well, that's it for us this week. i'll be back this week right here on "the wall street journal at large." thank you very much for joining us. ♪ ♪ ♪ ♪ jack: welcome to bare ron's roundtable where we get behind the headlines and prepare you for the week ahead. i'm jack otter. warren buffett's berkshire hathaway prepares itses annual letter to shareholders. we'll take a look at the company's investment strategies. but we begin, as always, with what we think are the three most important things investors ought to be thinking about right now. earnings season is wrapping up, and in the fourth quarter, profits rose. is there room for more market

gains? energy prices were on the move this week, and stocks in the sector are poised for gains as extreme winter weather wreaks havoc across much of the country. and nasa's perseverance rover touched down on mars as investors are increasingly looking towards space. al root, carlton english and jack howe on the roundtable. bitcoin sucked up all the oxygen in the buzz headlines, but you're looking below the surface at earn, and there was some big news there as well, jack. >> welcome to earnings valhalla. one quick peek at bitcoin, right? over $55,000 and over a trillion dollars in market value. if it were a u.s. company right now, it'd be larger than tesla, facebook, but i'm not going to say any more about bitcoin. i want to focus on earnings, jack. the fourth quarter numbers are now more than 80% of the way in, and as you say, we went into earnings season thinking we were

going to get an 11% deklein, it looks like we might get a 2% increase. it's one of the biggest upside surprises in more than two decades. i spoke this past week with the u.s. stock chief over at goldman sachs. he's raised his earnings estimate for this year, 2021. he now thinks we're going to see 27% earnings growth from last year's depressed level, and that would put us 10% above the record earnings back in 209. his target for the s&p 500 is 4300. that gives you about 9 or 10% more upside for stocks from here, probably puts your full-year return around 14%. i asked him if he's worried about bubble talk or high valuations, he said he thinks the rates are going to remain low for years longer, and he thinks there'll be a big acceleration in the second quarter based on vaccines and fiscal stimulus, says there's a lot of money to come into the

market from money market balances, corporate stock buy babs and from foreigners buying u.s. stocks. if you're looking for a couple ideas, his analysts ran a screen for companies whose sale tends to rise a lot when consumer spending bounces back, they highlightedded toll brothers, charles schwab, 3m and facebook. jack: real quick, jack, as we go into the first quarter and rook for those earning, in the meantime, what will investors be focused on? >> bitcoin, bitcoin and bitcoin. [laughter] they're focused on earnings, i do think, you know, you've got to look at, as david said, a stimulus deal, a lot of that funny money would flow directly into spending. some of that stimulus money might flow directly into the stock market too. and i think you rook at the vaccine, all of the headlines i'm seeing lately have been positive suggesting that we're

going to, you know, get out of this thing at least as quickly as we thought and maybe a little bit quicker. i think a lot of people could be looking at making up for lost time with their summer vacations. jack: yes. we all had been doing that. unfortunately, carlton, it's pretty serious in in texas as natural gas pipelines froze, we heard horrible stories. the broader picture for the energy market has been demand if increasing as the economy reopens, and that's been pushing prices higher as well. >> definitely. so we have oil topping $60 a barrel, we had a huge spike in natural gas prices for the reasons you mentioned. but there are reason to believe that the underlying case for energy is good. even ahead of the storm the etf was gaining, and it's up 22% this year. some analysts at ever corps said we're seeing rational exuberance in energy right now. demand is coming back, cars are going to be on the road more. my buick, that i just got, will

finally get a workout again. we're going to see energy inventories declining. so that's going to bode well for energy companies. you also have this renewed focus in the sector too. you mentioned at the top with warren buffettfying chef -- buying chevron, but it's also about better capital discipline and being, you know, a better run, leaner company too. jack: you mentioned exuberance. al, you've been looking at some exuberance in space. obviously, right now the nasa rover is in the news, but meanwhile, investors have really been starting to see opportunity up there. >> yeah. i mean, it's true, space is going to be a thing, and it really is a function of it's getting so much cheaper to put stuff into space. launch costs have gone from hundreds of millions of dollars to tens of millions of dollars. jack: what exactly are people putting up in space? >> you've got space tourism,

you've got people that will launch stuff, people that will put up new services, stuff that has never been sold before and even companies now that want to service those companies that put stuff up into space. jack: so, obviously, virgin galactic would be the tour i feel company -- tourism company. what are some of the other stocks space investors might want to look at? >> velocity, that company is going to merge with as trade, like a mini spacex. stable road acquisition is americaning with a company called mow men discuss. that company wants to be the fedex of space. and then another spac, osprey technology, it's buying something called back sky. a little obviously now, but they're going to -- ominous, but they're going to image the earth on a realtime basis and sell that information to insurance companies, farmers, anybody who wants to buy it. jack: coming up, the dow hit new highs last week as covid cases declined. bank of america's jewell carr --

