Barron's Streetwise - Andrew Bary’s Top Stock Picks

Episode Date: December 13, 2024

Oil drilling, banking, Bitcoin, and robo rides—Jack pesters his Barron’s colleague about what to watch in 2025, and leaks key details about the holiday party.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Calling all sellers, Salesforce is hiring account executives to join us on the cutting edge of technology. Here, innovation isn't a buzzword. It's a way of life. You'll be solving customer challenges faster with agents, winning with purpose, and showing the world what AI was meant to be. Let's create the agent-first future together. Head to salesforce.com slash careers to learn more. We actually did get a listener question about office holiday parties and whether we went to one. Did we really? Yeah, we did.

Jackson, let me tell you exactly what kind of man that we're dealing with here. You know, of course, Andrew Barry. You know him as associate editor at Barron's stock picker extraordinaire all around smart guy in the subject of investing. So yesterday, yesterday we have to go from the Barron's headquarters in Midtown Manhattan to the upper West side of Manhattan. There's a, there's a get together. There's a little party up there and it's, and Uber wants $140 to go four miles. Come on. Ridiculous.

Andrew says, no, no. Andrew says, I know a better way. It takes me into the bowels of the New York City subway system. A bunch of us, actually. I used to be way, many years ago, I was a daily subway rider, but I'm out of practice. So he knows which way to go. And I get up to the thing. I say, well, I haven't ridden in a while. I have to was a daily subway rider, but I'm out of practice. So he knows which way to go. And I get up to the thing. I said, well, I haven't ridden in a while. I have to buy a daily, I have to buy a single ride pass. Andrew says, not on my watch, Jack Howe. And he just swipes

me through like Oprah, just giving stuff away. That's what kind of man. And he shepherded the whole bunch of us up to the party. And it was a night of fellowship and hilarity and whatever was in that punch bowl. And you all gave him $70. You only charge half as much as Uber. Andrew, thank you for your generosity and your wayfinding. And now we need your shepherding for the U.S. stock market in 2025. Each year you publish, don't worry, I'm going to let you talk. The podcast is not going to be 30 minutes of me talking and you just sitting there. Don't worry. Each year you publish your top 10 stock picks for

the year ahead. And you've done it again this year. How did last year's bunch do? It was an impossible year last year, right? Badly. It was one of my worst years last year. We were way behind the S&P 500. We had one big loser, Hertz, which was down over 50%. I'm embarrassed about it. I'm vowing to do better. I've had a pretty good record over the years. And so that's how we stand now. Last year was an impossible year to get this right for active managers everywhere. You had to be loaded up on some big dot-com stocks, some AI stocks that would already look pricey and not everyone was out there on a limb loaded up on those stocks. And so last year's

stocks underperformed. Yeah. What's the outlook for the stock market in 2025? How are we going to do? Do we look okay? It looks pricey. It's pricey, but I think we're going to do okay. I think interest rates are going to be restrained. I think the Fed may cut short rates a little bit. You have a market-friendly president-elect in Donald Trump, who often measures his performance to some degree by how the stock market does. You're going to have arguably less regulation. You're going to have broke business, pro-capitalist policies in it. While stocks are expensive, I think the environment

in Washington and on Capitol Hill will probably be pretty good for stocks. Okay. Now, do you think the same type of stocks will keep working? In other words, the AI stocks, the big tech stocks? I mean, do we keep running with what has been going up? I think you could see a rotation into other things. The so-called Mag7 stocks, including Apple, Microsoft, Nvidia, Tesla, and others have really dominated the market. They're up about 70% on average so far this year. The S&P 500's up nearly 30%.

Much of the gain in the market has come from those stocks. And their valuations are getting a little bit stretched, price-earnings ratios. And I think you could see a breather there. You've got companies with market values of $3 trillion or more. I mean, the law, large numbers, and other things could play a factor in crimping growth and maybe taking some of the shine off some of these stocks. So what do you look for? When you set out to find these stocks, did you look for any type of theme?

Did you say, I think that value stocks will do well. I think this particular sector or industry will do well. Or did you just search for stocks with particular attributes? How did you go about finding your stocks? I was looking for stocks, I think, that are reasonably valued with decent growth prospects or have other potential catalysts for this year. There are a couple of technology stocks. I haven't ignored that sector, but they're not some of the hottest stocks right now in the sector, but I think ones that are strong companies with good competitive modes and which could have,

I mean, better years this year than they had last year. Okay. So you've picked 10 stocks. I don't know that we'll get to all of them. Maybe we'll get, maybe let's cover about half of them. And then if folks want, they can see the magazine for the rest of them. I want you to focus on the best half. However, I want, I want one humdinger.

