Barron\'s 03.16.2020

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March 16, 2020 BARRON’S 17


They’re Buying! Our


Roundtable Experts


Offer 18 New Picks


By LAUREN R. RUBLIN and RESHMA KAPADIA


high probability of a recession. We can


see the market rewinding the gains of


last year and going back to where it


was on Christmas Eve 2018. We will


know more in 30 to 60 days on the


virus, but if earnings come down 10%


or more this year, you can look at De-


cember 2018 [levels] and haircut them


10% to 20% for a framework of where


the downside risk could be. The airline


industry and mall-based retailing—and


also the energy patch—will have mas-


sive earnings reductions. There is going


to be an earnings crater.


Where is monetary policy headed?


There’s a high probability of a 50-basis-


point [half-percentage point] U.S. inter-


est rate cut this coming week, and rates


could be zero by April. There could be


dire consequences for European banks,


which have been making money off


positive U.S. rates.


Are you buying any stocks now?


We still own all our Roundtable picks


and bought more of stocks likeDeere


[DE] andComcast[CMCSA]. They


have an excellent three-year view. As


for new names, we think about earn-


ings power over three to 10 years and


want long-term winners in secular


growth businesses with wide moats.


Applied Materials[AMAT] is a lead-


ing supplier of semiconductor fab


equipment. The stock cratered. Data


centers and the internet are going to


suck down a lot of energy, and we need


to get performance per watt way up.


Applied Materials is a part of that.


Over the next three to 10 years, there is


“If you have cash


on the sidelines,


keep your


money in a


short-term


Treasury fund.”


Scott Black
Founder and president
Delphi Management
Boston

could be recession-resistant.Merck


[MRK] has a blockbuster drug in


Keytruda, with $14 billion in annual-


ized sales. Merck isn’t a runaway train,


but will probably grow earnings 6% or


7% this year and has a 13 P/E. And, we


boughtNovartis[NVS]. The P/E mul-


tiple is 13-plus. The company has three


relatively new drugs with more than $


billion in annualized revenue. You


don’t get to buy Merck and Novartis


with a 13-handle very often. They gen-


erate lots of free cash.


In January, you recommended


Royal Caribbean [RCL], down


about 75% since then. Have you


sold?


I probably should have exited a long


time ago, but didn’t.—L.R.R.


TODD AHLSTEN


Barron’s: What are the economic


implications of the coronavirus?


Todd Ahlsten:We are in an earnings


recession, with a very high probability


of an economic recession. Whether you


are a small business owner, in hospital-


ity, airlines, or retail, or have leverage,


the fallout from the virus] exposes


those weaknesses. Financial stress will


be high. Banks and home equity are in


better shape than in 2008, but if activ-


ity temporarily goes to zero for small


businesses, layoffs will hit, and that


will hit consumer balance sheets.


You were cautious about the market


at the Roundtable. Now what?


The S&P 500 bottomed in December


2018 around 2350, when there was a


cash on the sidelines, the tsunami


hasn’t ended. Keep your money in a


short-term Treasury fund, and I


emphasize Treasury. Don’t put it in a


non-Treasury money-market fund


because there could be defaults.


China will have negative growth in


gross domestic product in the first or


second quarter. A lot of people are pos-


iting the U.S. will have 1% real growth


for the full year, but it is impossible to


know. I initially expected S&P 500


index profits to rise only 6% this year,


while S&P itself expected operating


earnings to be up 10.5%. Now, we will


be fortunate if earnings are flat at


around last year’s $157. I expect earn-


ings to fall, especially as energy-sector


earnings will probably be negative.


Are you buying amid the rout?


I boughtOracle[ORCL] because it has


only 15% exposure to Asia. The stock


was selling for 11½ times the next 12


months’ expected earnings. This fac-


tors in about 2% to 3% revenue growth,


and 6% profit growth. Oracle bought


back more than $10 billion of stock in


the first six months of the current fiscal


year. The company generates nothing


but free cash. It is trading at the lowest


price/earnings multiple in years.


I missedUnited Parcel Service


[UPS] on the way up, when shares


reached $125. I have been buying re-


cently at an average price of $90. UPS


is trading between 11 and 12 times ex-


pected earnings, down from a P/E mul-


tiple of 15 to 18 times. If people have to


stay home, they shop onAmazon.com


[AMZN]. UPS has an exclusive deliv-


ery deal with Amazon.


We also bought two companies that


W


hen the going gets


tough, the tough go


shopping. And that’s


just what most mem-


bers of theBarron’s


Roundtable have been


doing amid the stock


market’s historic, coronavirus-


instigated rout.


As stock prices have plummeted by


more than 25%, ending a mostly glori-


ous 11-year bull run, our investment


experts say they’re snapping up names


they never thought they’d be able to


buy so cheaply, along with more shares


of companies likeWalt Disney(ticker:


DIS) that they already own and love.


That’s not to say that any of our 10


seers has an especially sanguine view


of the economic outlook, as the U.S.


braces for what will almost surely be a


larger health crisis and a reordering of


public life. Most think a recession is a


near certainty as both the manufactur-


ing and service sectors retrench, al-


though the duration and severity of a


downturn are unsure. As for the stock


market’s future trajectory, as Roundta-


ble member Henry Ellenbogen of Du-


rable Capital Partners puts it, “If any-


one tells you they know where the


market will bottom, stop listening.”


Here’s a look at what our panelists


are buying, and what they think about


the bigger picture.


SCOTT BLACK


Barron’s: The markets are a mess,


Scott. What’s an investor to do?


Scott Black:If you own good-quality


stocks, don’t sell. Take the long view.


Stocks have compounded nicely over


PortraitsbyKateCopelandtime. By the same token, if you have

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