By Barbara Kollmeyer
Like a weed-filled garden, your portfolio may be rife with stocks that are squeezing the profit right out of it. Think of black vine weevils.
“It’s easier to eliminate losers than to pick winners,” says the chief executive of index company XOUT Capital , David Barse, in our call of the day . The strategy involves ranking the 500 biggest U.S. companies via a fundamental scoring methodology, and cutting the 250 with the weakest scores.
Those factors include how much is being invested in research and development, which capital is being used for stock buybacks, if they’re hiring or firing, and how well management has executed on technological change. It helps figure out if a company can deal with technological and other disruptions, Barse told MarketWatch in an interview on Monday.
Given XOUT launched in October 2019, the COVID-19 pandemic quickly put his theory to the test. “I knew that technological change was going to continue to accelerate, but I didn’t know that there was going to be an event like that which would expose many of the businesses that had advanced themselves to deal with some unforeseen event,” said Barse, who spent 25 years running value asset manager Third Avenue Management in New York.
One stock that got the gong is media giant Disney /zigman2/quotes/203410047/composite DIS -0.33% , whose shares are up 86% over a year, as individuals have sought out home entertainment during the COVID-19 pandemic, while its theme parks are now beginning to reopen. The team ignored the stock performance and stuck to its models. “Investors are looking at the streaming service, yet it’s a very small component of the overall enterprise,” Barse said.
Another big win for XOUT was to get rid of telecommunications group Verizon /zigman2/quotes/204980236/composite VZ -0.67% , which on Monday announced it will finally sell its media assets , such as AOL. “Verizon has a long way to go before they can turn themselves around from what’s been a long-term secular declining business,” he said.
Also axed was oil and gas company Exxon Mobil /zigman2/quotes/204455864/composite XOM -2.11% , but Barse said investors should include the whole energy sector, along with utilities, real estate and retail. “I mean, all of these traditional businesses are dragging down” the S&P, he said.
The GraniteShares XOUT U.S. Large Cap ETF /zigman2/quotes/214552578/composite XOUT +0.34% (Read more here ) is one way investors can get exposure to Barse’s methodology. No surprise that its top five holdings are tech giants Apple /zigman2/quotes/202934861/composite AAPL -0.42% , Microsoft /zigman2/quotes/207732364/composite MSFT -0.05% , Amazon /zigman2/quotes/210331248/composite AMZN -0.33% and Alphabet /zigman2/quotes/202490156/composite GOOGL -0.26% and electric-car maker Tesla /zigman2/quotes/203558040/composite TSLA +0.20% , which he said continue to disrupt and dominate.
“When comments are made about how expensive they are and how could they be so expensive, I think traditional valuation metrics can’t apply when you’re dealing with these companies. They have so many advantages in terms of their ability to access capital to expand their business platforms into alternative beings to reinvent to reengineer and constantly drive that disruption,” he said.
Here’s a look at how it stacks up against the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.37% .
Lots of earnings, plus Bill and Melinda are over
Stocks /zigman2/quotes/210598065/realtime DJIA -0.85% /zigman2/quotes/210599714/realtime SPX -0.37% are down , led by the Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.13% and big names like Apple, Tesla /zigman2/quotes/203558040/composite TSLA +0.20% and Snap /zigman2/quotes/205087158/composite SNAP +4.14% . European stocks /zigman2/quotes/210599654/delayed XX:SXXP +0.61% are also down and Asia finished mixed. Data showed the U.S. trade deficit hitting a record $74.4 billion in March. Factory orders are still to come.
Shares of Under Armour /zigman2/quotes/204420722/composite UAA +5.24% are up after the athleisure wear maker lifted its guidance , while stock in pharmacy chain CVS /zigman2/quotes/209664499/composite CVS -3.15% , chemicals group DuPont /zigman2/quotes/203606582/composite DD -0.02% and energy group ConocoPhillips /zigman2/quotes/207605056/composite COP -2.64% are up after all delivered earnings beats. Electronic-games group Activision Blizzard /zigman2/quotes/200717283/composite ATVI +2.83% , ride-share group Lyft /zigman2/quotes/208999293/composite LYFT -9.58% and online real estate group Zillow /zigman2/quotes/204413973/composite Z +4.13% will report after the close.
The U.S. Food and Drug Administration is set to authorize drug company Pfizer’s /zigman2/quotes/202877789/composite PFE -0.79% COVID-19 vaccine for ages 12 to 15 by next week, say sources. Shares of Pfizer are up after it delivered a solid earnings beat on Tuesday.
Shares of rapid COVID-19 test maker Precipio /zigman2/quotes/209221896/composite PRPO -7.45% are surging, after the company said its 20-minute antibody test is now available on Amazon’s /zigman2/quotes/210331248/composite AMZN -0.33% business platform for healthcare providers. And the next generation of COVID-19 vaccines could be a spray or a pill .
The split between Microsoft /zigman2/quotes/207732364/composite MSFT -0.05% co-founder Bill Gates and his wife Melinda after 27 years will have ripples for the business and philanthropy worlds. For now, the pun game is winning.
There were terrifying scenes in Mexico City after an overground metro track collapsed onto a freeway .
Putting its mark on “May the Fourth,” Disney+ /zigman2/quotes/203410047/composite DIS -0.33% , the streaming service of the entertainment giant, has rolled out a new animated series: “Star Wars: The Bad Batch” and a “Simpsons” mashup:
Flight attendant writes terrifying thriller . Of course.
We crave squishy furniture , apparently.
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