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# The 2021 Midyear Roundtable Stocks Are Pricey. 42 Bargains From Barron's Investing Experts. (not much oil or NG talk/Mario likes 'batteries')

Another day, another stock market high. Rinse, repeat, and remember to thank your favorite monetary and fiscal authorities for creating the optimal conditions for this record-smashing rally. Ultralow interest rates and ultrahigh spending by the Federal Reserve and the federal government helped the U.S. economy not only survive the devastating impact of the Covid-19 pandemic, but also thrive in its near aftermath. Whether this tsunami of money is too much of a good thing is another matter—one of many that the members of the Barron's Roundtable take up with their customary candor and zest in this midyear investment update.The Roundtable has met annually since 1968, and while the members and venue have changed with time—the current group of 10 investors gathered this past January via Zoom—the format and purpose remain the same. Our conversations begin with a look at the macroeconomic backdrop, and how it might shape the markets in the months and year ahead. Then we get down to business—the business of discussing and debating the panelists' favorite stocks and other investment ideas.Several themes surfaced in the 2021 midyear Roundtable, conducted by phone in the past few weeks. Our stock-picking savants consider the market pricey, in some cases stupefyingly so. They're also worried about nontransitory inflation, and generally see the 10-year Treasury yield heading toward 2%, notwithstanding its recent retreat. Yet, they are still finding plenty of bargains—in technology, healthcare, retailing, manufacturing, media, and more.An edited version of the midyear Roundtable interviews follows.Todd Ahlsten* Todd Ahlsten* CIO and lead portfolio manager, Parnassus Core Equity Fund* Parnassus Investments* San FranciscoBarron's: You were expecting a stock market correction around the middle of the year. It hasn't happened yet. Is it still on tap?Todd Ahlsten: In January, we thought that U.S. gross domestic product would grow by 5% to 6% this year, given a reopening economy and fiscal and monetary stimulus. We also felt that there would be some market corrections as some of the stimulus began to fade. We still feel that way. Right now, we're at peak economic growth. We're at peak Federal Reserve balance-sheet expansion, with the Fed purchasing $120 billion of bonds a month. Animal spirits are high. In the next few months, we'll be cresting the wave, and some current distortions will start to shift. We'll see the economy slow in the third quarter, going into the fourth, as a lot of the government's stimulus money has already been deployed. Maybe at its Jackson Hole [Wyo.] meeting [on Aug. 26-28], the Fed will start thinking about tapering its bond purchases.The Fed is still in crisis mode with regard to quantitative easing and asset-buying. They can't push things much further without creating inflationary pressure. At a minimum, we'll see more stock market volatility. It is a time to be long high-quality companies with more secular growth drivers and less cyclicality.Will the market end the year higher?Stocks could be around the same level as today, although we could see a 10% to 15% correction in the interim. The minute there is a selloff, there will be more rumblings about stimulus; 2022 is an election year. After a selloff of one to three months, the Fed typically changes its language and the market bounces back again.Are you suggesting that the Fed won't be able to quit its current course or raise interest rates?I would be surprised if the federal-funds rate gets past 1.5%, and that's going out years and years. Some people have called the Fed a bubble too big to fail. There are market distortions everywhere, due to mispriced money. There is probably another round of QE behind the current one. We see a midcycle correction later this year, followed by more stimulus early next year, and a more accommodative Fed, and maybe another march higher for stocks.What should investors buy now?S&P Global [ticker: SPGI] is a leading provider of data analytics to the capital markets, with a market cap of about $100 billion. The company provides mission-critical products and services. Roughly half the business is credit ratings; the other half comes from selling financial-market data and market benchmarks.MSCI [MSCI] has a similar business. Why choose S&P Global?You could do well owning both. At S&P, we like the combination of innovation and exposure to the commodity market, and ESG [environmental, social, and corporate governance–focused factors]. S&P Global is well positioned to be a critical provider of ESG data, ratings, and benchmarks. It is creating the necessary infrastructure for a carbon exchange. The company can bring important innovations to the table in carbon exchanges, renewable-energy pricing, and investment indexes tied to this area. Also, S&P is acquiring IHS Markit, another provider of market analytics; the deal will close later this year. It could add meaningfully to S&P's growth and provide revenue diversification and synergies. Finally, in 2019, S&P became the first foreign-owned credit-rating agency licensed to operate in China, which has a $14 trillion bond market.S&P Global can grow earnings at about a 13%-plus annual rate, while growing sales around 9% a year. The stock could return 15% a year over the next three years, with an exit multiple [at the end of that period] of 30 times earnings.What else do you like?American Tower [AMT] has a $125 billion market cap and a 1.9% dividend yield. It is the largest cell tower company in the world. The U.S. accounts for about 57% of revenue, and international, 43%. This is a wide-moat business with a strong secular-growth tailwind. The company has multiyear contracts with 3% price escalators domestically. It is a good way to get yield and inflation protection. The profit margins on price increases are almost 100%. The demand for mobile data is growing by 30%-40% a year in American Tower's network. 5G, edge computing, autonomous driving—all will require continued network investment.The 2021 Midyear RoundtableAmerican Tower could deliver a high-single digit, low-double digit annual return for the next five years. We are ESG-oriented investors; American Tower has some aggressive greenhouse-gas-emission reduction goals in places like India and Africa. It is investing a lot of money in green solutions. Also, it has the best safety track record in the industry. Like S&P Global, it is a play on the growth of data, nested in an awesome business.Nicely put.Boston Scientific [BSX] and Becton, Dickinson [BDX] are two healthcare names we favor. Boston Scientific is a leading medical-device company with a big business in cardio products. It had a couple of one-off regulatory and execution misses in recent years. Most elective procedures were suspended last year during the Covid pandemic; as a result, annual revenue fell 8%. The company also had a setback in its TAVR heart-valve business; it delayed the launch of one product and discontinued another.Now, Boston is set to bounce back. We see sales growing 19% in 2021 as people resume elective procedures, and as new products roll out. Longer term, Boston Scientific can grow organic revenue by 6% to 8% a year, and achieve margin expansion of 60 to 100 basis points [hundredths of a percent]. That implies double-digit earnings growth. Demographics are positive for the company, given an aging population with cardiovascular issues. Boston makes nice tuck-in acquisitions, and has a venture-capital portfolio of around 40 companies that gives it a unique pipeline into early-stage growth ideas.What is the case for Becton, Dickinson?Becton has a $70 billion market cap and a 1.5% yield, and