Barron’s Annual Mid-Year Round-Table/Outlook For Stocks, Bonds, For 2nd Half Of 2017

Barron’s Annual Mid-Year Round-Table/Outlook For Stocks, Bonds, Precious Metals, Commodities, Etc. For 2nd Half Of 2017

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     This past weekend, Barron’s had a feature article, reviewing its annual discussion with the titans of Wall Street on how they see the investment landscape for the remainder of this year; and, where they themselves…are putting money to work.  For the full article, I refer you to the June 12, 2017 print edition of Barron’s.

     Lawrence Rublin wrote the feature article and had a few overarching take-away’s from his discussions with some of Wall Street’s top investment guru’s:  “Our experts see a more turbulent second half for stocks — and, a plethora of bargains.”  They also discuss “why bond yields could rise; and……Europe beckons.”

     “According to our nine experts, markets are about to get a lot more interesting….and, not in a pleasant way,” Mr. Rublin wrote.  “With the S&P 500 up 8.6 percent this year; and, the NASDAQ ahead 15.3 percent, stocks have made their big move for the year,” as these financial gurus see “a bumpier road and modest advance, at best, [for U.S. stocks] through the end of this year.”

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     Chairman of the Baltimore-based investment firm T. Rowe Price, Brian Rogers, likes:  Bed, Bath, & Beyond (BBY), and, Twenty-First Century Fox (FOXA)  He also likes:  Legg Mason (LM), CVS Health – especially as a good defensive play if things get rough for stocks overall; “Casey’s General Stores (CASY) is doing well,” Mr. Rogers said.

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     William Priest, CEO, and C-Chief Investment Officer, of New York-based, Epoch Investment Partners, told Mr. Rublin he “expects the market to struggle;” and that “P/E multiples are in the upper limits of what reason might suggest is merited, mainly because interest rates are more likely to be flat, or rising in the coming years — instead of flat to falling as they have been for the past five years.  Flat, or rising rates will limit multiple expansion [for corporations generally] — which accounted for two-thirds of the S&P 500’s 98 percent return in the last five years.  We are looking for the market to post low, single-digit gains from here, but are excited about some individual names.”

     When asked about his outlook for Europe by Mr. Rublin, Mr. Priest said that the firm’s outlook for European equities had improved since the beginning of the year; and added, “they look okay to us,” now.  “But,” he added “the Continent is hobbled by less attractive demographics and lower productivity.  Technology is the real story today.  Technology is the new macro.”  

     With those comments as a stage-setter, Mr. Priest said he and his firm like the following companies/stocks for the second half of 2017:  The comments in parentheses are by Mr. Priest and his firm.

     Coherent (COHR) – “a company that sells lasers and laser systems used in microelectronics and semiconductor manufacturing, among other industries; it is also an OLED play, with a nice, recurring revenue stream that is building up quickly at high margins;

     CyberArk Software (CYBR) – “a leader in the small, but growing area of privileged access [network] management security.  Its products take aim at hackers attempting to infiltrate corporate networks.”  Mr. Priest says “CyberArk has a 25 percent market share, and could grow as enterprises shift their focus from protecting firewalls — to protecting against targeted user attacks.”  Mr. Priest suggested the company could be an attractive takeover candidate, such as by “Check Point Software Technologies (CHKP), although that isn’t why we bought it,” he told Barron’s;

     Johnson Controls (JCI) – “provides building products and technology solutions, including air systems, HVAC controls and fire and security solutions; and, 

     Walt Disney (DIS) – the global leader in home entertainment, as well as movies, and ESPN.

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     Jeffrey Gundlach, CEO, and Chief Investment Officer of Los Angeles-based, DoubleLine Capital, and was one of the few fund managers to predict a Donald Trump presidential victory last November, and, he also forecast — in January 2017 that the yield on the 10 year U.S. Treasury would fall below 2.25 percent in the coming months — and last week the yield on the 10yr. was 2.17 percent.  With that as a backdrop, how does he view the market, bonds, etc. for the 2nd half of 2017?

     Mr. Gundlach told Mr. Rublin that he “favors non U.S. stocks, over U.S. stocks,” a theme that many other fund managers are touting.  Mr. Gundlach told Barron’s that “the Euro looks good now; and, the European economy looks better than the U.S. economy.”  Though he added, “it still pays to short the 10 year German government bond, using bond futures.”  Mr. Gundlach also “likes the EEM, the Emerging Markets ETF.”

     Mr. Gundlach said he “is not a big bond fan here,” but, he is re-recommending Putnam Premium Income Trust (PPT)– up 7 percent year-to-date, double the U.S. bond market’s gain,” he said.  

     “Your iShares MSCI India (INDA) fund returned 21 percent through May 21 [starting Jan. 1, 2017].  Is it time to sell?,” Mr. Rublin asked.  

     Mr. Gundlach said he “still liked it for the long-term; but, if you are a trader, this might be a good time to sell,” take some profit and re-allocate those gains in other sectors.  

************************************************************************     Meryl Witmer, is a General Partner with the New York-based investment fund — Eagle Capital Partners.  Ms. Witmer told Barron’s/Mr. Rublin that she likes “one U.S. pick and one U.K. name.”   

     In the U.S., she likes Dollar Tree (DLTR).

     Her U.K. pick is:  Howden Joinery Group (HWDN.UK) – “a leading British kitchen wholesaler and distributor, with a unique business,” Mr. Rublin wrote.  “It operates about 650 “trade only” depots that provide small builders and contractors guaranteed inventory, at a great price, with high-quality cabinetry and appliances.  Unlike competitors, who sell directly to customers and the trade, Howden doesn’t compete with its customer, the local contractor.  This encourages [or incentivizes] the contractor/s to bring new customers to Howden, and have Howden design and troubleshoot a renovation.”