I want one doozy, one gem, one beauty, and one what, Jackson? Nugget? It's a little ambiguous. A good nugget, yeah. A good nugget, yeah. Why don't we start with a company everybody knows, Uber Technology, the leading, the dominant ride hailing and food delivery service. I just trashed them at the top of the episode saying how much it was going from Midtown to the Upper West Side. I had no idea. Go ahead.

That's the issue. I mean, people are concerned about just how much it costs for an Uber ride, but it's a dominant company. It's actually, stocks down about 30% recently. ride, but it's a dominant company. It's actually, stocks down about 30% recently. People are concerned that robo-taxis, which are starting up in, they're about maybe a half dozen cities right now, are going to effectively take over the taxi market. And potentially, the leaders there, Waymo and Tesla, may cut out Uber from essentially providing the infrastructure for people to actually get these cars. And so they may have their own networks. I think that's overblown.

The company is among the most dominant companies in the tech world. It's trading the low 60s right now, which is under 30 times next year's earnings, and with strong free cash flow and a very good management team. How quickly is it growing these days? It's growing earnings pretty rapidly. It's growing earnings at way more than double digits. And it's dominated internationally. It's obviously become a verb. And I think it's going to be difficult if Waymo and Tesla want to, I mean, want to basically grow their robo taxi businesses, which are particularly critical for the Tesla story to do it without Uber. I think being on the Uber platform

would benefit them and benefit Uber customers. Yeah, it takes a while to replicate a platform like that. The robo-taxi, Tesla's got to get the robo part right, but the taxi part is not nothing. And Uber already has that up and running. So you think there might be some kind of partnership there or you think that with Tesla or someone else? Probably. I mean, I think there's going to be more of a partnership between the robo-taxi operators and Uber. I think it behooves both companies to do it. Uber is certainly interested. If you looked at your app,

then you could have like a choice of a robo-taxi or a traditional driver. And I think that's a good balance. Robo-taxis are still not that prevalent. I mean, the economics of them are still unproven. So I think that prevalent. I mean, the economics of them are still unproven. So I think that, first of all, robot taxis, I think, are far off in terms of being widespread in American cities. There are a lot of issues in terms of safety and regulation and other issues there in San

Francisco and many other cities. It's going to be, for instance, difficult to get them going in New York, given all the commotion and everything that goes on in Manhattan, for instance, between pedestrians and e-bikes and trucks and taxis and everything else, it may be hard for a driverless car to negotiate that well. Okay, so that's Uber. And for the record, I did take an Uber after the party last night, and it was a quite reasonable $26 ride. And it was a spiffy, clean Hyundai electric vehicle, whatever that one's called, Ioniq or something like that. And the driver was terrific. And so on to number two. All right, let's move on to a bank, a big bank, Citigroup. It's one of the

leading banks in the country. It's been a longtime laggard in the sector. The stock has perked up in the past year. It's trading around 72, but it's still among probably the cheapest of the biggest banks. And there's actually an interesting growth story emerging there. And under Jane Frazier, the CEO of the last couple of years, they've been restructuring a transformation. They're focused on five businesses. Three of them are actually market leaders. They're big in international payments, particularly for corporations, which is a very good business, which is very hard to replicate.

They're a leading investment bank, and they're also a top three company in credit cards in the United States, which is another business which is difficult to get into where scale is important. So you've got a good CEO, a transformation there, and you've got a reasonably valued stock trading for about 10 times next year's earnings, 2025 earnings, and at a discount to tangible book value. It's the only big bank trading at a discount to tangible book value right now. Are falling interest rates good, bad, or neutral for Citi? I think it's probably a neutral for them. They have less exposure to traditional banking than Bank of America or J.P. Morgan.

They're actually more of an international bank. They've been paring back some of their consumer businesses abroad to focus on higher return businesses. So it's kind of been, it's an ongoing story there, but it looks like this bank may hit its return targets for 2026, which are way above what they've been earning so far this year. We're off to a great start. That's two down. Give us another. You know, another one that's an interesting one, LVMH, which is Louis Vuitton, the leading. Louis Vuitton, Moet, Hennessy, luxury brands.

