Big Tech, Big Themes; Markets, Mania, & Mass Psychosis; How Allergan Could Put On A Happy Face

Big Tech, Big Themes; Markets, Mania, & Mass Psychosis; How Allergan Could Put On A Happy Face
     The title above is from a series of articles in this weekend’s (March 19, 2018) Barron’s, and the blockchain article appeared in the March 13, 2018 edition of the Wall Street Journal.
     The Big Tech, Big Themes,” article in this weekend’s Barron’s is by Reshma Kapadia, summarizing his interview with Columbia Global Technology Growth Portfolio Manager, Rahul Narang, who manages $1.1B in client assets.  Mr. Narang, 45, “has steered his fund to an average 26 percent return over the past five years, beating 92 percent of its rivals,” Mr. Kapadia wrote.  It had a 45 percent return over the past year, placing it among the top third of tech funds, according to Morningstar.
     “While he hasn’t yet been tested with a lengthy downturn at this fund,” Mr. Kapadia wrote, “it has fared better than its peers during the declines in the past five years, sustaining 42 percent of the market’s declines during this period, compared to 62 percent for the average tech fund,” according to Morningstar.”
     “Part of this resilience stems from a balanced approach,” Mr. Kapadia wrote, “with Narang filling the all-cap global portfolio with stocks from the priciest, or cheapest quintiles. Narang is a thematic investor, looking for companies that benefit from emerging trends like artificial intelligence, mobile gaming, autonomous vehicles, and connected homes, and then holding on — sometimes for years.  The fund’s annual turnover is 40 percent, much lower than the average tech fund,” Mr. Kapadia wrote.  “He favors companies whose business models give them a long-term competitive advantage; and, whose heft and market dominance allows them to raise prices.  Narang pays close attention to management, looking for those that can generate a strong return on equity.”
    “The core of Narang’s portfolio is built around giant companies with “moats,” that make their business hard to replicate,” Mr. Kapadia noted.  “For example,” he adds, “Tencent Holdings’ (700.HongKong) WeChat app has a billion monthly users, FaceBook (FB) has more than 1.4B daily active users, and Alphabet’s (GOOGL) Google has seven products platforms, with a billion or more users each.”
     “Narang sees plenty of growth ahead [in tech], including Google, which Mr. Narang says is a cheap stock,” Mr. Kapadia noted.  I refer you to this weekend’s Barron’s for additional detail, and Mr. Narang’s reasoning.  “While artificial intelligence is the biggest theme in Narang’s portfolio,” Narang told Barron’s that “autonomous vehicles are among the least appreciated, and that Waymo is among the best-positioned, with a huge lead over rivals in miles driven.”
     “Connected homes is another theme investors have yet to fully appreciate,” Mr. Narang told Barron’s.  “When (AMZN) CEO Jeff Bezos mentioned that the company was devoting more engineering talent to its Alexa voice-enabled devices in late 2016, Narang began to pay more attention,” Mr. Kapadia wrote.  “Now, Amazon is the market leader, with 70 percent market share with Alexa, which now has 30,000 skills, while Google’s Home device has about 2,000 skills. That cement’s their moat,” Mr. Narang told Barron’s.
     The Top 10 Holdings In Mr. Narang’s Columbia Global Technology Growth Fund are:  1) Microsoft (MSFT), 5.7 percent; 2) Alphabet (GOOGL) 5.5 percent; 3) Apple (AAPL) 4.4 percent; 4) (AMZN) 4.0; 5) FaceBook (FB) 3.8; 6) Visa (V) 3.0; 7) Lam Research (LCRX) 2.5 percent; 8) Tencent Holdings (700.HongKong) 2.4 percent; 9) Micron Technology (MU) 2.2 percent; 10) Broadcom (AVGO).
Markets, Manias, And Mass Psychosis — Barron’s Interview With DoubleLine Capital’s Jeffrey Gundlach
     Senior Barron’s writer, Lauren R. Rublin, interviewed Jeffrey Gundlach, CEO and Chief Investment Officer, DoubleLine Capital, to get his perspective and thoughts — ten years after the 2008 Financial Crisis.
