Many pursue a long/short strategy, buying indexes based on baskets of stocks with positive price momentum (largely the FAANGs and other megacap techs) and selling those with negative momentum, such as the value shares that long had left their fans “in the Slough of Despond,” he writes in a client note. The shift in winners and losers was the most violent on record, including after 9/11 or in the financial crisis of 2008-09, he continues. And he asks: If all the cracks caused by Covid-19 were papered over by fiscal and monetary actions and the Goldilocks “just right” scenario re- turned, could we get back to the pre- coronavirus peak valuations of last January? If so, that would also mean 10-year Treasury yields closer to 2%, not just under 1%, and 30-year yields of 2.5%, not 1.5%. The Nasdaq would suffer, but laggards, such as the Italian and Spanish bourses, could roar back. Today’s historically low bond yields are working in stocks’ favor. The stam- pede into global equity funds, which attracted some $44.5 billion in the latest week, coincided with the total of negative-yielding global bonds reaching $17 trillion, equaling their high, according to a report from a Bank of America investment strategy team led by Michael Hartnett. All European government bonds due in two years or less yield less than zero, even Greek bonds, while only Italian and Greek 10-year maturities yield more than 0.5%, according to Tradeweb. To BofA, this marks the secular low point in bond yields, suggesting that risk assets should be sold on the vaccine news. Another factor to ponder: Soaring coronavirus cases could spur shut- downs that might be less draconian than those earlier this year, but would still hit the economy. J.P. Morgan economist Jesse Edgerton reports spending by the company’s 30 million Chase credit- and debit-card holders has fallen “notably” in its latest data through Nov. 9, down by some 7.4% from the figure a year earlier. Drops have been larger in states where Covid-19 is spreading most rapidly, but the data suggest a widespread pullback, he writes in a client note. Federal Reserve Chair Jerome Pow- ell commented Thursday that while he sees the economy in a solid recovery, “with the virus now spreading, the next few months could be challenging.” It took only two weeks of closures in March to drag down first-quarter gross domestic product by 5%, notes Rubeela Farooqi, chief U.S. economist at High Frequency Economics. That was before the epic 31.4% annualized plunge in the second quarter. Such a steep drop-off isn’t in High Frequency Economics’ forecast. But what’s also different now is the fading chance of a fiscal response to a renewed downturn. The Trump administration and congressional leaders worked with unprecedented speed last spring to fashion and pass the $2.3 trillion Cares Act, which helped produce the stron- ger-than-expected rebound in the third quarter, at a 33.1% annual rate. Fiscal relief is unlikely during the lame duck period while President Donald Trump continues to contest the vote count. But the key congressional antagonists—House Speaker Nancy Pelosi (D., Calif.) and Senate Majority Leader Mitch McConnell (R., Ky.) continue to talk past each other, while the virus worsens in Middle America, writes Greg Valliere, AGF By Randall W. Forsyth The possibility of quick approval for Pfizer’s vaccine has raised hope that scenes like this soon will be history. Timothy A. Clary/AFP/Getty Images 6 BARRON’S November 16, 2020 Investments’ chief U.S. strategist, in a client note. “This requires an aggressive response from Washington, but this city is still de- bating the election outcome and Trump’s next moves—not this deepening humani- tarian crisis,” he concludes. F our decades ago, when the Dow Jones Industrial Average couldn’t stay above 1000, Louise Yamada started charting the markets. Since then, there have been Dow 10,000 and Dow 20,000, with Dow 30,000 now fewer than 1,000 points away. And after that historic run, Yamada, the doyenne of technical analysis, is stepping away from the rigors of her monthly publishing schedule at her LY Advisors. Sounding as hale and healthy on the phone as when we last got together in the days before the coronavirus, she empha- sizes that purely personal commitments are behind this decision. And she will still occa- sionally pen guest reports for her colleague Jonathan Lin, who will carry on the service under the JTL Market Technicals banner. Much has changed since she and other technical analysts would chart the markets by hand on paper. Yamada took a circuitous career route, although her degree in early childhood education served her well on Wall Street, she quips. Alan Shaw, Smith Barney’s legendary technical guru, hired her after she took his course at the New York Institute of Finance. Over the next 25 years, the Smith Bar- ney technical team made great calls, notably declaring in 1985 that double-digit in- terest rates would never be seen again, Yamada recalls, leading to the historic bond rally that has taken the benchmark 10-year Treasury’s yield below 1%. The unprecedentedly low bond yields underpin valuations of all asset classes, especially the megacap growth stocks. Charting the markets gave early warn- ing signs, notably the “enormity” of the tops being formed in the late 1990s, she says. First the drug stocks, then the too- good-to-be-true names, such as Tyco and Enron, gave way, and only afterward did the bubble in highflying technology stocks pop. Tracking these stocks showed that “there’s somebody out there who is smarter than you or I” setting prices, the veteran technician adds. Looking at the current market, Yamada sees the “FAANMG” tech leaders making tops and being vulnerable to declines of “bear-market proportions.” But, she is quick to add, this would still leave them “well above their respective 2009 uptrend lines.” A key tenet of technical analysis is that a bull market consists of higher highs and higher lows. Conversely, the FAANMG stocks have made lower highs and could be headed to breaking support. That would mean a downtrend is in place, according to the LY Advisors November client report. Key support levels are $250 for Facebook (ticker: FB), $104 for Apple (AAPL), $2,900 for Amazon.com (AMZN), $460 for Netflix (NFLX), $196 for Microsoft (MSFT), and $1,350-$1,400 for Alphabet (GOOGL). They’ve all held their support levels, but are likely to be tested, the report says. The stock market historically has experienced 20- and 40-year cycles, Yamada observes. The next cycle is due to bottom in 2022, as previous ones did in 1942 and 1982, kicking off new bull markets. But with the Federal Reserve flooding the financial system with liquidity, there are doubts about whether a cycle-completing structural bear market can take place. Even so, Yamada writes, individual stocks have experienced breakdowns simi- lar to those in 1998-99. These include laggards AT&T (T), GlaxoSmithKline (GSK), Occidental Petroleum (OXY), IBM (IBM), Boston Properties (BXP), General Dynamics (GD), Altria Group (MO), and CVS Health (CVS). “The fact that there has been so many deteriorating, underperforming/bear market stocks has pushed investors more and more into the high-technology names, car- rying them ever higher into the stratosphere (as in 1999),” she adds. As noted, the dot- com darlings were the last to break down. The big techs’ huge weighting in the major averages, such as the capitalization-based S&P 500, are supporting the market. If they give way, she wonders if a cycle-ending structural bear market will erupt, producing a low sometime in 2021 or 2022. Key support levels on the major indexes are 26,000 and then 24,000 on the Dow; 3200 and 3000 (followed by 2800) for the S&P 500; and 10,500 and 10,000 (followed by 9000) for the Nasdaq Composite. Those key indexes have a long way to fall before reaching those critical levels, but the near-term action isn’t encouraging. Yamada sees the surge at the beginning of the week on the positive news of a Covid-19 vaccine as an “island reversal,” signifying that “the last person who wanted to buy got in.” Caution is preferable, even if there might be more upside, she warns. Spoken by someone who has seen a few cycles. B email:

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