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October19,2020BARRON’S 15
PREVIEW
THECASEFORCHEVRONANDEXXON
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Monday 10/
Cade nce DesignSystems, Halli-
burton, IBM, PPGIndustries,and
Zions Bancorpreportquarterly
results.
The National Associationof Home
Builders releases theNAHB/Wells
FargoHousingMarket Indexfor Oc-
tober.Consensus estimate is for an 83
reading,evenwiththe September
data.The83figure for September is
an all-time highinthe 35-year his-
toryofthe index.
Tuesda y10/
Lockheed Martin, Netflix, Paccar,
Philip Morris International,
Procter&Gamble, Prologis, Snap,
TexasInstruments,andTravelers
report earnings.
The CensusBure aureports new
residential construction data for Sep-
tember.Expectations are forasea-
sonallyadjusted annual rate of 1. 47
million housingstarts,slightly above
August’s1.42million.Building per-
mits are seen coming inat 1.53 mil-
lion, higher than the 1.48 million fig-
ure fromAugust.
Wednesday10/
AbbottLaboratories, Amphenol,
Baker Hughes, Biogen, Chipotle
Mexican Grill, CrownCastleIn-
ternational, CSX,Edwards Life-
sciences, LamResearch,NextEra
Energy,Tesla, ThermoFisher Sci-
entific,andVerizon Communica-
tionsreportquarterly results.
The FederalReservereleases the
beigebook,whichsummarizes
currenteconomic conditions in the
12 Federal Reserve districts.This
will be the seventhofeight beige
book releases for theyear.
Thursday10/
American Airlines Group, Ameri-
can ElectricPower, AT&T,Capi-
tal OneFinancial, Coca-Cola,
Danaher, Dow,Intel, Kimberly-
Clark,Northrop Grumman, SL
Green Realty, Southwest Airlines,
Union Pacific,andValeroEnergy
hold conference calls to discuss
earnings.
The National Associationof Real-
tors reports existing-home sales for
September.Economists forecasta
seasonallyadjusted annual rate of6.
million existing homes sold,up from
six million inAugust.TheAugust
figurewasthe highestsince late
2006 ,and up more than 50%from
the recentpandemic lowset inMay.
The ConferenceBoardreleasesits
Leading EconomicIndexfor Septem-
ber.Consensus estimate is fora0.7%
month-over-month rise to 107.2.
Friday10/
American ExpressandIllinois
Tool Worksreportquarterly results.
IHS Markit releasesitsManufac-
turing and Services Purchasing
Managers’ Indexesfor October.
Expectations are for 55 and 55.
readings, respectively,bothslightly
abovethe September data.
Coming Earnings
Consensus Estimate Year agoMIBM (Q3) $2.57 $2.Lennox (Q3) 3.10 3.TGATX (Q3) 0.92 1.IQVIA (Q3) 1.52 1.Lockheed Martin (Q3) 6.08 5.Netflix (Q3) 2.12 1.Philip Morris International (Q3) 1.35 1.More Earnings on Page M32.Consensus Estimate
Day Consensus EstLast PeriodT September Housing Starts 1,464,000 1,416,TH Sepember Existing Home Sales 6,315,000 6,000,September Leading Indicators 0.40% 1.20%Unless otherwise indicated, times are Eastern. a-Advanced;f-Final; p-Preliminary; r-Revised Source: FactSetFor more information about coming economic reports- and what they mean - go to Barron’s free Economic
Calendar at http://www.barrons.com
Less thanafortnight beforeElectionDay, the final
debatebetween President DonaldTrump andfor-
merVice President Joe Biden takes place at Belmont UniversityinNashville.
Thursday
Oil-Patch
Matchmaki ng
Afew weeksago,Chevron’smarketcap,at$142billion,
briefly exceededExxonMobil’s at $141.6billion—remark-
able since Exxonwas justbelow$300 billion early in 2020.
Now,SankeyResearch’sPaulSankey is making the case for
amega-mergerofChevron and Exxon. Suchadeal, he says,
would let them cut costs andadjustdividends. Exxonhas
been besetby talkoverits dividend,whichits free cashflow
isn’t covering.Neither companywould commentonadeal.
