From Barron’s, March 25, 2024 (Part 2)
Mar 23, 2024 13:21:15 GMT
Capital, oldskeet, and 5 more like this
Post by yogibearbull on Mar 23, 2024 13:21:15 GMT
Pg 10. PREVIEW & REVIEW (consolidated). Bentley isn’t just a car, it’s a personalized adult toy. The entry level cost is $216,000, but some cost $2.2 million due to customizations. Only 13,560 Bentleys were delivered in 2023, while its parent VW delivered 9+ million other cars.
DATA THIS WEEK. New home sales on MONDAY; durable goods report, consumer confidence on TUESDAY; ISM Chicago business barometer, Q4 GDP, UM sentiment on THURSDAY; personal income and consumption expenditures (PCE index +2.5% yoy, core +2.8%), wholesale inventories on FRIDAY.
CLOSED. The US and many global markets on GOOD FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Retailers benefitting from AI (LOW, LULU, NKE, RENT, RL, SHOP, VSCO, WMT; pg 12);
UK miner Anglo American (NGLOY; yield 3,9%, variable at 40% of earnings; fwd P/E 10.9; mines copper, iron ore, platinum group metals, diamonds (De Beers), etc; a fertilizer plant under construction in the UK has caused high debt; owns 80% of ANGPY, 70% of KIROY in South Africa; global operations, some in troubled spots; considering all restructuring options, including sale of the Company; pg 21).
BEARISH. Apple (AAPL; the DOJ case is a huge negative for already troubled AAPL; it may win eventually, but it will be badly bruised; the AAPL ecosystem of hardware, software, services will be under attack; its relationship with GOOGL may be impacted; no new blockbuster products seen in the pipeline; it is just catching up with AI; pg 13);
DWAC / DJT (SPAC merger effective 3/25/24; DWAC fell sharply on the news; operating at loss; competitor is X/Twitter; limited and vague 6-hr exclusivity in postings by Trump; may get tied up in legal suits and claims; 58.2% owned by Trump, but there will be a 6-mo lockup period; pg 55)
Pg 14: In the federal court in MO, there was a landmark settlement (subject to approval by the DOJ and Court) to dump the antiquated real estate commission system of 6-7%. It was a huge blow to Chicago-based National Association of Realtors (NAR; 501c5; 1.5 million dues paying members; it also gets other revenues and contributions) that was also fined. Other issues related to NAR multiple listing services (MLS), rent control, etc. Its advocacy arm RPAC makes targeted contributions for national, state and local politicians; its budget for lobbyists is only behind that by the US Chamber of Commerce. NAR DC building is just blocks away from Capitol Hill.
Pg 19, RETIREMENT/FUNDS. Target-date funds (TDFs) are fine as simple starter and plan default funds for younger people, but the older folks should find something better. A unique feature of TDFs is their glide-path allocations that change from higher to lower equity exposure as the retirement date approaches. 2022 showed the risks of bond heavy portfolios. The TDF allocations vary among the firms, and there are also “through” (most) and “to” (some) TDFs. However, retirees thinking of decumulations should look for customized allocations that may be more suitable. (Part of Cover Story)
Pg 22, FUNDS. Prepare for Fed rate cuts (sometime in 2024) with longer duration bonds such as core BIMSX, AGG, BND, core-plus DODIX, muni VWITX.
Pg 23, INCOME. Be tax-aware by considering asset location (income generating assets in tax-deferred accounts), munis, tax-advantage vehicles, tax-loss harvesting (TLH), fund wrappers (SMA, ETF, OEFs with tax-loss carryforwards).
Pg 24, ECONOMY. With all eyes on Fed rate cuts, let’s not overlook those benefiting from HIGHER RATES – savers, insurers and PENSION funds. The funding levels of large corporate pension plans are now 99.5% (vs 82% in 2014, 100.3% in 2022); for large public pension funds, now 78% (vs 73.1% in 2014). Note that with higher rates, the value of bond portfolios held by pension funds decline, but their bond income goes up, and the actuarial liabilities go down (all explained by duration). Many pension funds also hold equities that have been rallying. There may soon be talk of what to do with corporate pension plan surpluses (the worst may be to cut corporate contributions in good times or deploy excess funds for non-pension purposes). Another issue is that corporate pension funds use corporate bond rates as benchmark rates, while public pension funds use higher rates (justifying those with very long-term perspective).
Pg 25, TECH TRADER. Memory chip (DRAM, HBM, NAND) producer Micron (MU; P/S 5; compare P/S with NVDA 23, AVGO 13, AMD 11) is also benefitting from AI. Memory chip business is highly cyclical that bottomed in 2023, but this upturn may have legs – MU is providing 2-yr outlook, unheard of in the semi-industry. Data centers are using HBM chips (based on DRAM) and solid-state drives (SSDs). AI-PCs will have more memory.
Pg 26, Q&A/Interview/FUNDS. Susanne FRANKS, First Eagle (FESAX / FESCX, FEMAX / FESMX). Time for small-caps (SCs) will come. They trade at low fwd P/E 13 (for R2000, but it has many unprofitable companies), will benefit from lower rates, M&A, etc. The SCs get their financing from regional banks that are struggling now (recent problems of NYCB). Look for cheap SCs with some catalysts – KALU, CAKE, HEES, MTDR, SRCL.
Pg 54, OTHER VOICES. Joseph QUINLAN, ML-BoA. While there is much talk of US-China disengagement, the reality is quite different. Just look at the US-China trade data. The levels of imports and exports are down, but the current levels are still quite significant. Think of it as reduced engagement rather than disengagement. Sure, there is limited and expensive reshoring / near-shoring / friend-shoring, but full disengagement with China isn’t possible any time soon. Alternatives for moves away from China are just evolving and will take time to establish. China itself is pushing its domestic economy and for self-sufficiency, but that is a long road (and China has found new export markets in Europe, Asia, Africa).