generates about $19.5 billion of annual revenue. About 85% comes from consumables. The company is the category leader in 90% of its products. Becton also had a regulatory setback in the past 18 months, involving its Alaris infusion pump. It expects to get regulatory approval in the second half of fiscal 2022 [ending in September]. That will provide a $400 million to $450 million higher-margin revenue tailwind.Becton employs 1,500 software engineers, and is looking to tie its consumables to healthcare information technology. Revenue could be flattish in fiscal 2022 as use of the company's Covid test diminishes, but organic revenue growth could climb by the mid-single digits after that. Becton's best days are ahead.Thanks, Todd.Scott Black* Scott Black* Founder and president* Delphi Management* BostonBarron's: Scott, does the market look, over-, under-, or fairly valued to you?Scott Black: The S&P 500 index closed recently at 4352.34. Earnings estimates have gone way up since January. Wall Street's 2021 consensus estimate is $187.30, which puts the market's price/earnings multiple at 23. At the beginning of the year, small- and mid-cap stocks, defined, respectively, by the Russell 2000 and Russell 2500, were cheaper than large-caps. Not anymore. The Russell 2000 trades for 22 times expected earnings, and the Russell 2500 is at 23 times.The quarter just ended will probably be the best ever in terms of year-over-year earnings increases. Analysts expect a gain of 65%. Third-quarter earnings could be up 23%, and fourth-quarter earnings, 28%. The market historically has traded for 16 or 17 times future earnings. But the 10-year bond yield is now around 1.39% and real interest rates, after accounting for inflation, are minus 3.7%. You can justify this market's high valuation, to some degree.Will interest rates rise next year?The Fed has indicated it won't take away the punch bowl. It is afraid to raise interest rates and risk a major stock market selloff or spook the economy. Plus, the U.S. has about $28.5 trillion worth of accumulated debt. If rates rise by one percentage point, that's another $285 billion of interest expense.I see massive speculation in the market. Of the 25 largest stocks in the S&P 500, seven have exuberant multiples of 40 times earnings, or more. Consider Amazon.com [AMZN], 63 times; Tesla [TSLA], 152 times; Visa [V], 52 times. I call Shopify [SHOP] Stupify. The stock is trading for 329 times earnings. Then, consider all the companies that lose money but have big market capitalizations. The meme-stock phenomenon is de minimis by comparison. But things will continue as they are, so long as nominal interest rates remain low and there is no alternative to stocks.How does the economy look to you?The economy is doing extremely well. The Atlanta Fed estimates that gross domestic product will grow by 7.9% in the second quarter. Growth could slow to 2.5% to 3% next year. S&P 500 earnings could be up 12%. Personal consumption expenditures were up 18.9% in May from a year ago. Retail sales were up 28%. The savings rate is at 21.5% of disposable income. The consumer is in good shape. The housing market is strong, and manufacturing is doing well.I have some concerns: The federal deficit is now 1.3 times the size of GDP. That's the highest it has been since the end of World War II. Add underfunded liabilities of $63 trillion and the total deficit is about $90 trillion. It hasn't caused problems because we're able to sell wallpaper [Treasury notes] at 140 basis points [1.4% yields]. Also, the labor-force participation rate in the U.S. is 61.6%. That's the lowest since April 1976. Educational achievement in this country isn't good, and demographics are a ticking time bomb. But these are long-term issues. In the short term, the Fed and the U.S. government continue to stimulate the economy. The S&P 500 was up 14.4% in the first half. It wouldn't surprise me if it goes up another 5% or 6% this year.In that case, what are you buying?I have two ideas. Ultra Clean Holdings [UCTT] is based in Hayward, Calif. It is a developer and supplier of critical subsystems for the semiconductor capital-equipment industry. The stock is trading around $51, and the market cap is $2.24 billion. There is no dividend. Spending on semiconductor manufacturing equipment will be $74 billion this year. Industry estimates for next year are $80 billion. Ultra Clean trades for 13 times this year's expected earnings, and 11.5 times next year's earnings. The company makes wafer-cleaning and chemical-delivery modules. Lam Research [LRCX] accounts for 46% of sales, and Applied Materials [AMAT], 24%. Demand is being driven by the growth of 5G, the need for faster central processing units, the growth of the cloud, artificial intelligence, and so on.Have you built an earnings model?I'm glad you asked. Total revenue for this year should be $1.96 billion, of which $1.607 billion comes from sales of products. Operating margins in that business are about 12%, resulting in operating income of $193 million. The service business carries higher profit margins, and will see $51 million of operating income, for a total of $244 million. The company wants to increase service to 20% of revenue. After deducting interest and other expenses, I get pre-tax profit of $218 million. Taxed at 21%, Ultra Clean could earn $172 million this year, or $3.93 a share. The Street estimate is $3.90. Next year, the company could earn $4.45. We expect low-double digit revenue and earnings growth from there. Ultra Clean's balance sheet is essentially debt-free, and 55% of the company's business is international.What is your other idea?Cohu [COHU] is based near San Diego. The stock is trading for $36.22, and the market cap is $1.78 billion. Again, there is no dividend. Cohu is a leading supplier of semiconductor test and inspection equipment. It makes MEMS [micro-electromechanical system] test modules, pin connectors, and other equipment. The drivers of the business include vehicle electrification and industrial automation. Cohu has no 10% [of revenue] customers. From 2016 to 2020, the company grew revenue by about 22% a year and earnings by 15%. Return on equity peaked in 2017 at 17%. Customers include Qualcomm [QCOM], Intel [INTC], and other industry leaders.Based on my model, revenue could climb 43% this year, to $912 million, reflecting an acquisition and a divestiture. I get about $3.10 in earnings per share, which puts the stock at 11.7 times earnings. Strip out $3.45 a share of net cash and the multiple is 10.6 times. Next year, Cohu could earn $3.35. Return on equity will be about 19% this year. Cohu generates about $30 million of free cash flow annually. Teradyne [TER], a larger competitor, sells for 24 times earnings with similar organic growth characteristics. Cohu is a giveaway here.Thanks, Scott.Meryl Witmer* Meryl Witmer* General partner* Eagle Capital Partners* New YorkBarron's: Does this market look appealing to you?Meryl Witmer: I'm a bottom-up stockpicker; I don't have a broad view. We see some values and some overpriced stocks. Tech stocks seem pricey. I worry about policy issues. If corporate taxes go up, that could hurt valuations. There is a lot of government debt; if interest rates rise, that could become a bigger problem. The companies I like make money and trade at low multiples.Let's hear more about them.I like two companies coming public through special-purpose acquisition companies, or SPACs. The first is Ardagh Metal Packaging. I'll call it AMP. It is being acquired by Gores Holdings V [GRSV]. It will have about 608 million shares outstanding initially, and warrants and incentive shares that can bring the count to 680 million. AMP is a subsidiary of Ardagh Group [ARD]. AMP has 24 manufacturing facilities across the U.S., Europe, and Brazil, producing 39 billion cans per