From Barron’s, April 1, 2024 (Part 2)
Mar 30, 2024 13:39:05 GMT
Capital, oldskeet, and 3 more like this
Post by yogibearbull on Mar 30, 2024 13:39:05 GMT
Pg 11. PREVIEW & REVIEW (consolidated). Several days ahead of 4/2/24 (get 4224?) trading of GE Power Verova/GEV, the when-issued GEV.wi started trading. GE holders will get 1 GEV for 4 GE. So, finally, CULP’s 3-part spinoff of old GE will be complete: Aerospace GE + Healthcare GEHC + Power/Vernova GEV.
DATA THIS WEEK. ISM manufacturing PMI, ISM services PMI, construction spending on MONDAY; JOLTS report, factory orders on TUESDAY; international trade deficit on THURSDAY; consumer credit, jobs report (+180,000), unemployment rate (3.8-3.9%) on 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. CME (a beneficiary of higher rates, it would be hurt by rate cuts and the resulting decline in rate futures trading volumes; its other futures products won’t be able to absorb the rate shock; after M&A, dominant exchanges now are CME and ICE, but CME is less diversified; it has been customer-unfriendly in the areas of its dominance, so customers have cheered upstarts such as FMX/BGC; CME also doesn’t account for cross-margining; note that futures can trade only on one exchange; pg 12)
Hershey (HSY; yield 2.8%; fwd P/E 20.2; buybacks; soaring cocoa prices have hurt sales and profits; bad weather, wildfires, crop diseases have reduced cocoa supplies; stock is now attractive; pg 13);
Convenience stores (SVNDT (Japan; 7-11, Speedway), CASY, MUSA, ANCTF (Canada; Circle K), Buc-ee’s, Kwik Trip, Mavrik, Sheetz, Wawa, etc; 2/3rd of 150,000 convenience stores are still mom-and-pop (chains with less than 10 stores), so there are opportunities for consolidation; they offer decent food at reasonable costs (high costs of fast-food alternatives is also helping), Gulp-size drinks, long hours (many 24/7), clean restrooms, some even have own brands, along with gasoline/diesel and/or EV charging (snack while EV charging); several are located in busy areas or large super stores; no worries about e-commerce, so AMZN-proof; pg 14).
Nuclear energy (CEG (2022 spinoff from EXC), PEG, TLNE (direct supply deal with AMZN), VST; nuclear accounts for 18% of the US electricity generation; it’s reliable and continuous 24/7 energy; high energy demands from AI, data centers and EVs can be met cleanly by nuclear energy, so these stocks are doing well; independent nuclear plant operators benefit more from fluctuating market demand, but not those owned by utilities; the Inflation Reduction Act has also provided tax credits; it has been a tough business due to some high profile accidents and only 2 nuclear plants have come on line in the US since 2000 (but it’s different elsewhere); there is also coming competition from small modular nuclear reactors under contract/construction; pg 22);
Unilever/UL (the biggest ice cream maker and seller in the world cannot make Ben & Jarry’s profitable enough; B&J has an independent board, is active on political and social issues, and has even sued UL in the past over corporate disagreements; a difficult 24-year marriage (2000- ); spinoff or sale likely; for ice cream lovers, don’t bring up obesity, climate change, inflation, etc.; EXTRA).
BEARISH.
