Barron’s 2023 Mid-Year Roundtable / Issue Date: July 17, 2023
There were no changes in the participants from January: Todd Ahlsten, Rupal Bhansali, Scott Black, Abby Joseph Cohen, Sonal Desai, Henry Ellenbogen, Mario Gabelli, David Giroux, William Priest, Meryl Witmer. Responses were phoned in, apparently a week or two earlier.
Re the elusive recession … Most expect one sooner or later. Abby Joseph Cohen doesn’t expect one at all, but concedes a number of factors, including excessively tight monetary policy by the Fed could cause one. Estimates of the onset of recession range from late 2023 to late 2024. Most it seems are predicting one in 2024 and that it will be relatively mild. However, that does not mean stocks will keep rising. Caution seemed to be prevelant among the group.
The Magnificent 7 … Most (if not all) are wary of the big tech names that have carried the markets this year. Some see a sharp sell-off coming in the high flying big tech names. Most don’t expect the major indexes to be significantly higher at year’s end than today. Some expect them to fall. Mario Gabelli thinks that when investors’ buoyant expectations finally clash with continued Fed rate hikes & strident language, the S&P could fall by 10% in the second half. Health care remains a favorite. Everyone suggested some smaller overlooked niche players as opportunities. Genuine Parts (GPC), recommended by Gabelli, fits this theme. He sees it as a play on a “huge pent-up demand for automobiles.” Gabelli also likes aerospace - but leans toward some European manufacturers, including Airbus.
Bonds … Franklin’s Desai favors bonds, but would average in to (longer) maturity as the 10-year rises above 4%. Sees it getting to around 4.25%. She also favors high yield - particularly municipal high yield bonds. It should be noted Desai is a fixed income manager at Franklin and often favors the bond sector. She often recommends Franklin’s income funds along with others.
Europe … One member referenced the stubborn inflation in the U.K. as “the canary in the coal mine” that could signal similar issues arising at home and globally and lead to even tighter monetary policy. Yet, generally, the tone on European equities was quite positive. While some individual Japanese stocks were mentioned, I don’t recall anyone being outright bullish on Japan. Its stock market has enjoyed a significant boom over the past year or two.
Geopolitical peril is highlighted by Priest: The war in Ukraine, U.S. China tensions, political strife at home, likelihood of higher rates in Europe. Not calling for recession, but Priest expects the S&P to fall in the second half, while equal weighted indexes might hold their own or rise slightly. Scott Black comments that “investors are much too bullish.” But his remarks appear largely based on S&P valuations. Anyalists, Black says, are projecting S&P earnings growth above 10% for the year - totally unrealistic in his view. Bhansali is arguably the most bearish of the lot. Even he sees “opportunity” in value stocks - but mostly abroad, including EM. Referring to Fed rate hikes and inflation Bhansali says: “The Fed has a lot of wood left to chop.”
David Giroux (T. Rowe Price) commented: “The market was helped by the lack of a recession, resilient earnings, and excitement about AI, which turned the tide in terms of investor sentiment and valuations in the technology sector. The challenge now is that the market is trading for 19 times forward earnings, and valuations aren't as attractive as they were. Now that everyone seems bullish, we are a bit more bearish. You'll see that in our stock recommendations. Cyclicals and tech have had a big run. Now we prefer more-defensive sectors, such as healthcare and utilities.” Others echoed Giroux’s caution, if not his exact words.
A “non-political” political remark by Giroux may raise a few eyebrows: “And, while I am not making political projections, if the Republicans take back the White House in 2025, UNH and managed care stocks generally could have significant upside.”
Top picks:
Ahlsten: ORCL - Oracle
Bhansali: ITUB - Itau Unibanco Holding
Black: EXP: Eagle Materials
Cohen: iShares S&PU.S. - Banks
Desai: 5-YR TIPS
Ellenbogen: JBHT - J.B. Hunt Transport Services
Gabelli: BATRA - Liberty Braves Group
Giroux: BIIB - Biogen
Priest: Air.France - Airbus
Witmer: ONEX - Onex, Canada
Comments
Nice synopsis!
I glanced at their results and, as usual, each had some winners and losers. None stood out as an absolute genius. But, generally, the picks would have made you money. Also, the members all recommended several holdings for the rest of the year . A bit deceptive to list only their top pick. Nothing beats getting ahold of a copy of the magazine. As far as I can recall, Giroux didn’t go out on a limb this time and make any interest rate predictions. Interesting, since in the past he’s been quite adamant that rates won’t go a lot higher.
What I took away (rightly or wrongly) is that the big tech giants that have led during the first half might not be the best place to throw a lot of money right now. Conversely, there may be some solid opportunities in bonds of just about every stripe and in some international / European equities or funds. Thanks for the kind remarks everyone. Note - I did make a few additions to the text most of the day yesterday as I continued to reread portions of the article.
Rupal Bhansali: US stocks to correct, favors EM. (FD: So far wrong)
Ellenbogen: fundamental stock picking is going to take hold. I expect the first half year to be down (FD: wrong on both, SPY did great).
Giroux: big tech companies think about cash flow, profit...it could be powerful. (FD: excellent).
Abby Cohen: growth stocks, we haven't seen all the damage. (FD: wrong so far, growth did great YTD)
Ahlsten: the first half would be challenging. (FD: wrong)