************************************************************************     Scott Black, Founder & President of the Boston, Mass.-based Delphi Management, told Barron’s/Mr. Rublin that his fund owns “a lot of small-cap technology stocks, which have done well.”  Mr. Black said that his fund “looks for companies that earn more than 15 percent on book value; and, selling for less than 13 times,” forward or projected P/E.

     Tower Semiconductor (TSEM), based in Israel, is one of those such companies that Mr. Black likes going forward into the second half of 2017;

    California-based, Ichor Holdings (ICHR), which went public in December 2016, “is a leader in the design engineering and manufacturing of fluid and gas delivery systems for semiconductor capital equipment,” Mr. Rublin wrote.  “Ichor has two major customers:  Applied Materials (AMD), and Lam Research (LCRX).

************************************************************************     Oscar Schaffer, Chairman of the New York-based, Rivulet Capital, likes:

     CommScope Holding (COMM), a leading provider of telecommunications infrastructure; 

     Cellnex Telecom (CLNX.Spain), which “owns and operates a portfolio of more than 21K cellphone and broadcast towers across Europe and the U.K, — and, leases space on those towers to customers, including mobile network operators, broadcasters, government agencies, and municipalities,’ Mr. Schaefer said.  “The tower model is inherently attractive,” he told Barron’s, “because of substantial barriers to entry, high revenue visibility, and strong cash-flow generation.  The European tower market has developed differently than the more mature U.S. market,’ he said.  Mr. Schaffer told Barron’s that Cellnex could be a prime takeover candidate, and indicated that American Tower (AMT) looking to buy Cellnex;” but,  they may not be the only suitor.  “On May 15, Italy-based, Atlantia (ATL.Italy), an Italian toll road operator made a bid to buy Albertis, a Spanish infrastructure company that is also in the toll road business.  Albertis is evaluating the offer; and, owns 34 percent of Cellnex.  Under Spanish takeover law, either Albertis has to reduce its stake in Cellnex to less than 30 percent before merging with Atlantia, or Atlantia has to make an offer for 100 percent of Cellnex.”  

************************************************************************     Abby Joseph Cohen, Senior Investment Strategist, Goldman Sachs, New York, likes:

     “French multinational, Schneider Electric [SU.France], which does business in 100 countries.”  The company which was founded in 1836, and has evolved and adapted “over the years.”  Ms. Cohen told Barron’s that “In the past decade or so, it has moved into the software business, partly through acquisitions, but most of its business is related to energy management, and automation solutions.  It is also involved in water, and wastewater treatment;”

     Ms. Cohen also likes, Switzerland-based, Clariant (CLN.Switzerland), “a Swiss specialty chemicals company, which is involved in a merger of equals with Huntsman (HUN);

     Ms. Cohen said her next company/pick is: Omron (6645.Japan), based in Japan which “sells medical equipment such as digital thermometers and blood pressure devices,” among other things.  “Omron’s primary business, industrial automation, accounts for more than 40 percent,” of the company’s annual revenues;

     One U.S. company that Ms. Cohen likes, is Aramark (AMRK), a food services (hospitals & universities) and uniform company; and, also one of the largest employers in the United States.   Some years ago,” Ms. Cohen added, “the company purchased Green Mountain coffee.

************************************************************************     Felix Zulauf, President of the Baar, Switzerland-based, Zulauf Asset Management,  did not provide any investment picks for the 2nd half of 2017.

************************************************************************     Mario Gabelli, Chief Investment of the Rye, New York-based, Gabelli Funds, likes:

     Valvoline (VVV), maker of auto lubricants;

     National Beverage (FIZZ), the seller of LaCroix sparkling water; and added another way to participate in the trend is COTT.”  But, Mr. Gabelli told Barron’s that, “National Beverage has now become a darling of those who recognize that there is a strong, and growing demand for sparkling water.  Mr Gabelli recommended National Beverage at the beginning of 2017; and, although he still likes the company, “COTT, is my new pick,” he said;

     Millicom International Cellular (MI-ICF), is a cable and telecom company operating in Africa, and Central and South America,” is a company Mr. Gabelli is recommending; and added that the, “LiLAC Group, part of John Malone’s empire, and Millicom, are going to merge.  LiLAC bought Cable & Wireless last year, and Millicom would fit well with the company.  Thirty-eight percent of Millicom is owned by;”

     “Another favorite of mine — Kinnevik (KINV-B.Sweden);”

     Mr. Gabelli “continues to recommend CNH Industries (CNHI), an infrastructure play,” as the economic outlook in Europe continues to brighten.  

     Mr. Gabelli’s next pick is, “Liberty Braves Group (BATRK), the Atlanta Braves;

     “One Nashville, Tennessee play,” that Mr. Gabelli likes, is “Ryman Hospitality Properties (RHP), which he recommended a few years ago,” he reminded Barron’s.  “The company owns convention-oriented properties in Nashville, Orlando, Texas, and the Washington D.C. area; and, is building a hotel in Denver, Colorado;

     “Next, there’s Nintendo (7974.Japan), which has a hit with its Switch machine;” and finally, Mr. Gabelli likes,

     “Mueller Water Properties (MWA), which “has 50 percent [of the market] for installed hydrants in the United States;” and, the company also “owns a business involved in water metering, which is currently unprofitable.  Mueller is an infrastructure play; and, is a good way to play the expansion of housing.”

     This is what I thought were the key takeaways from this past weekend’s feature article in Barron’s on where to consider putting your investment dollars to work in the second half of 2017.  My notes are by no means definitive; and, there were certainly other companies discussed; and, price targets were provided.  I refer you to Barron’s for the full article. And, as always, be sure to do your own due diligence and homework before investing.  Otherwise, good luck.  V/R, RCP

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