year. The can industry's historical growth of 1% to 2% per year has accelerated to about 5% to 7%, driven by new beverage categories, such as hard and flavored seltzer and the move to sustainable packaging. In Brazil, the shift from glass bottles to aluminum is driving impressive growth. Aluminum can be infinitely recycled, and cans have the highest recycle content at 73%, compared with glass at 23% and plastic at 3%.The can industry's growth will require significant investment. AMP plans to invest $1.8 billion through 2024 and will add an additional 21 billion cans of capacity. Nearly all this capacity is secured with long-term contracts of four to seven years from major beverage manufacturers. The contracts include pass-through pricing on aluminum, energy, and other major inputs. Growth should continue for more than a decade, with the shift to still water packaged in aluminum cans. Aquafina and Dasani are just beginning this shift. A 1% shift from plastic containers to cans for still water alone would require 5% incremental supply.The top three can producers—Ball [BLL], Crown Holdings [CCK], and AMP—control over 80% of capacity. Through 2022, AMP's free cash flow will be used to build out capacity. Once the new capacity is about complete, in 2023, AMP should generate about a dollar a share of sustainable after-tax free cash flow, growing to $1.15 in 2024. The balance sheet is levered at under 2.5 times Ebitda [earnings before interest, taxes, depreciation, and amortization] by the end of 2023. We value the business at 16 times 2023 after-tax free cash flow, or $16 a share. It should trade there relatively quickly with the proliferation of ESG funds, since every single one should own AMP.Our estimates incorporate all known dilution from warrants and incentive shares, 60 million of which will be issued to Ardagh Group in 12-million-share increments if the stock hits $13, $15, $16.50, $18, and $19.50 over the 5½ years after the deal closes. The vote is expected in early August.Ardagh will retain a majority of AMP after the SPAC merger. Should investors own AMP through Ardagh or Gores Holding V?If you want a pure play on the can business, buy the SPAC because the parent has other operations. Ardagh trades for $25. If it suddenly traded at $20, you might be better off buying AMP through Ardagh. AMP looks to us like a forgotten company. The management team is very capable, and we like the SPAC sponsors.My next idea is Hillman Solutions [HLMN], which just came public by merging with Landcadia Holdings III. Hillman is the leading distributor of hardware, such as specialty and construction fasteners, protective gear, and robotic solutions, such as key cutters and fob duplicators. Its products are distributed through home-improvement stores, such as Home Depot [HD], Lowe's [LOW], and Ace. Hillman offers phenomenal service, with 95% fill rates. Eighty-two percent of its products are serviced and/or stocked directly by Hillman representatives.While hardware represents more than half of earnings, we really like the robotics division. It provides machinery and kiosks that reproduce keys and fobs and sharpen knives. The potential for fob reproduction is enormous—just think of all the clubs, apartment buildings, and gyms that use them. Hillman's fob brand—InstaFob—has a nickel-size fob with adhesive on the back so you can stick it on your phone. Copying a fob at Lowe's costs about $25, but they are high-margin products.Hillman will use the proceeds from the SPAC deal to pay down debt. We think the company will earn 92 cents a share of fully diluted after-tax free cash flow in 2022 and grow organically and through bolt-on acquisitions. We value the business at 15 to 16 times after-tax free cash flow, which gives us a price target of $14 to $15 a share within a year, up from about $12 now.What do you think of the SPAC sponsor?They are savvy people, and management is really smart.My third pick, Masonite International [DOOR], makes interior and exterior doors. It's not easy to make good-quality doors consistently. A key part is the door skin, and Masonite and Jeld-Wen are the leaders. The capital cost to add a door-skin plant is high, as is the inventory investment in door varieties. It is also tricky to import doors because of moisture issues, so the market is relatively well protected from imports.Families have been moving to the suburbs, buying larger homes, and upgrading the interiors. Updating interior doors is one of the least expensive things you can do to make your home look great. U.S. personal savings are up about $1.3 trillion from pre-Covid levels, so there is a lot of money in the bank to continue upgrading. If we can continue to work from home even for a day or two a week, it makes sense to have a quality soundproof door installed and not take important calls from the closet.Amen!Masonite doors were underpriced before the current president and CEO, Howard Heckes, arrived in 2019. The company will continue to grow by adding value to doors, not just selling door slabs to distributors or retailers. In the U.S., Masonite sells about two-thirds to distributors and one-third to big box retailers. It has 25 million shares outstanding, and about $20 million of amortization. With earnings estimates this year of about $8.50 a share, plus amortization of 80 cents, it is reasonably priced at $112 a share. We see earnings growing to $15 a share in 2024 if the company meets its targets and spends about $100 million a year on buybacks. At the end of 2024, it could have more than $1 billion of cash on its balance sheet, in which case I would expect more buybacks or dividends. My target over the next year or so is $150. A multiple of 12 times 2024 potential earnings (ex-amortization), plus $1 billion of cash, gives us a target of $220 a share in three to four years.Thanks, Meryl.Mario Gabelli* Mario Gabelli* Chairman and CEO* Gamco Investors* Greenwich, Conn.Barron's: How will the rest of this year unfold for investors?Mario Gabelli: To look forward, I first like to look back. In March 2020, as Covid started spreading and the economy closed, the companies we followed were worried. They drew down their lines of credit and cut capital spending. Then the Federal Reserve put its foot on the accelerator and delivered extra economic stimulus. A year later, companies were dealing with surging demand and supply shortages. Capital spending is rising again, as is corporate revenue. Nominal GDP could grow more than 10%, after adding the impact of inflation. We expect to see a surge in pretax profits.The stock market has to worry about two things: what happens to the corporate tax rate and the market's price/earnings multiple. The latter is a function of 10-year bond yields. We expect the 10-year yield to rise. By the summer of 2022, heading into the midterm elections, we expect the Fed to take its foot off the accelerator and maybe start tapping the brakes in terms of bond repurchases. I'm concerned about the potential impact of a change in Fed policy, the surge in shadow banking, and the growth in margin accounts. I'm also worried about geopolitical issues, like tension over Taiwan. Under Gary Gensler, the Securities & Exchange Commission will slowly put up warning signs about things like payment for order flow and SPACs, which will cool speculation.We expect a lot more deals—mergers, spinoffs, and other forms of financial engineering. Stocks should do OK with politicians spending to ensure a good economy for the midterms. But I don't see much forward motion from here. By the spring of 2022, investors will be looking at headwinds.How should they prepare?We're focused on infrastructure and renewable energy. Key to the latter is batteries for energy storage. In The Graduate, the future was plastics. Today, I just want to say one word to you: batteries.You may have a future