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♪ ♪ jack: the market seems impervious to bad news, but bank of america suggests investors ought to temper expectation. the bank's head of small caps strategy, jill carrie hall. ing thanks for joining us, appreciate it. >> thanks for having me. jack: investors seem bullish of late, but bank bank of america's target is about 110 points below where it closed on friday for the s&p. why the lack of enthusiasm? >> for the overall market, we're not looking for a banner year. we have a neutrallish outlook on the market, a little below current levels, as you pointed

out. we think this year's going to be more about investing in some of though those locations within the market rather than just buying the large cap u.s. equities in this index. we've been seeing some signs of what we would consider dangerous optimism in the markets that, you know, parallels to 2000. so the bullish equity sentiment that you mentioned we're seeing that at levels that are getting close to a sell signal by some of the frameworks that we look at. we're seeing this earnings season which was very good for u.s. corporate, companies that bet expectations didn't outperform the market right after beating those numbers which the last time we saw a lack of reaction was back in march of 2000 time frame. so, you know, a lot of these are ready, but we think there are certain pockets of the market that still look very attractive. jack: i want to ask you about that, but real quick, the markets had an incredible decade. i think it averaged about 14% a

year over the past ten years. usually when that happens, the next ten years not so great. is that your view? >> i think from a total return perspective when you look out over ten years, we found that where valuations are looking at simply a price to earnings or price to normalized earn multiple today, that'll tell you a lot about what happens to the market over the next year or two, but they do tell you a lot about what can happen over the next ten years. what they're telling us today is we are likely to still see positive returns over the next ten years but sub-average. so, you know, low single-digit returns for equities over the next decade. ing. jack: and within the market back in september, you suggested that small caps were the place to be. you still feel bullish about that space? you were certainly right recently. >> yes. even the small caps, you know, we saw the best quarter in history for small caps back at the end of last year. we still think it makes sense to

overweight small caps this year where even though the overall market, we don't see a lot of upside, we do see more cyclically-oriented areas are priced to do well. our economists are now forecasting a 6% u.s. gdp growth year in the u.s. with a potential upside to that, so that's the strongest gdp growth we have seen since the 1980s. and when you look at the composition of the u.s. economy relative to the u.s. stock market, there are a lot of differences between the two in terms of, you know, versus services skew and a lot of other differences. but small cap stocks are a lot more similar to the u.s. economy than large caps are. so, you know, if we are in a recovery in the u.s., i think that's an area where you still want to tilt. and even though a lot of the equity market has grown rather extended on valuations, if you look at small caps relative to

larger stocks, they're still trading at a discount to larger stocks when typically historically you've seen them trade at a premium. jack: so one fascinating data point that bank of america has come out with is this idea that interest rates hit 3,000-year lows recently. it seems like they're only going to go up from here, and that would make sense if the economy does continue to improve if we have 6% gdp growth, as you said. what does that mean for stocks, and do you see inflation on the horizon? >> yeah, i mean, i think it's something that we're definitely watching. our strategists are forecasting that the 10-year treasury yield could go to 1.75% by the end of this year. in the past we've seen -- we've been in an environment where equities have certainly looked very attractive relative to fixed income to which we continue to believe it's the case right now. but, obviously, the more rates rise, the more there is that trade-off there, right now even more than half of the stocks

offering dividend yields above the 10-year treasury yield, but the further that rises, the less that becomes the case and kind of calls into question that, you know, there is no alternative the argument. and with inflation we do the think there's potential for a pick-up there as well. you know, we were in a very low inflation environment for a long time, but now you're starting to see some drivers there. certainly, commodity prices are one aspect of inflation. we could also see wage inflation as we see potential for higher minimum wages and wages across the board. so impacting different areas of the market certainly from a cost perspective, that could impact some of the more labor-intensive sectorrings. but a backdrop of overall inflation in the context of economic growth, obviously, there's implications as well. jack: jill carey hall, thank you so much for coming on. >> thank you. jack: coming up, warren buffett

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start paying a dividend. 2% would be a good start, and it's something the company could easily afford. the company's sitting on about $150 billion in cash right now, has about $25 billion of earnings power, and buffett has not had a lot to do with berkshire's earnings in the last couple of years in terms of buying businesses, and a dividend would be bullish for the stock, i believe, because it would open up the stock to a whole new group of income-oriented investing. jack: he hasn't done it, do you think he's leaving this as a gift for his successors? they can bestow this upon shareholders? >> that could be. he's resisted it. he thinks investors should sell off a portion every year rather than have berkshire pay a dividend, but i think the time may now be coming. there's too much cash on the balance sheet, and he's really had a hard time putting cash to work in acquisitions in the stock market over the last couple of years. jack: berkshire has

underperformed in recent years, but it's also kind of typical. when the market soars, he doesn't do as well, especially when tech stocks are in ascendance. is it possible as we see the market reopening, possible rotation to value, maybe berke shirk will to a little better? >> berkshire's a great reopening play. it owns a slew of economically-sensitive businesses including the burlington northern railroad, a major manufacturer of housing. so there's a good chance that berkshire's earnings will be up very sharply this year. >> what happens on monday if warren buffett says i'm stepping away from the company, i'm becoming a professional bridge player, i'm going to get caught up on my netflix, whatever it is. what happens to the stock price after buffett leaves? >> buffett turned 90 in august, and the day he leaves is probably approaching the next couple years. the there's a debate about what happens. some think the stocks could fall because he's been so closely