     Ms. Rublin begins, “this past week marks the tenth anniversary of the collapse of Bear Stearns, the storied and scrappy, Wall Street firm, whose end came slowly, then suddenly, after a soured bet on the subprime mortgage market.”  Mr. Gundlach was one of the few, prominent Wall Street fund managers, who had been warning about reckless speculation in such risky assets as the subprime mortgage space.  As Ms. Rublin noted, “the celebrated bond-fund manager sounded alarms about housing in 2006; and later warned that the subprime market was a “total, unmitigated disaster,” about to worsen, and anticipated a severe [U.S.] economic downturn to boot.  Who better, then,” Ms. Rublin wrote, “to consult about the potential danger’s lurking in today’s relatively placid investment world.”
     I of course, like the previous article, refer you to this weekend’s Barron’s for the full article.  When asked by Ms. Rublin if he saw echoes in today’s market of that highly speculative era?,” Mr. Gundlach said “we see a similar sort of magical thinking in the crypto-currency market.”  But, Ms. Rublin pointed out that “unlike misbegotten securitization of subprime mortgages, cryptomania doesn’t pose a threat to the [U.S.] financial system.”  Mr. Gundlach acknowledged that fact; but added, “bitcoin has been important in framing the speculative mood of today’s financial system.”
     When asked what his stock market forecast is, Mr. Gundlach responded that he “expects the market to close the year down.”  Additionally, Mr. Gundlach told Ms. Rublin that “Gold is near a breakout level of around $1,350 [per ounce] or so.”  He added that “the dollar has also declined over the last 14 months, and has not met its downtrend line going back to 1984.  If it breaks down, it’s a pretty major breakdown.  Then, there is the ratio of the 10-Year Treasury Yield to the S&P 500 – an esoteric measure.  It too is on the verge of breaking to the upside,” Mr. Gundlach told Barron’s.  “If a break to the upside in yields creates too much pressure on the stock market’s P/E ratio, that ratio would explode to the upside.”  “That’s a big if,” Mr. Gundlach acknowledged; and, he added that he doesn’t have massive conviction that yields are going to break to the upside.  On a scale of one to ten,” he said, “my conviction level is at six.”
     When asked what else he was watching, Mr. Gundlach said, “three ETF funds are worth following.  One is the Technology Select SPDR (XLK).  It had a huge crash in 2000, and has recently made it back to its 2000 peak. Is it going to accelerate from here, or meet resistance?”
     “The VanEck Vectors Semiconductor [SMH] has followed a similar trajectory, as has the XLF [Financial Select Sector SPDR].  The last is back to its 2007 peak.  Things that are emblematic of the two prior manias have finally bounced back fully.  They will either break out to the upside, or meet resistance.”
     At the Barron’s Roundtable on Jan. 8, you [Mr. Gundlach] had 5 investment recommendations:  1) Energy Select SPDR (XLE); 2) Tortoise MLP (NTG); 3) PowerShares Senior Loan Portfolio (BKLN); 4)iShares MSCI Brazil (EWZ); and, 5) WisdomTree Japan Hedged Equity (DXJ). Do you still like them all?,” Mr. Rublin asked.  Mr. Gundlach responded – “Yes.”
How Allergan Could Put On A Happy Face?
     The above is the title of Vito Racanelli’s feature article in this weekend’s Barron’s. Mr. Racenelli notes that “even after a mini-rally, shares of Allergan (AGN), are down about 50 percent from all-time highs of $340 in mid-2015, closing Friday near $169.  But, the stock is now ready for a major face-lift.  The concerns are overdone, and the company’s pipeline of new drugs should eventually replace the lost revenue from products going off patent.  The valuation is low enough,” Mr. Racanelli wrote, “that most of the bad news surrounding Allergan appear already priced in.  If just a few things go right this year, and next, the shares could rise 20 percent or more, to $200-$225 by the end of 2019.”
     Again, I refer you to this weekend’s Barron’s for all the articles.  And as always, do your own due diligence, understand your risk tolerance, and understand there are no guarantees — except in taxes and death — and…………March Madness!  RCP,

One comment

  1. Connected homes is another theme investors have yet to fully appreciate, Mr. Narang told Barron’s. The VanEck Vectors Semiconductor [SMH] has followed a similar trajectory, as has the XLF [Financial Select Sector SPDR]. The last is back to its 2007 peak. Things that are emblematic of the two prior manias have finally bounced back fully. They will either break out to the upside or meet resistance.

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