It's a big mouthful. It's the leading luxury goods company. The world French company is leader in leather goods and fashion, also liquor, watches, and other areas. It's a $300 billion plus market value. Despite the rich getting richer and never having been richer, given the booming stock market, Bitcoin, gold, real estate, everything else, this company has actually had flatter sales so far this year. China's been a big issue.

China's probably one of their, if not their biggest market, one of their biggest markets. So it's a play on the rich opening their wallets and spending more on luxury goods and also on a recovery in China. Stocks trading for about 20 times next year's earnings. Bernard Arnault, the CEO, who's one of the richest men in the world, has actually been personally buying the stock in the last few months. If results have been a little sluggish because of China, how has the stock been doing? The stock is down about 20% this year, 25%. It's way below as high. The US shares are trading around 130 right now, as high as 200. So you're basically getting at a discount. They, of course, rarely, if ever, discount their handbags. I mean,

one of the things that people say about this industry is that they load the discount and devalue their brands and they would rather burn their $2,000 handbags than discount them. Jackson, you think that that's happening out there? You think people are... I'm not sure if that's still happening, but that is the plot of a new Apple TV show called La Maison. It's like a French succession to warring luxury wear families. And one of the younger people wants to be more sustainable. Is there a handbag burning scene in the show? There is.

Well, there's a scene where one of the younger kids does a fashion show out of all the clothes that were meant to be destroyed. It's kind of like everyone's wearing quilts made up of these shredded handbags. You know, one thing about Elvin, I mean, Europe dominates few industries. One of them they do dominate is luxury. You've got companies like Hermes. You've got Gucci, Prada, many others. I mean, the leading watch companies are European. That's one thing Europe does right is luxury.

And so you're basically buying an industry where Europe is the leader. Americans love a European luxury brand. I mean, I hate to admit that to them, but it's true, right? We love being scolded by anyone with a British accent because the accent just sounds like they know more than we do. And we love European luxury brands. The accent just sounds like they know more than we do. And we love European luxury brands. Okay, so that's LVMH. Let's take a pause for a quick break, and we'll be back in just a moment. Welcome back. We're speaking with Barron's associate editor and party shepherd, Andrew Berry, about his top 10 stocks for 2025.

Andrew, what's up next? Well, we got a company, Schlumberger, now called SLB, which is his- SLB. Many, many years ago when I was a stockbroker and some people would call me and ask me for quotes, there was this one old guy I used to call. He'd run through his companies. For this one, he'd always say, slob. How's slob doing? That was Schlumberger.

That was the nickname of Schlumberger, just like Microsoft was Mr. Softy. Right, right. How is old slob doing these days? Slob has actually been a slob for many years. His stock is actually not that much higher than it was when you were probably a broker and people were like barking at you about Lumber Day. The company is the leading oil services company in the world. It's deeply entrenched in the Mideast and also on the offshore markets, which are actually

pretty strong markets. It's well-run, strong corporate culture, international management team, European. And the stock looks pretty attractive now, trading in the low 40s, around 41, which is 10, 11 times projected earnings for 2025, which is actually below its historic average. And the world's going to need oil and gas, I believe, for the rest of the century. And this company is going to be around to service it. They earn pretty good margins. They've got a growing digital business where they're helping companies in the energy industry move to the cloud and actually improve efficiencies. There are companies that specialize in equipment, services, drilling.

They're the major integrated companies. this is what, a service company? How would you characterize Schlumberger? They basically do a range of services in terms of drilling. They also, like if an oil company wants to know how big a reservoir is of oil and natural gas, they're very good at assessing that and also some of the best ways to kind of get at those reserves and monitor them. Do you have a prediction or maybe not a specific target, but a sort of sense of which way oil might be headed? Well, I mean, it's been weak. The stock has actually been weak this year.

It's down about 20 percent. The XLE, which is the main energy ETF, I'm using its ticker symbols, up about 10 percent. It's been underperforming the oil markets, which I'm using his ticker symbols, up about 10%. It's been underperforming the oil markets, which I think is an opportunity. Oil is stuck around $70 a barrel. The general consensus is that oil is not going to do very much in 2025. There's too much of it around. There's too much spare capacity in OPEC. The U.S. is producing too much. Donald Trump wants the U.S. to produce even more. It's generally a bearish view right now in oil. But I think some of that's discounted right now

in the stock and in many of the energy stocks. If you get a better oil market, natural gas is also a very good market for them. And there's a lot of demand from that related to data centers and AI and power demand. So this company could surprise, I think, in 2025. You've been, I guess I'll call it skeptical. You can correct me if I'm wrong. You have had a poo-poo rating on the move to electric vehicles here in the U.S. saying it's not going to happen as quickly as people think it's going to happen. And it seems like demand has fallen off a bit. People want those hybrid vehicles. They want to sort of hedge their purchases. Do you still feel that way about electric vehicles here?