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
LINK
DATA THIS WEEK. New home sales on MONDAY; durable goods report, consumer confidence on TUESDAY; ISM Chicago business barometer, Q4 GDP, UM sentiment on THURSDAY; personal income and consumption expenditures (PCE index +2.5% yoy, core +2.8%), wholesale inventories on FRIDAY.
CLOSED. The US and many global markets on GOOD FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Retailers benefitting from AI (LOW, LULU, NKE, RENT, RL, SHOP, VSCO, WMT; pg 12);
UK miner Anglo American (NGLOY; yield 3,9%, variable at 40% of earnings; fwd P/E 10.9; mines copper, iron ore, platinum group metals, diamonds (De Beers), etc; a fertilizer plant under construction in the UK has caused high debt; owns 80% of ANGPY, 70% of KIROY in South Africa; global operations, some in troubled spots; considering all restructuring options, including sale of the Company; pg 21).
BEARISH. Apple (AAPL; the DOJ case is a huge negative for already troubled AAPL; it may win eventually, but it will be badly bruised; the AAPL ecosystem of hardware, software, services will be under attack; its relationship with GOOGL may be impacted; no new blockbuster products seen in the pipeline; it is just catching up with AI; pg 13);
DWAC / DJT (SPAC merger effective 3/25/24; DWAC fell sharply on the news; operating at loss; competitor is X/Twitter; limited and vague 6-hr exclusivity in postings by Trump; may get tied up in legal suits and claims; 58.2% owned by Trump, but there will be a 6-mo lockup period; pg 55)
Pg 14: In the federal court in MO, there was a landmark settlement (subject to approval by the DOJ and Court) to dump the antiquated real estate commission system of 6-7%. It was a huge blow to Chicago-based National Association of Realtors (NAR; 501c5; 1.5 million dues paying members; it also gets other revenues and contributions) that was also fined. Other issues related to NAR multiple listing services (MLS), rent control, etc. Its advocacy arm RPAC makes targeted contributions for national, state and local politicians; its budget for lobbyists is only behind that by the US Chamber of Commerce. NAR DC building is just blocks away from Capitol Hill.
Pg 19, RETIREMENT/FUNDS. Target-date funds (TDFs) are fine as simple starter and plan default funds for younger people, but the older folks should find something better. A unique feature of TDFs is their glide-path allocations that change from higher to lower equity exposure as the retirement date approaches. 2022 showed the risks of bond heavy portfolios. The TDF allocations vary among the firms, and there are also “through” (most) and “to” (some) TDFs. However, retirees thinking of decumulations should look for customized allocations that may be more suitable. (Part of Cover Story)
Pg 22, FUNDS. Prepare for Fed rate cuts (sometime in 2024) with longer duration bonds such as core BIMSX, AGG, BND, core-plus DODIX, muni VWITX.
Pg 23, INCOME. Be tax-aware by considering asset location (income generating assets in tax-deferred accounts), munis, tax-advantage vehicles, tax-loss harvesting (TLH), fund wrappers (SMA, ETF, OEFs with tax-loss carryforwards).
Pg 24, ECONOMY. With all eyes on Fed rate cuts, let’s not overlook those benefiting from HIGHER RATES – savers, insurers and PENSION funds. The funding levels of large corporate pension plans are now 99.5% (vs 82% in 2014, 100.3% in 2022); for large public pension funds, now 78% (vs 73.1% in 2014). Note that with higher rates, the value of bond portfolios held by pension funds decline, but their bond income goes up, and the actuarial liabilities go down (all explained by duration). Many pension funds also hold equities that have been rallying. There may soon be talk of what to do with corporate pension plan surpluses (the worst may be to cut corporate contributions in good times or deploy excess funds for non-pension purposes). Another issue is that corporate pension funds use corporate bond rates as benchmark rates, while public pension funds use higher rates (justifying those with very long-term perspective).
Pg 25, TECH TRADER. Memory chip (DRAM, HBM, NAND) producer Micron (MU; P/S 5; compare P/S with NVDA 23, AVGO 13, AMD 11) is also benefitting from AI. Memory chip business is highly cyclical that bottomed in 2023, but this upturn may have legs – MU is providing 2-yr outlook, unheard of in the semi-industry. Data centers are using HBM chips (based on DRAM) and solid-state drives (SSDs). AI-PCs will have more memory.
Pg 26, Q&A/Interview/FUNDS. Susanne FRANKS, First Eagle (FESAX / FESCX, FEMAX / FESMX). Time for small-caps (SCs) will come. They trade at low fwd P/E 13 (for R2000, but it has many unprofitable companies), will benefit from lower rates, M&A, etc. The SCs get their financing from regional banks that are struggling now (recent problems of NYCB). Look for cheap SCs with some catalysts – KALU, CAKE, HEES, MTDR, SRCL.
Pg 54, OTHER VOICES. Joseph QUINLAN, ML-BoA. While there is much talk of US-China disengagement, the reality is quite different. Just look at the US-China trade data. The levels of imports and exports are down, but the current levels are still quite significant. Think of it as reduced engagement rather than disengagement. Sure, there is limited and expensive reshoring / near-shoring / friend-shoring, but full disengagement with China isn’t possible any time soon. Alternatives for moves away from China are just evolving and will take time to establish. China itself is pushing its domestic economy and for self-sufficiency, but that is a long road (and China has found new export markets in Europe, Asia, Africa).
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
LINK