in Hollywood.CNH Industrial [CNHI] bridges these ideas, plus financial engineering. The stock is trading around $16.50, and there are 1.3 million shares outstanding. Scott Wine, the CEO, joined CNH in January from Polaris [PII]. About 28% of the shares are owned by Exor, the Italian holding company. CNH sells construction equipment.In June, CNH announced a deal to buy Raven Industries [RAVN], a leader in precision-agriculture technology. Precision farming requires less water —hence, the climate angle. We expect CNH to spin off its Class 8 truck business, Iveco, and its engine business, in the next nine months. The company could earn $1.25 a share in the next 12 to 15 months.Next, Univision Communications runs a TV network that caters to the growing Spanish-speaking population in the U.S. Mexico's Grupo Televisa [TV] supplies much of the content and owns 36% of the company. Wade Davis, the former CFO of Viacom, became CEO of Univision in December. He is likely to take the company public, but has to complete an announced deal with Televisa. We're investors in Televisa, which will increase its ownership in Univision to 45% and reduce its debt to just over $2 billion as part of the deal. The stock trades around $14. There are about 560 million shares outstanding. Televisa is well managed. The cable business in Mexico is worth the price of the stock. There is also a less-valuable satellite business. The Mexican peso is getting stronger as the price of oil rises. At a minimum, we see Televisa shares rising 50% in the next 12 months. The trigger would be Univision coming public.Which other media stocks do you like?I recommended Deutsche Telekom [DTE.Germany] at the January Roundtable. I'm picking it again. The stock trades for 17 euros [$20], and the company's stake in T-Mobile US [TMUS] is worth about €14. The rest of Deutsche Telekom trades for about four times cash flow. Deutsche Telekom can earn about a euro a share in the next year; I'm paying €3 for that. The company has a call on SoftBank Group's [9984.Japan] remaining interest in T-Mobile, and I foresee more financial engineering. The European economy is materially improving, another plus.Last July, I recommended Sony Group [SONY] and Vivendi [VIV.France] as plays on music streaming. I'm picking Vivendi again. It has about a billion shares outstanding; the holding company, Bolloré, owns about 25%. Vivendi owns 80% of Universal Music. It sold 20% to a group led by Tencent Holdings [700.Hong Kong] and will sell 10% to a SPAC formed by Bill Ackman, Pershing Square Tontine Holdings [PSTH]. Then, it will spin off 60% of its remaining stake as a public company. Vivendi trades for €28. It has a good balance sheet, and the remaining 10% of Universal Music is worth about $10 billion.Will you invest in Ackman's SPAC?I would rather own Vivendi than own Universal through the SPAC. But the remainder of the SPAC may be interesting. I can't give you an answer yet.ViacomCBS [VIACA] has about 660 million shares. It trades around $45. The stock spiked to $102, and the company sold shares and reduced debt. It is selling off Simon & Schuster, and hopefully will sell some of its Manhattan real estate. Viacom is doing everything right. The stock is a bargain. Linear television has been a challenge. Are discussions going on about selling it? All the time. I don't think Shari Redstone [Viacom's chairman] is going to sell the company, but there are opportunities for joint ventures.Among smaller companies, it's baseball season, so batter up again. We're in the sixth inning of John Malone's eventual sale of the Atlanta Braves. Liberty Braves Group [BATRA] is the tracking stock for the Atlanta Braves.Only the ninth inning matters here.The stock is $28, and there are 60 million shares. We think investors will get $44 in two years.Madison Square Garden Sports [MSGS] trades for $172. The company could fetch north of $240 in a sale. People are watching more sports on television, and betting on sports. Advertisers like that. There will be a lot of election-related ad spending next year, too.I'm still recommending Sinclair Broadcast Group [SBGI]. The stock is $32, and the company owns a piece of Bally's [BALY]. The sports gambling business will continue to explode.Finally, I like Traton [8TRA.Germany], a truck maker spun out of Volkswagen [VOW3.DE]. There are 500 million shares. The stock is around £27. The company could earn €4 a share in two years, and the stock could rise 50% as Traton demonstrates the strength of its autonomous-vehicle and battery technology. Traton controls 25% of the Class 8 truck market in Europe, and has strong positions in the U.S. and Brazil.Thanks for the update, Mario.Rupal J. Bhansali* Rupal J. Bhansali* CIO and portfolio manager* International & Global Equities* Ariel InvestmentsBarron's: Rupal, what lies ahead for investors?Rupal J. Bhansali: Risk appetites are high as central bankers continue to flood the market with liquidity. Retail investors' appetite for investing has taken off like a rocket ship since Covid began. That has provided an additional boost to the market. Investors have forgotten that valuations matter. We are now in bubble-like territory for both equities and bonds. The value of global equities equals 70% of global GDP, even higher than in 2000. Typically, when markets trade at such high valuations, low to negative returns follow over the next decade, just as happened from 1969 to 1978, and 2001 to 2010. I'm calling for regime change.When will it start?It is upon us now. In the past decade, the bulk of total returns came from capital appreciation. In the next decade, dividends are likely to contribute far more to the compounding of capital. It is time to rebalance portfolios in favor of capital preservation and high dividend yields. But make sure those dividends actually get paid. In the period from 1969 to 1978, the market declined by a cumulative 7.5%, but a portfolio could still increase by 37% because dividends added 44% of the total return. From 2001 to 2010, the cumulative market correction was about 5%, but dividends added 20%, giving you a total return of 15%. Dividends can offer higher income and an inflation hedge, compared with bonds, which offer a paltry yield.Won't ultralow interest rates continue to support the stock market?No, because stock prices already reflect them. It is important to build a foresight portfolio, not a hindsight portfolio.I continue to favor my January Roundtable picks, whether from a resilience-of-profits, balance-sheet strength, or dividend-yield perspective. Stocks such as Snam [SRG.Italy] and Munich Re [MUV2.Germany] yield about 4%. Bigger dividend yields can be found outside the U.S., which is one reason to rebalance away from the U.S. market. The S&P 500 yields about 1.4%. EAFE, the international benchmark, yields about 2.4%. My actively managed fund, Ariel International [AINTX], has a yield of 3.5%.One of my favorite stocks is Philip Morris International [PM], which I recommended in January. It yields 4.9% and has a P/E of 15. More important, Philip Morris International is the Tesla of tobacco. It is investing in a smoke-free future. Many people think of tobacco stocks as sin stocks, but Philip Morris is an exception. With its IQOS heat-not-burn tobacco product, the company is trying to help chain smokers consume a much less harmful product, where the risk is reduced by 92%-95% compared with conventional cigarettes.What do you make of the company's planned acquisition of Vectura Group [VEC.UK]?Philip Morris' recent announcement to acquire Vectura Group—a pharmaceutical company focused on inhalable drug-delivery solutions—will allow it to accelerate the build-out of scientific expertise and strategic development of products in the prescription-drug and over-the-counter space for its Beyond Nicotine category. We are optimistic