Yeah, I do. I mean, I think they're stuck in under 10% of the market right now. It's been difficult to penetrate that. I mean, the Tesla story is kind of more from being an EV growth story to being one about fully autonomous driving and monetizing that and licensing that. So it's interesting that even the leading electric vehicle maker, there's less talk about the market potential there and more talk about just how it's using its technology and how it's going to profit from that. And you're seeing Europeans are having a tough time in electric vehicles. GM has been pulling back. It's been just a difficult market.

And I think they've overestimated demand and the willingness of Americans, particularly in red states, to buy electric vehicles. It's become politicized to some degree. OK, so we have four stocks down. Let's get one more. Let's go with a very familiar name, Berkshire Hathaway, obviously Warren Buffett's company. The stock has roughly matched the market this year. The A shares, which are the higher price shares, are around $700,000 per share. The B shares are probably in the $400,000s right now. How is his stock matching the market? I mean, isn't he invested in insurance and chocolate candies? I know he had some Apple. Does he still

have some of that Apple stake, or he did some selling there? Yeah, I mean, he's been cutting it. It's actually not been a great year in terms of him investment-wise. I mean, the portfolio's done well, but he's made some what turns out to be not great moves. Buffett cut back the Apple stake by about two-thirds. Berkshire now owns about 300 million shares, which is still worth well over $70 billion with Apple's move. But he's left a lot of money on the table there, probably $30 billion from selling the Apple stake. He's sold Bank of America stock, about 25% of Berkshire's stake there. That doesn't look great.

He's been essentially buying very few stocks. He's been very cautious. What in the portfolio has kept him up with the market? Well, the portfolio has done well. American Express has done very well. That's a big stock. Apple, the remaining stake in Apple has done well. Bank of America has done well. The portfolio overall has done well. That's helped Berkshire. The insurance business, their largest business, that's been turning property and cash insurance, auto insurance. I mean, if you basically see how much you're paying for auto insurance, auto insurance rates are up double digits in the last year,

probably 50% over the last four or five years. That's been benefiting Berkshire Hathaway, and also just a generally stronger economy. It's really a play on the American economy. Does the stock have a Buffett premium, does it have a, you know, Buffett succession discount? I don't think there's as much of a discount in the stock as there might have once been. The stock's trading for about 20, low 20s, multiple of 20, 25 earnings at about one and a half times its book value. Buffett is 94. There's clearly key man risk. He's not going to be around for, I mean,

forever. Maybe he's around for a couple more years. On the upside, maybe five. That might be pushing it. His successor is generally pretty well regarded, a guy named Greg Abel, who's a Berkshire executive. So that's a big unknown. And that's one issue for the stock and for investors, because when he leaves or dies, the stock could fall. But why does an investor need this thing, right? Like you like some of their stocks, some of their stocks do well, but you could just try to focus on those stocks. So I guess when you buy this, you're kind of like buying a mutual fund. Are you buying the stock picking expertise or what are you getting for your money when

you buy this thing? Well, you're getting almost a no feefee mutual fund on some good American businesses. Plus, you have a lot of cash. Buffett's been raising cash. There's now over $300 billion in cash at Berkshire Hathaway, which is about 30% of the current market value, around a trillion dollars. So you're getting, quote unquote, optionality, meaning that if the market does fall, I mean, he has the opportunity to buy stocks and maybe buy businesses. There was even talk recently that with Mondelez was taking was kicking the tires and taking a look at Hershey. And maybe that Berkshire might have gotten involved in that deal.

Hershey's the kind of company that I think Buffett would like to own. Unfortunately, aside from Apple, which he's cut back, he doesn't have a lot of technology exposure at Berkshire. But some of the big holdings there have been doing pretty well, including American Express and Bank of America more recently. Coke's having a decent year, which is one of the big holdings. And Chevron's been not so great this year. Andrew, you've done it again. Some top stock picks for 2025 for our listeners. Could you say a few words? I know you've written about microstrategy and the sort of bizarre business strategy involving Bitcoin.