Thenew companywould have amarketcap of some
$300 billion anddebt of $100 billion, Sankey projects.The
twomakeabout $50 billion annuallyinoperating cashflow,
with $50 billion in capital expenses and$24billion in an-
nual dividends.Amergerwould allowthem to cutadminis-
trative expenses ($11 billion for Exxon, $4 billion for Chev-
ron)and cut capital expendituresby $10 billion.The
companywould have balance-sheetflexibility,hesays, with
huge debt capacity(atlow rates), and could buyback shares.
Meanwhile,energy mergers are pickingup. Chevron re-
centlybought Noble Energy,whileDevonEnergyand
WPXEnergyare merging.Sankey concedes thatwithout a
recovery in oildemand in sight,interestmay be lacking.And
other issues loom.Strategically, Exxonand Chevron differ.
Despite cutting capex thisyear,Exxon believesitneeds to
hikeproduction asdemand recovers, andit’s outspendingits
peers on exploration. Antitrustmay also beaproblem.
Sankey says Exxon needs to rebrand because ofwhathe
calls “terrible brand perception as environmental enemy
No.1.”In fact, hewould name the new company Chevron
and announce“sweeping carbon-reduction targets.”That
may be his boldestclaim of all.—Avi Salzman
Exxon
ChevronMobil
MarketValue(bil) $142 $
EarningsPerShare -$4.70 $1.
TrailingP/ERatio 26.2 43 7.
201 9Revenues(bil) $140.16$ 256
201 9NetIncome(bil) $2.92$14.
Sources: MarketWatch; Macrotrends;FactSet
OilinaRut
ChevronandExxonMobil’s share
priceshavetrackedthepandemic’s
effectonoil prices.
TaleoftheTape
Bymost measures, Chevronis far
smallerthanExxon.But market caps
haveconverged.
MajorBusinessMetrics,
ChevronandExxonMobil
Chevron
ExxonMobil
JFMAMJJASO
0%
ChevronandExxonMobil
SharePerformance,YeartoDate
IllustrationbyEliasStein22 BARRON’SOctober19,
while 50% considervaluationsfair.
Thevaluations help to explain
whyeventhe bulls predict only
muted gains in coming months.
Based on their mean forecast, bullish
money managers expect the Dow
JonesIndustrial Average to end the
year about even withitscurrent
level, at 28,433.Bymid-2021, they
see it topping 30,000—barely—for
apotential increase of5% from
Friday’sclose.
The bears see the Dow losing
about 12% through the remainder of
2020, finishingat 25,202 before
tickingup slightly, to 25,356,by the
middle of 2021.
The BigMoney managers seem
more sanguineabout the longer-
term outlook, with justover half
expectingU.S. equities to return 6%
to 10% on anaverage annualized
basisover the nextdecade. Another
5% foresee 11% to 15% gains.
Sixty-four percentcall equities
the mostattractive assetclass,far
aheadofthosewhofavor gold
(11%), fixed income,cash, and real
estate(eachthe choice of7%), or
commodities(4%).
“Long term, our viewisthateq-
uities arestill the bestplace to be—
especiallyconsidering the current
fixed-income environment,”says
David Osborn, presidentofOsborn
Williams&Donohoe,inCincinnati.
“Currentlow interestrates and the
potential for rising ratesat some
pointdownthe roadcould leadto
negative returns in bonds in real
terms.”
Jim Hemphill, president and
chief investmentstrategistat TGS
FinancialAdvisors, in Radnor,Pa.,
says that rock-bottom interest rates
makestockvaluationsappear more
reasonable.But he likens the cur-
rentatmosphere to the latestages of
the 1990s tech bubble,when new
investors were pouring into the
market and buying profitless com-
panies’shares simply because they
were rising.“There is a nontrivial
chance that something bad happens
over the next couple ofyears,”says
Hemphill.“A nd we’re just notget-
ting paidwell enough for the poten-
tial downside.”
Barron’sconducts the BigMoney
poll, asurvey of professional inves-
tors, twice ayear, in the spring and
fall, with help from BetaResearch
of Syosset,N.Y. The latest pollclosed
Investor
Sentiment:
1.Describeyour
investmentoutlook
forU.S.equitiesin
thenext12months.
Bearish 13%
Neutral 33%
Bullish 54%
2.Wheredoyouexpectthese
marketmeasurestotradeasof
Dec.31, 2020,andJune 30 ,2 021
if youare...