about this acquisition, as it enables Philip Morris to tap into innovative opportunities with large addressable markets, such as botanicals ($29 billion) and respiratory drug delivery ($36 billion), and reduce exposure to nicotine and tobacco.Snam is an Italian gas utility. Endesa [ELE.Spain] is a European utility based in Spain. It yields 6%. The stock corrected recently because the Spanish government plans to claw back some of Endesa's windfall gains that accrued because of skyrocketing carbon-credit prices in Europe. This intervention won't prove materially damaging to Endesa, and it creates a compelling investment opportunity. Also, Endesa is the poster child for ESG. It committed recently to a new strategic plan to invest billions of euros in renewable energy, such as wind and solar. The company is shutting its coal-fired plants in Spain. Low interest rates are a benefit to utilities like Endesa, which have big capital-spending plans. These aren't mature companies, but growth companies. Endesa will double its capex compared to 2018, and replace all high-cost purchased wholesale power with cheaper self-generated renewable power, retaining a big portion of the savings. Contrary to the consensus, we expect Endesa's earnings growth to accelerate in the medium-to-long term.Are European utilities more attractive than U.S. utilities?Absolutely. U.S. utilities are far more mature. European utilities have higher mid-single digit growth rates because they are investing in next-generation technologies.Next, Baidu [BIDU] can deliver capital appreciation. Chinese companies are under a regulatory cloud, but the baby is being thrown out with the bath water here. Baidu isn't in the eye of the storm. It was subject to regulatory intervention about four years ago, and had to clean up some things then. Baidu is a search-engine operator with a lucrative core search business projected to have 50% operating profit margins. It is investing in next-generation opportunities such as AI and autonomous driving. In miles driven, it is two times ahead of its closest competitor. It is also a leader in streaming, via its 57% stake in iQIYI. You can get the Google of China, the Netflix [NFLX] of China, and an AI darling for only 16 times 2022 estimated earnings. Plus, the balance sheet has net cash. Baidu is a wonderful combination of growth and value.What is to prevent the Chinese government from meddling with Baidu again?Baidu is viewed by the government as having invested its profits in innovation to better serve Chinese consumers, whereas many other Chinese internet companies are perceived to have invested more to promote consumerism, but not to put China at the forefront of innovation.Thank you, Rupal.Henry Ellenbogen* Henry Ellenbogen* CIO and managing partner* Durable Capital Partners* Chevy Chase. MDBarron's: Henry, the market has had a terrific year, so far. Will the good times continue?Henry Ellenbogen: The economy and corporate earnings have been very strong, and stocks responded to that and a continuation of accommodative fiscal policy. Also, given narrow majority margins in the U.S. House and Senate, there's a view that significant change won't come out of Washington. Looking ahead, what could change? There's been a lot of focus on inflation.One thing I'm thinking about is the potential for tension between China and the U.S. and the third big power in the global economy: the digital state. The 'GDP' of the digital economy is becoming increasingly large, and many people involved in it think of themselves more as members of the digital economy than a sovereign nation. A perfect example is crytpocurrencies. China recently has moved aggressively to regulate crypto. Will the U.S. align itself with China and view the digital economy as a threat? The innovation economy has been a significant force in keeping inflation at bay. The efficiency and transparency it has fostered have lowered costs. Should the innovation economy come under pressure from a collective effort, even if the U.S. and China act separately, that would be a wild card for the market.How would a crackdown on crypto translate into restraints on the broader digital economy?Crypto is the tip of the spear in terms of how countries view their relationship with the digital economy. China has been moving aggressively against its large technology companies from an antitrust standpoint. In the case of DiDi Global [DIDI], it's clear that a tech company in China has two choices: be aligned with the state or have the state aggressively move against its business. Furthermore, China is taking the view that the data its largest tech companies collect is the value of the state, not the value of the companies. In the West, the move to regulate some of the largest tech platform companies starts in Western Europe. It could affect the market's view of these companies and the pace of innovation.What do you make of this year's rip-roaring market for initial public offerings, or IPOs?The number of IPOs has been strong, and the quality has been high. In 2018 and '19, the narrative was that it was better to be private than public. After experiencing the challenges of the Covid pandemic—and the challenge of having illiquid equity—there has been a rethink. This year's volume basically reflects a four-year backlog. Given the volume of offerings, the market is becoming increasingly choosy. However, it has been reported in the press that some high-quality companies, like Duolingo, Warby Parker, and Sweetgreen, are planning to come public in the back half of 2021. At the end of IPO cycles, lower-quality companies come public. That's something investors should watch out for.Let's switch to public companies. Which are you most excited about?We like RH [RH]—Restoration Hardware. At the January Roundtable, we discussed the fundamental changes occurring in where people live and how they work. If you study prior shifts in American history, like the move to the suburbs, you'll see that these are long-lasting trends. RH is a unique asset. It is the only player in the high-end furniture space that can do full home-decoration projects. It competes transparently in an opaque industry.The CEO, Gary Friedman, has created a robust business model. RH sources ideas from third parties and amplifies them on its platform. It has invested in physical stores when everyone else is taking capital out of physical retail, and struck favorable deals with landlords. Return on invested capital is high. By moving to an everyday-price model, it has eliminated many of the issues that create complexity for stores and fulfillment centers. As a result, operating margins are twice as high as those of others in the industry. The average order in the past four years has gone up nearly three times, because people increasingly are doing much larger projects.RH is expanding into Europe, and we're positive on that move. Historically, when U.S. retailers go international, things get tricky. Usually, they're selling other companies' products, but RH sells its own. Demand for the product is every bit as strong in Europe as in the U.S.RH stock has rallied about 800% since March 2020. How much upside is left?The stock trades for about 30 times next fiscal year's earnings, and we see the company growing earnings in the midteens for the next several years. We believe the stock price will compound in line with earnings growth. [The fiscal year ends in January.] Return on equity is above 40%.What is the biggest risk facing RH?The biggest risk is rising interest rates. If rates spike and negatively impact the stock market, high-end consumers may be reluctant to spend. People should think about RH as a growth cyclical tied to the high-end consumer.My second idea is Shopify, which I first recommended at the January 2018 Roundtable. Shopify is the rare small-cap company that