weighted with it, but he thinks the stock would be up on the day after his death because investors would anticipate a breakup of the company with the view that the sum of the parts is more than the stock price. i tend to agree with buffett that the stock could be up when he steps aside. jack: al, you got a question for andrew? >> yeah. i was fascinated about some of the stories about warren's mystery investments. i was hoping for some industrials or car companies. it turned out to be verizon and chevron. you know, andrew, was it brilliant or boring? what do you think? >> i mean, buffett has a value orientation, so it shouldn't have been surprising that he picked chevron which is one of the leading international oil companies in the world. it's got the best balance sheet, a pretty secure 5% dividend yield, and verizon lagged the market on the last couple of years, leader in the u.s. wireless market, has a low valuation with a 10 pe and

nearly a 5% dave. tend yield. those are the kinds of stocks that buffett likes now. ing. jack: carlton? >> yeah, andrew, i'm just kind of your yous, aside from what the stock will do, how will the investment strategy change when buffett steps aside? the what might his successors sell? would there the be a change in strategy at berkshire? >> i think at the margin there will be. the two people who will likely manage the big equity portfolio which is that $270 billion are todd cones and ted wexler who now manage each about 10% of the portfolio, which and they have a little more of a new economy focus. berkshire owns amazon.com, snowflake, charter, communications and visa. and those positions are likely held by copes and wexler. so i think they'll be at the margins, but i wouldn't expect wholesale changes when buffett steps aside. jack: are you bullish on berkshire in the coming years? >> the stock is pretty

attractive, less than 1.3 times book value, earnings could be up sharply, the valuation's reasonable, the earnings look like their poised to accelerate, and the company looks very well positioned right now. jack: andrew berry, thank you so much. really appreciate it. >> glad to be here. jack: up next, round table members give their investment ideas for the coming week. stay right there. retirement income is complicated. as your broker, i've solved it. that's great, carl. but we need something better. that's easily adjustable has no penalties or advisory fee. and we can monitor to see that we're on track. like schwab intelligent income. schwab! introducing schwab intelligent income. a simple, modern way to pay yourself from your portfolio. oh, that's cool... i mean, we don't have that. schwab. a modern approach to wealth management. it's not “pretty good or nothing.” it's not “acceptable or nothing.” and it's definitely not “close enough or nothing.”

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♪ ♪ jack: jack, in the kerfuffle over gamestop and robinhood, we heard a lot about payment order flow. can you explain what that is in 60 seconds? >> 60 seconds, okay. on the clock. basically, when you trade a stock, there's a higher price to buy it than you would get if you sold it. the difference is called the

spread. and that represents a market maker somewhere sticking it to you in exchange for handling the trades. now, you've got folks called high-speed trade thers, today say if i could get my hands on some of those small orders, i could stick it to the market maker by shaving some off of that spread, giving some to the customer, keeping some to myself. and the broker says that sounds like a good deal. we'll send you some of those small orders, but while you're sticking it to the market maker, we're going to stick it to you with payment for order flow just so long as the customer's not any worse off. the volume becomes so lucrative that the brokers compete with each other and reduce commissions to zero. now they're sticking it to each other. and then they gamefy trading to get more volume which means they're sticking it back to us by making us buy and sell more. and eventually, jack, capitalism are reaches its highest and most beautiful expression, when everyone's so busy sticking it

to each other that not even congress can figure out who's getting stuck the most. jack: that was 66 seconds, but i'm going to give you credit for it, well done. i think the bottom line is trade thing has gotten a lot cheaper. not necessarily a good thing though, you're better off being an investor than a speculator. let's go to some investment ideas, not speculation. carlton, i will start with you. >> i'm looking at leisure, so invesco has a leisure and entertainment etf, it's a reopening play. you will also get exposure to disney so you have some of that streaming exposure. but you get exposure to some hotels and restaurants. jack: finally people will actually go back to those places. i look forward to that. al, what do you have for us? >> i like oracle. it's barron's cover story this week. eric simons wrote it. the thing i found most compelling from the story, he says oracle is in the spot microsoft was in ten years ago. jack: that's interesting, and it

does not need tiktok to succeed. carlton, al, jack, thank you. to read more, check out this week's edition at barron's.com. don't forget to follow us on twitter @barronsonline. stay safe, stay warm, wear your mask, and we areollege this is about selling up the border for future power we talked about this once before and i don't say that lightly there is no other reason you would turn your back on american citizens like you're doing. elizabeth: thank you very much, we appreciate it, come back soon ♪. larry: hello everyone welcome back to cut low i am larry kudlow, there may have been a big change in president biden's push for proposed minimum wage hike, that the minimum wage hike that would do damage to the economy and according to the congressional budget cost the country 1.4 million jobs so it's not good. far left democrats with the progressive wing, bernie sanders, ms. alexandria because of cortez have lobbied the president and proposed 2 trillion-dollar coronavirus relief bill but it has to