BullishDec.’20 June ’
DJIA 28 ,433 30 ,
S&P5 00 3443 3661
Nasdaq 11,201 11,
Bearish Dec. ’20June ’
DJIA 25 ,202 25 ,
S&P5 00 3015 3089
Nasdaq 9385 9581
3.IstheU.S.stockmarketover-
valued,undervalued,orfairly
valuedatcurrentlevels?
4.What will U.S.
equitiesreturnon
anaverageannu-
alizedbasisover
thenextdecade?
Return
6%to10%53%
1%to5% 36
11%to15% 5
-1%to-5% 4
5.Areyour clientsbullish,bear-
ishorneutralaboutU.S.stocks?
6.Whatis the
biggestrisktothe
stockmarketin the
next 12 months?
Coronaviruspandemic 26 %
U.S.election 17
U.S.recession/
depression
12
Corporateprofitcollapse 7
Excessivevaluations 7
Fiscal policyblunders 6
Monetarypolicyblunders 6
Civilunrest 5
Investin g:
1.Describeyour currentportfolio
allocation andforecastyour
allocaitonin sixmonths.
In Six
CurrentMonths
Equities 67 %69%
Fixedincome 21 20
Cash 86
Other* 45
*Basedonwrite-incomments,“other”
primarilyincludesgold,realestate,
commodities,and privateequity.2.Whichassetclassdoyou
considermost attractivetoday?
Asse tClass
Equities 64%
Gold 11
Cash 7
Real estate
Commodities
Treasuries 2
Non-U.S.bonds
Other
3.Whichmajor
equitymarket
will performbest
in thenext
months?
U.S.(S&P 50 0) 43 %
Emergingmarkets
China(ShanghaiComp) 15
Japan(Nikkei 22 5) 8
Europe(StoxxEurope 600) 7
4.Doyouexpecttoincreaseor
decreaseyournetholdingsof
thefollowingassetsin thenext
sixmonths?
Asse tIncre aseDecrease
U.S.stocks 60 %40%
Europeanstocks 53 47
Japanesestocks 36 64
Chinesestocks5 248
Emerging
67 33
Marketsstocks
5.Whichsectorwill
performbestinthe
nextsixmonths?
PerformBest
Technology 25%
Healthcare1 3
Industrials 12
ConsumerDiscretionary
Energy 10
6.Whichsectorwill performthe
worstinthenextsixmonths?
PerformWorst
Energy 24 %
Technology 24
Financials 17
Utilities 11
Real Estate 10
7.Nameyour
favoritestock
forthe next6-
months.
Recent
Company /TickerPrice
Amazon/AMZN$ 3363.
Apple/AAPL121.
Alphabet/GOOGL1 56 3.
Chevron/CVX 72.
Nvidia/NVDA5 63.
8.Namethestock
youconsidermost
overvalued.
Recent
Company /TickerPrice
Tesla/TSLA$ 46 1.
ZoomVideo/ZM5 09.
Snowflake/SNOW2 43.
Nikola /NKLA24.
Apple/AAPL121.
9.Predictthe levels of the
followingasofJune30,2021.
Estimated
Price
Oil(Nymex,perbbl)$ 42.
Gold (pertroyounce)2,
CBOEVolatilityIndex(VIX)25.
10.Predictthe levelofS&P 500
earningsin 2020and2 02 1.
2020 2021
S&PEarnings$139$ 161
The Economy:
1.Predictthegrowth
rateofU.S.GDPin
2020 and2 02 1.
2020 2021
-20%orworse0%0%
-15% 50
-10%to-6%3 00
-5%to-1% 48 1
0%to1% 57
1.5% 49
2.0% 312
2.5% 26
3.0% 114
3.5% 010
4.0% 117
4.5% 18
5.0%or more1 16
2.Inwhatyearwill U.S.GDP
returnto 20 19’s levelof$21.
trillion?
Year
2022 57%
2021 27
After2 02216
3.What will the10-yearTreasury
noteyield oneyear fromnow?
Yield
0% 2%
0.25%
0.50%1 6
0.75%3 3
1.00%2 2
1.25%1 0
1.50%
1.75%ormore
50% 44 6
FairlyValued Overvalued
Undervalued
Bullish
60% 23 17
Neutral Bearish
2020 BIGMONEYPOLL