became a large-cap. The investment returns have been extraordinary. Shopify has become a global platform, not only for small businesses launching e-commerce websites, but increasingly also for midsize and large businesses. It has become the non-Amazon.com e-commerce platform for the world. The scale is a benefit to customers. As Shopify acquires more customers, it gathers more data, which allows it to build a better product. Also, other internet-platform operators increasingly want to do business with it. In the first half of this year, both Facebook and Google announced they were going to integrate their e-commerce platforms more fully with Shopify merchants and payments.Shopify has pricing power, not in terms of charging merchants more, but by offering more-valuable services around payments and marketing. The end customers of Shopify merchants increasingly are using Shopify Payments, which is driving up the company's take rate [subscription and merchant service fees]. Earlier this year, Shopify announced that it will start allowing merchants who don't use its e-commerce workflow tool to accept Shopify Payments. Shopify is on track to become the next global internet platform.Shopify trades for 330 times this year's expected earnings. Doesn't that concern you?Our 2023 revenue forecast is 30% higher than Wall Street's. Long-term margins are in the mid-50% range. The company will be able to grow sustainably above 30% a year. Its payments business is at an early stage. The e-commerce business is probably fairly priced, but the market is significantly undervaluing the payments business, both on and off the Shopify platform.Thanks, Henry.Sonal Desai* Sonal Desai* CIO and portfolio manager* Franklin Templeton Fixed Income* San Mateo, Calif.Barron's: The 10-year Treasury yield has tumbled recently, falling below 1.30%. Many market participants had expected yields to be closer to 2% by now. What is the bond market telling us, and where do yields go from here?Sonal Desai: Let me reiterate my view that the 10-year Treasury yield will end the year above 2%. I don't see any fundamental justification for the recent bond rally. [Bond prices move inversely to yields.] I would dismiss growth concerns as the underlying rationale, because we haven't seen any indication in the recent data that the recovery will disappoint. Growth in the U.S. is largely meeting the massively upwardly revised expectations for the full year. Inflation has far exceeded market (and Fed) expectations at the start of the year. To justify current yields, I would need to use as a baseline a return to the level of lockdowns and Covid-related concerns that existed prior to the deployment of vaccines and the massive fiscal stimulus that has already been deployed this year.I believe the market is mainly anticipating an extremely dovish climbdown by the Federal Reserve over the coming weeks, which I am not convinced is wise. While the Fed is indeed dovish [in maintaining a very loose monetary policy], it will find it increasingly hard to ignore the ongoing strength of the recovery in both growth and labor markets while inflation remains well above its 2% benchmark.Do you expect inflation to be more persistent than transitory?I'm not bearish or bullish. I have been anticipating more inflation for a while. The Fed has told us it is transitory, but it's unclear what that means. Will it last a few months, a few quarters, or a few years? Given accelerating wage growth, particularly on the low end of the wage scale, inflation could have a bit more staying power than is currently anticipated.The Fed will have to tread carefully. We have gone through a period of massive, prolonged monetary easing, which has contributed to elevated asset-price valuations. The Fed does not want its words or actions regarding a change in policy to contribute to an asset-price collapse. It must somehow ease markets into the idea that rates won't be at zero forever, and that monetary easing won't go on forever. At its coming Jackson Hole meeting in August, I would expect the Fed to begin to at least speak about removing some of this monetary easing. In terms of rate hikes, however, it is still extremely dovish. The short end of the bond market has been overpricing a near-term rate hike, but the long end is underpricing the need for tightening. I expect the yield curve to steepen again, quite significantly.How will the stock market react?If the rationale for higher yields is a strong economy and steady inflation, the market might not sell off. Before the Covid crisis hit, the stock market was doing just fine. The Fed shouldn't be guided by or live in fear of the stock market's response. It must do what is right for the economy. Increasingly, in recent years, the Fed seems to have been led by the markets. If stocks fall sharply, the Fed comes around to hold the market's hand. That is not the Fed's job.The easing we have seen has left valuations stretched, even more so today than in January. I expect that investors will begin to question whether this is too much of a good thing, although the fundamental picture is still relatively supportive for some risk assets. As fixed-income investors, we prefer risk assets to risk-free assets. A low-interest-rate environment around the world has enabled bond issuers to strengthen their balance sheets. Given my expectation for rising rates and yield-curve steepening, I prefer shorter duration.What are your investment recommendations?I'm sticking with all my January Roundtable picks, except one: Franklin Federal Tax-Free Income [FAFTX]. The valuation is stretched. I am still recommending Matthews Asia Growth [MPACX], SPDR Gold Shares [GLD], Payden Emerging Markets Bond [PYEWX], Franklin High Income [FVHIX], and Franklin High Yield Tax-Free Income [FHYVX].And I am adding a new idea: Vanguard Real Estate [VNQ], an exchange-traded fund. I see real estate investment trusts, or REITs, as an attractive investment choice in the current environment of low yields and rising inflation. REITs must invest at least 75% of total assets in real estate, which provides a natural hedge against inflation; moreover, REITs must distribute at least 90% of their taxable income annually, providing high-visibility income streams. Many REITs have taken advantage of the low-interest-rate environment to lower average borrowing costs and lengthen maturities, setting the stage for higher earnings potential.REITs have historically delivered strong, long-term risk-adjusted performance with steady dividend income and relatively low correlation with other asset classes—providing both portfolio-diversification benefits and total-return potential for investors. The current combination of rising inflation, interest rates still near historic lows, and a robust economic recovery provides an optimal backdrop for investors in REITs.Thanks, Sonal.Abby Joseph Cohen* Abby Joseph Cohen* Advisory director and senior investment strategist* Goldman Sachs* New YorkBarron's: What do the economy and markets have in store for us in the year's second half?Abby Joseph Cohen: The Goldman Sachs outlook is close to the consensus view, which I couldn't have said six months ago. Our economics teams were more optimistic than the consensus at the start of the year about growth and the labor market. Things have gone well; now, the gap has closed. Real GDP could approach 10% in the third quarter, and then "fade" to 6%, still more than double the historical average. Some of the gain is due to easier comparisons from a year ago, but we're also seeing contributions from other factors, such as fiscal stimulus and the rollout of Covid vaccines, which has enabled the economy to reopen. We expect 2022 to be another good year, but we'll start to see deceleration in the growth rate as the year progresses. We may start 2022 with something like a 4% annualized