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
Bostoncould 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