BARRON’S ROUNDUP: No Market Crash Seen; ConAgra, Amgen May Rise
(Bloomberg) -- The stock market won’t crash yet for five reasons, Barron’s said in its cover story of the May 30 issue:
- Dividend payouts remain healthy, with a 3.2 percent average yield on the more than the 1,400 stocks that pay dividends, which is higher than in July 2007. This indicates equities are trading at “more conservative” levels.
- There’s no housing bubble yet, with the median home price of $232,500 in this year’s dollars well below the 2006-2007 peak.
- The price of oil hasn’t spiked, which typically occurs before a recession. Instead, low oil prices are giving a boost to the economy.
- The yield curve is in a normal range. If it were flat or negative, with the yield on three-month Treasury bills as high as or higher than the 10-year rate, that could signal a recession is coming.
- New-home sales are rising, with April sales hitting a new peak for the economic recovery.
Other highlights from this week’s Barron’s (subscription required):
- ConAgra Foods (CAG) could rise 30% under new management, Barron’s reported. CEO Sean Connolly said in an interview that the packaged foods maker wants to raise prices and improve U.S. operating margins, which are 5% or more below its competitors. Connolly has already slimmed down the company by selling its private-label business and may be dressing up ConAgra for a possible sale in the future.
- Jones Lang LaSalle (JLL), a large real estate broker, looks cheap, trading at 11 times estimated 2017 earnings, compared with a 10-year average of 15 times earnings, Barron’s said. Joshua Strauss at the Appleseed Fund looks for the company in his base-case scenario to earn $9.70 a share this year and $11 next year.
- Brown-Forman (BF/B), the world’s biggest bourbon seller, might be at last call for investors, Barron’s reported. Even a 10% drop in shares would leave the company, best known for its Jack Daniel’s brand, trading at 25 times next year’s earnings, more than competitors such as Constellation Brands and Diageo.
- Amgen (AMGN) could rise 25% or more if two Phase 3 drug trials have positive results, Barron’s said. If not, the downside is 5% to 10%. Another catalyst for a rebound is that after October, the biotechnology company won’t have to pay a 10% royalty to Pfizer on U.S. and Canadian sales of Enbrel, a treatment for rheumatoid arthritis, adding $500 million to operating income.
- The downtrend for Anheuser-Busch InBev (ABI BB) may have halted after winning the European Union’s “conditional blessing” for its merger with rival SABMiller (SAB LN) and setting aside antitrust worries. ING analyst Matthias Maenhaut, who has a buy rating on InBev, says the deal offers synergies that could lead to superior free-cash-flow growth. He has a price target of 130 euros ($144.75) on the shares, which closed Friday at 113.95 euros.
Alert:
HALISTERSource: BFW (Bloomberg First Word)
Tickers AMGN US (Amgen Inc)
CAG US (ConAgra Foods Inc)
BF/B US (Brown-Forman Corp)
JLL US (Jones Lang LaSalle Inc)
SAB LN (SABMiller PLC)
People Matthias Maenhaut (ING Groep NV)
Sean Connolly (ConAgra Foods Inc)
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