growth rate, but that could fade to 2% by year end. We're looking for core inflation of about 3.8% in 2021, and 2.4% in 2022.We think the Fed won't think about tapering its asset purchases for a while. We don't expect to see the Fed lift the federal-funds rate until toward the end of 2023. That could change, depending on the inflation outlook, and it doesn't mean interest rates won't start rising. There has been great demand for U.S. Treasuries and credit securities. Ten-year bond yields could drift up to a bit under 2% later this year, and move higher still in 2022.What are the key risks?The vaccination rate is lagging behind in certain parts of the U.S., and we don't know how the arrival of the Delta variant will play out. Also, the U.S. economy has been the global leader in its vigor, but a wider range of outcomes is forecast overseas. That said, the U.S. stock market is priced more expensively than some others, on the basis of cash-flow and price/earnings multiples. We are looking for stocks that are attractive, relative to their industry, and see quite a few in the U.K., Europe, and Asia.What is Goldman's year-end target for the S&P 500?David Kostin, our U.S. equity strategist, has a target of 4300, which the index recently hit. He thinks that's where the S&P should be over the next several months. If things play out positively and the economy grows, inflation pulls back, and interest rates drift upward, then the S&P could move somewhat higher.Which stocks offer a haven?Our analyst thinks Toyota Motor [7203.Japan] is well positioned. It has been a leader in hybrids, or semielectrics, for more than 20 years, and is moving toward electric vehicles, or EVs. Nor has it been hit by the semiconductor shortage; it pre-built inventories of semiconductor chips. New-vehicle deliveries are up 45% on the year.One issue with Toyota could be potential yen appreciation, which we expect. There are two sides to that. If the yen rises in value against the dollar, imported vehicles will become more expensive for U.S. consumers, although Toyota produces many of its vehicles in North America. On the other hand, a higher yen makes Japanese stocks more appealing to U.S. investors. Japanese stocks have dramatically underperformed the U.S. market.What is Toyota's valuation?The stock is trading for nine times fiscal 2021 earnings and 11 times fiscal '22 estimates. The fiscal year ends in March. Toyota trades just about at book value. Our analyst is expecting revenue growth of 11% to 12% this year. Annual revenue growth thereafter will be about 5%. Earnings per share could grow about 13% this year and next, even after factoring in expense growth as the company prepares even more for EVs. The stock is up 45% over the past year, but given the valuation, it still has room to rise.My next idea, Suntory Beverage & Food [2587.Japan], is in the process of reconfiguring itself. Historically, it has sold liquor in vending machines in Japan, but today people want to buy beverages in stores. Increasingly, the company has been forming joint ventures outside Japan. It has a joint venture with PepsiCo [PEP] in the U.S. and Asia. About half of Suntory's business is outside Japan, and half of that is in Europe and the U.K. Suntory's profit margins are better outside Japan. Partly, that's because of the vending-machine model, and Japan is a more competitive market.How is the stock doing?The stock is slightly down over the past year. It trades for 20 times earnings. Revenue could grow about 7% this year, and 2% to 3% thereafter, but earnings growth will be much higher—about 10% next year. The company's turnaround plan is key.Next, Siemens [SIE.Germany] is restructuring its businesses, and jettisoned some energy and healthcare holdings. About 25% of the business is still healthcare; 25% is what they call smart infrastructure; 25% is digital industries; 15% is mobility, which is rolling stock; and 10% is portfolio companies. Siemens is focused on good technology, whether in industrials or healthcare. It is also focused on international diversification. Much of its business is in Europe, but it is active in the U.S. and China, as well. The stock has performed well over the past year or so. Even so, it trades for about 17 times this fiscal year's earnings. Return on equity is 14% to 15%, unusual for an infrastructure company, although it is becoming less of one. We are looking at revenue growth of about 6% this fiscal year, which ends in September, and earnings growth of 58% after a 22% decline in earnings in the prior fiscal year. It has a 3% dividend yield.Lastly, Worley [WOR.Australia] is an engineering consulting company based in Australia. It has done a lot of work in the energy and infrastructure areas. Our analyst thinks the shift away from fossil fuels could help Worley.Are Worley's operations concentrated in Australia?Worley is a small company, with a market cap of about $5 billion, but it operates around the world. In the U.S., it bought a business from Jacobs Engineering Group [J]. The stock is up about 30% over the past year. It trades for about 30 times estimated earnings for the fiscal year ended in June, but the P/E for fiscal '22 is only 11 or 12. Worley trades for book value. Annual revenue growth is on the order of 11% to 12%. Expenses will grow, but earnings will look pretty good.Worley consults to offshore and onshore energy drillers. Goldman Sachs' earnings estimates are well ahead of the consensus. Our analyst sees earnings of 99 Australian cents [75 U.S. cents] for fiscal '22 and A$1.19 for fiscal '23. The consensus estimate for fiscal '23 is 82 Australian cents. The stock has a dividend yield of about 4%, and the dividend could increase.Thanks, Abby.William Priest* William Priest* Executive Chairman and co-CIO* Epoch Investment Partners* New YorkBarron's: How does the world look to you, Bill?William Priest: The world still looks pretty good to us. The markets could run into some issues toward the end of the year, like inflation. But until inflation gets embedded in wages, it won't be a problem. With Treasury yields around 1.4%, valuations are supportive of stocks. That is probably good for growth vis-à-vis value. To the extent that yields stay low, you're going to see a slowdown in value stocks' momentum.Where will the S&P 500 end the year?Barring some shocking event, the market could be flat to 5%-10% higher by the end of the year. There are potential geopolitical problems, like China's ambition to control Taiwan. In the background, there is a budding cold war between China and the U.S. The survival of democracy is also an issue. It seems to be on the decline in many countries. That isn't good for the stock market or capitalism. Again, these are background issues. In the short run, things look OK.We continue to think T-Mobile US is attractive. It is going to disrupt the duopoly of Verizon Communications [VZ] and AT&T [T]. T-Mobile will be adding customers faster. The key to the story is the company's spectrum range. Many new computing applications that enable IoT [the Internet of Things] are moving to the edge of the network. The best play there will be T-Mobile. We expect operating cash flow to grow by 7% to 8% in coming years, although free cash flow will grow faster, driven by capex and spectrum synergies. In the near term, the primary use of that free cash flow will be paying down a lot of the debt it took on to acquire Sprint. T-Mobile's shares probably have 20% upside.What else are you buying?Splunk [SPLK] is an enterprise software platform used to analyze data for security purposes. A number of issues involving a business transition distorted the P&L [profit and loss statement] and cash flow, but that era is ending. We feel the company will emerge in a much better competitive position. Splunk recently announced that [technology investment firm] Silver Lake would invest in it, via a $1 billion convertible bond. The company plans to use the proceeds of that investment to repurchase shares over time and fund growth initiatives. Splunk has been trading around $140. Our target price is $200 or so.Medtronic [MDT] is the world's largest medical-device company. It is focused on cardiovascular medical surgery, neuroscience, and the diabetes market. It develops, manufactures, and sells device-based medical therapies to hospitals, clinics, distributors, and other institutions. Because of Covid, many elective surgeries requiring medical devices were postponed in the past year. There will be a step-up in sales of Medtronic products in the coming year. Medtronic could earn around $5.75 a share in the fiscal year ending in April 2022, maybe $6.25 in fiscal 2023, and nearly $7 in fiscal 2024. The upside for the stock is around 15% to 20%. Medtronic has rallied from a 2020 low of around $73. It is hard to find bargains in this market.Quite true.