Can you tell us what's happening with that stock and what are your thoughts on that going forward? Well, microstrategy stock's been a moonshot this year. It's probably up more than fivefold, trading above $400 right now. The value of the company is almost $100 billion. It's basically been driven by the chairman and controlling shareholder, Michael Saylor. They're the biggest corporate Bitcoin holder in the world now. They own over 400,000 Bitcoin, which is about 2% of all the Bitcoin outstanding. Been on a Bitcoin buying spree in the last month and a half or so. What's interesting about the company is that the stock trades at a big premium to the value of its

Bitcoin. It's essentially a Bitcoin repository. The company's valued about two and a half times the value of its Bitcoin. The Bitcoin is worth about $40 billion. The market cap is around $100 billion. I don't see why people are paying such a big premium for the Bitcoin in MicroStrategy when you can buy an ETF like the iBIT, I-B-I-T, which is the iShares BlackRock Bitcoin ETF, essentially at parity to its Bitcoin holdings. Sometimes dumb things happen in financial markets. And you sit there and you say, hey, everyone, that's a dumb thing that's going on. But then people just make it keep happening

for a while. And for a while, the people who do the dumb thing make a lot of money doing it. And then they're saying, well, look who's dumb now, smart guy. That comes to an end eventually. It may come to an end. But yeah, I mean, the critics and the skeptics have looked stupid as the stock has continued to levitate. And people seem to think there's a secret sauce there. What he's been doing is he's taken advantage of the high stock price to issue gobs of equity. They've issued about $15 billion of stock in the last month and a half or so. They've used that to buy Bitcoin.

Essentially, they're taking money from new investors, buying Bitcoin, and that benefits existing investors. I just don't know whether you're going to find just more and more people willing to pay such a big premium to buy stock in this company as a Bitcoin play. I mean, if that's a good strategy, everyone should do it, right? And it might join the NASDAQ too, right? Or is that a done deal? Well, yeah. I mean, essentially, the NASDAQ is going to have a rebalancing or reconstitution coming up on Friday, the 13th of December.

I don't know why I mentioned the date. I don't know when we're going to air. They're going to be announcing the new additions to the NASDAQ 100. It's expected MicroStrategy will join. It's interesting. The NASDAQ 100 is the top 100 non-financial companies in the NASDAQ index. MicroStrategy is really a financial company now because almost all the value of the company, over 90% is Bitcoin, but it's classified as a software company because that's its heritage business, even though it's basically insignificant right now.

Have there been any other companies that have stepped forward and said, we're going to get into this business? America runs on competition. We're going to get into the buying Bitcoin to make our stock price go up business. Well, Marathon, which is one of the, take your M-A-R-A, which has been a Bitcoin miner, has been emulating MicroStrategy. They've been selling convertible bonds to buy Bitcoin. So you have imitators out there. There are other companies doing it. Michael Saylor wants Microsoft and all big companies now to put some of their cash, which they now hold in treasury bills, and put that in Bitcoin. So he's an evangelist. And people are betting that the sky's the limit for Bitcoin.

Bitcoin is now around $100,000. The bulls think it gets to a billion, I mean, a million dollars. Right now, all the Bitcoin in the world is worth about $2 trillion. They think it's going much higher. You know, you can debate that. It's hard to really know. Do you have a price forecast on Bitcoin for 2025? You think it ends the year higher or lower? I think my guess is somewhat higher, but it's very hard to predict. I mean, it hinges on sentiment. One of the bullish factors is that 95% of the Bitcoin that will exist has already been mined. There's very little left to be created. About 20 million of the 21 million Bitcoin that will ever exist have been mined, which means that there's little new supply coming. That's probably the biggest bull case,

the best bull case argument. The question is, do people really want to own this as a diversifier and as what they call digital gold? Andrew, you're a busy man. I have to let you go. I got to force myself to say goodbye because I could talk to you about the market all day. Thanks so much for coming on and sharing these stocks and your ideas on Bitcoin and much else.

Have a great 2025 with me standing right there with you. And some of it's going to splash back on me. That's what I'm hoping for. Thanks again. Bye-bye. I want to thank our guest, Andrew Barry. And thanks to all of you for listening. You can subscribe to the podcast on Apple, Spotify. If you listen on Apple, you can write a review. If you have a question you'd like answered on the podcast, you can tape it on the voice memo app on your phone and email it to jack.how. That's H-O-U-G-H at barons.com. See you next week.