October 19, 2020 BARRON’S 25
2020 BIG MONEY POLL
24% predict that it will be the worst.
Consumer discretionary, health care,
industrials, and energy each get 10%
to 13% of the vote for the best place
to invest now. The most unloved
groups include energy, financials,
and utilities.
Cozad’s McGrath argues that the
growth potential of tech companies
is greater than the rest of the mar-
ket’s, justifying the sector’s lofty mul-
tiples relative to current earnings.
Amazon.com(AMZN) trades for 76
times next year’s expected earnings,
andAlphabet(GOOGL) sports a
price/earnings ratio of 27. “The valu-
ations are hard to get your hands
around unless you think about the
long-term growth of [tech] compa-
nies,” she says. “They may look over-
valued now, but if we think about
where they will be five years from
now, I think we’re going to be really
glad to be holding them.”
Cozad countsApple(AAPL),
Amazon.com, and Alphabet among
its top holdings. Bridges likewise
has concentrated positions in those
names, plusMicrosoft(MSFT),
which fetches a forward P/E of 33.
“We remain comfortable with Big
Tech because those businesses are
well positioned, almost regardless of
what the path to economic recovery
is,” Bridges says. “Their success
isn’t driven by having a strong un-
derlying economic environment.”
Bridges notes that the biggest
techs have a long runway for
growth and huge recurring cash
flows, giving them optionality to
invest in their businesses or return
more capital to shareholders. Ama-
zon, in particular, isn’t being man-
aged to maximize reported earnings,
inflating the stock’s P/E.
Both McGrath and Bridges see
potential antitrust or regulatory
actions against Big Tech as a risk,
but not an investment deal breaker.
“I’m not saying it won’t have a nega-
tive impact on the stock prices ini-
tially, but these companies have a lot
to offer and very smart people run-
ning them,” says McGrath. “I be-
lieve in their ability to readjust and
reinvent themselves and do well in
whatever environment is thrown at
them.”
Other popular technology picks
among the Big Money crowd are
payments processorsVisa(V),
Mastercard(MA), andPayPal
(PYPL), all bets on an ongoing tran-
sition to a noncash society. As for
the market’s most overvalued
shares, 60% of poll takers named
Tesla(TSLA). Next on the list:
Zoom Video Communications
(ZM) and recent initial public offer-
ingSnowflake(SNOW).
Osborn expects the Covid-19 pan-
demic to permanently alter work
habits, with firms realizing that em-
ployees can do their jobs remotely.
But rather than buying pricey soft-
ware stocks, he’s focused on the
“home” portion of the work-from-
home trade. That means investing in
companies such asHome Depot
(HD),Lowe’s(LOW), andStanley
Black & Decker(SWK), which
could benefit from a pickup in home-
improvement projects as people ren-
ovate their living spaces. Osborn’s
firm manages about $1.4 billion.
John Stoltzfus, chief investment
strategist atOppenheimerAsset
Management in New York, advises
focusing on long-term forces and
looking past near-term bumps, such
as the Novemberelection.
“The party in office just isn’t as
important to the stock market as
secular trends and what theFed-
eral Reserveis doing,” says Stoltz-
fus, whose firm oversees about
$90 billion in assets. “Business is
like water; it will find the points of
least resistance and flow to them.”
Stoltzfus sees technological
change and globalization persisting
in the coming decade, but with
broader beneficiaries than in the
past. He anticipates that industrial
firms will benefit from greater tech-
enabled efficiencies and capabilities.
He also expects more investment to
flow to emerging markets outside
China, because trade wars and
Covid-19 disruptions have high-
lighted the danger of supply chains
concentrated in one country.
Stoltzfus’ contrarian pick is fi-
nancials, and big banks in particu-
lar. The group has lagged behind the
market rebound in 2020, as inves-
tors worry about low interest rates,
an uncertain economic outlook, and
the potential for large loan losses.
“We think the big banks will
have their day, as the appetite for
equities expands,” Stoltzfus says.
“Their price-to-book value is attrac-
tive from a historical perspective. As
we get a real global economic recov-
ery, there will be a recognition that
financials are a value worth consid-
ering for many investors.”
Another contrarian idea comes
from Bill Smead, CEO and chief in-
vestment officer ofSmead Capital
Managementin Phoenix.Chevron
(CVX) is among the largest holdings
in his firm’s $1.6 billion portfolio, and
Smead is bullish on the energy sector
more broadly. “With all this talk of
electric vehicles and renewables,
everyone is underestimating the
demand for oil and gas that will be
around for a while longer,” Smead
contends.
He favors energy producers with
large proven reserves, such asCon-
tinental Resources(CLR).
Osborn likes Chevron, too, and
points to refinersPhillips 66(PSX)
andMarathon Petroleum(MPC)
as potential beneficiaries of a
vaccine-driven rebound in air travel
that could boost prices for jet fuel.
Sticking with his contrarian bent,
Smead points to shopping mall-
ownerSimon Property Group
(SPG), whose shares are down nearly
60% in 2020. He sees greater de-
mand for close-to-home entertain-
ment outlasting the pandemic, with
Simon being an underappreciated
beneficiary. “We want to buy a won-
derful company when its outlook is
the worst,” says Smead.
Many Big Money poll respon-
dents have trimmed, or plan to re-
duce, their allocations to fixed in-
come, relative to equities or even
cash. Those who maintain a bond
allocation generally favor short
durations and investment-grade
corporates.
Oppenheimer’s Stoltzfus has been
on the hunt for yield in other areas.
He has a large exposure to convert-
ible bonds via theSPDR Bloom-
berg Barclays Convertible Securi-
tiesETF (CWB), which yields 2.4%,
and theiShares Convertible Bond
ETF (ICVT), with a 1.3% yield. He
also invests in senior loans via the
actively managedSPDR Black-
stone/GSO Senior LoanETF
(SRLN), which yields 5.1%.
On the fixed-income front, “it’s
just a gruesome landscape,” says
Hemphill, citing the Fed’s intention
to keep interest rates low for the
foreseeable future.
At least that’s one thing the Big
Money managers can agree on.B
Politics
1.Who will win
the November
2020 presidential
election?
2020 Election
2.Whicih candidate, as
president, would be best for the
stock market and the economy?
Stock Market
Economy
3.Which party will control
theSenateandtheHouseof
Representatives after the
November 2020 election?
Democrats Republicans
Senate 26% 74%
House 94 6
4.What should be the top
economic priority of the next
administration?
Top Priorities
Getting Covid-19
42%
under control
Reducing unemployment 24
Passage of an
infrastructure bill
10
Less regulation 8
Pandemic
1.When do you
expect one or more
Covid-19 vaccines
to be available in
the U.S.?
Firsthalf,2021 60%
Second half, 2020 25
Second half, 2021 14
54% 46
Biden
Biden
Biden
Trump
Trump
Trump
75%
60%
25
40
“The party in
office just
isn’t as
important
to stocks
as secular
trends
and what
the Fed is
doing.”
John Stoltzfus,
Oppenheimer
Asset Management