**Woodward [WWD] looks like another one. It's an aerospace and defense company. It has solid market positions in critical fuel-related systems on commercial jet engines, industrial gas turbines, reciprocating engines, and LNG [liquefied natural gas] truck engines, leading to attractive after-market sales and profits. Significant research-and-development investments over the past decade have helped secure increased market share on new engine and commercial-jet platforms, as the industry sought new engine technology with increased fuel efficiency. We expect that market-share gains in the next several years, along with end-market recovery postpandemic, will drive mid-single digit revenue growth in the aerospace segment and create a highly profitable long-term after-market annuity stream. Aerospace margins could expand to a company-targeted 20%-plus. They will likely reach the area of 25% in the 2025-26 time frame, as aftermarket sales become a larger portion of the overall mix.** The stock sells around $120 a share, and our 12-month price target is $142.50, or 24 times our free-cash-flow estimate of $5.94 a share for the September 2023 fiscal year. We estimate Woodward is converting fiscal 2023 consensus estimated earnings of $5.15 a share into free cash flow at 115%.Thank you, Bill.James Anderson* James Anderson* Partner and Head of Global Equities* Baillie Gifford* EdinburghBarron's: What are the big themes and issues you're watching?James Anderson: What has most interested me this year is the increasing evidence that Moore's Law is becoming a factor in lots of industries that previously had been immune to its effects—the healthcare industry, in particular. Given extraordinary progress in genomics, our understanding of human biology is opening up. Progress should be dramatic in coming years.What would have most concerned me was the exuberance we saw earlier in the year in areas like SPACs and the IPO market, with many new issues doubling on their first day of trading. In the past three months, there have been setbacks in these areas. I wouldn't want to see further outbursts of excessive exuberance in the markets. That would be very damaging.China has become a challenge for global investors, with the government now regulating some of the largest public companies, like newly public DiDi. As a big investor in China, how are you dealing with this?You are right; we have a lot of exposure to China. Regulators versus the powerful technology platforms has become an interesting narrative. The Chinese government believes that regulation is good for the economy, and it deeply dislikes the idea of anybody having more data than the government. But it is most unlikely that China wants to destroy its most powerful companies—companies that assert Chinese authority. At the same time, the valuations of these companies, given their prospects, are incredibly low. The degree of fear may exaggerate the danger to them.The Chinese authorities seem to have an issue with companies that choose to list their shares in the U.S. It also seems that companies like DiDi knew what was about to happen. That perturbs me. We aren't shareholders in DiDi; over the years, we haven't trusted them entirely.Why is that?We thought they were unduly aggressive and changed policies and people too often. If we are going to be long-term shareholders, in China or anywhere, we like to have founders with whom we can build a trusting relationship over a number of years.Which investments do you favor most now?I'm sticking with my January picks. Some of the most interesting companies that could dominate in the next 10 years are still private. Among public companies, I'll return to Tencent Holdings, which in some ways is quieter and more tactful than some other Chinese giants, although its stock has been affected by the regulatory controversy. Value in the future will come from the gaming business, which looks even more powerful than before. Tencent has made more than 40 gaming acquisitions this year. The company had a slight clash with the Chinese authorities a few years ago in this area, but there is no evidence of an assault at the moment. If you compare Tencent's valuation to those of the great American tech platforms, the stock has become more attractive, not less. The company continues to invest heavily in its cloud business, another growth opportunity.Your confidence in ASML Holding [ASML] paid off. The stock has returned 36% since the January Roundtable. How much more upside do you see?ASML has become even more important to resolving the global semiconductor shortage. And it has become even more obvious in the past six months that Intel's biggest error was failing to partner with ASML instead of relying on the combination of its own exaggerated sense of expertise and Nikon's inferior technology. ASML has a practical monopoly in semiconductor lithography. It wouldn't surprise us if the stock is calmer for a period, but this remains a fantastically dominant company that people continue to underestimate.Delivery Hero's [DHER.Germany] stock has fallen along with the shares of many companies that were beneficiaries of the Covid lockdown, even though its Asian franchise has been much less affected by the reopening. I feel even better about it now. Delivery Hero made numerous acquisitions in the past few years and the underlying progress of the company is terrific.How about an update on Illumina [ILMN] and Moderna [MRNA]?Illumina's attempt to buy Grail, a leader in cancer blood tests, has run into regulatory problems. It is a great deal, and we hope it is allowed. Illumina, which makes genome-sequencing machines, is at the heart of the future of medicine. By combining artificial intelligence with genomics, it is gaining enormous insights. They are well ahead of where they expected to be 12 months ago. As with the development of the platform tech companies, early leadership in this area may be very important.We haven't had much news since January about where Moderna's mRNA technology is heading. The stock-price appreciation in the past six months seems due to people realizing how much money the company could make from its Covid vaccine. We continue to admire the company culturally, and think they are bringing a software-industry mentality to healthcare. Its willingness to back extraordinary things is a huge contrast to trends in healthcare over the past 30 years.Which private companies look most exciting to you?Grail, of course. We are shareholders in Recursion Pharmaceuticals [RXRX], which came public in April. I'm happy to give it supportive noises, but it is too early to put it on my Roundtable list. Tempus is another company that interests us. It is applying AI to molecular and clinical data. Recursion is using machine learning to identify new drugs.  
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