Pg 20, Q&A/Interview. Cliff ASNESS, AQR Capital (a quant firm). Firm AUM is $103 billion vs $226 billion peak in 2018. Value and diversification will comeback one day. Value ex-US did fine, and so did many other quant strategies ex-US. He studied under Eugene FAMA (Nobel, 1998), so has personal tilt to relative value, but the firm runs many strategies. He uses relative valuations within the sectors but is otherwise sector neutral. 2020-22 were tough years for relative value, and 2020 was even worse than the dot. com bubble era of 2000. Ironically, the pandemic fixed valuations to some extent. Since 1900s, 80% of the US outperformance has been from P/E expansion, but that may not be forever or even repeatable. There are comparable non-US companies with better valuations; and bear markets haven’t been repealed. Diversification with stocks-bonds-alternatives is a prudent strategy, not a chart-beating strategy. Global stock-bond 60-40 returned real +4.5% (meaning after inflation) for 120 years from 1900-2020, but going forward, that may be only real +2.9% over the next 5-10 years (implication is that bonds may lag). Strangely, companies investing in private equity/companies offer good competition for the public alternatives. But a problem with private- equity or credit is that they don’t mark-to-market (MTM) and use concentrated and leveraged strategies (just as public hedge funds), so they appear to have less risks in the near-term but that is ridiculous. Citing long lockout periods for this practice is no excuse. He is active on X/Twitter and in trying to be helpful, he often ends up in nasty arguments – he is polite but can be rude-back.
Pg 23, INCOME. SHAREHOLDER YIELD (%dividend + %buybacks) are rising with debt financing; the debt/EBITDA is rising. In theory, companies have sufficient free cash flow to support these, but they like to borrow instead. Techs are leading in shareholder yield too.
EXTRA. Treasury auctions have been received well despite larger Treasury issuances. Demand for longer maturities has been strong. The belly of the yield-curve (2-10 years) is attractive as the rates will be coming down later in 2024.
EXTRA. DIVIDEND stocks rallied in March as 10-yr yield remained stable (watch the YTD high of 4.352%), and the forecast is for Fed rate cuts. Mentioned are SDY, NOBL (but this is a crowded area with many ETFs such as VIG, VYM, SCHD, etc).
Pg 24, FUNDS. Managers of international MIEJX / MIEKX like Japan; companies in Japan are now more investor-friendly. Managers also have a disciplined sell strategy, but they can hold out of favor stocks with attractive long-term prospects. (By @lewisbraham at MFO)
Pg 25, ECONOMY. What if it’s one-and-done for the FED in 2024? There are many crosscurrents. INFLATION has been moderating but is still high; the PCE was +2.5% yoy, core +2.8%. But short-term inflation is ticking up lately, so this may be as good as it gets for a while. The stock and bond market RALLY has added double-digit trillion to wealth that is supporting consumer spending. Speculative assets are also flying. The Treasury has been issuing more T-Bills than T-Notes/Bonds to counter Fed’s QT. POWELL has said that the Fed is watching the labor market, but it isn’t showing any signs weakness. So, the arguments may continue for 0 or 3 cuts, but don’t be surprised if it’s just 1 cut in Summer.
Pg 26, TECH TRADER. Mary MEEKER, Bond Capital, and once the Queen of the Net/Dot. com, is now into AI (related technologies and applications), cryptos, blockchains. The IPO market is coming back despite the past excesses with SPACs. Startups keep the free markets interesting by challenging and often succeeding vs the incumbents. The difference now is that AI is capex intensive, so not everyone can jump in, and big techs are making deals with small techs. Global acceptance of cryptos is rising (about 7% now), but will the US sit this out? She remains bullish on the US despite many issues – geopolitical, political, social, debt, etc. But foreigners still want to come to the US.
Pg 54, THE BACK STORY (Kenneth PRINGLE). The US military resources are so stretched with the Ukraine aid that another war may be a huge surprise. So, many geopolitical threats should be taken seriously and be concerning – the nuclear threats by Russia, the escalation of Israel-Hamas into a wider Middle East war, the Chinese threats against Taiwan (and others), the N Korean threats against S Korea. Deterrence doesn’t work if the US is seen unable or unwilling to respond. Would the Herculean war efforts during WWII be even possible now (industry nationalizations, high taxes, war bonds)? Those weren’t repeated for Vietnam or anything else.
Pg 55, RETIREMENT. Advisors say (and per IRS Rep’s conversations with Barron’s) that one doesn’t have to check the digital-assets/crypto box on 1040 if one has only crypto ETFs – the futures-based or the new spot-Bitcoin (really an issue for 2024 filings). Just complete Schedule D and Form 8949 as for other Capital Gains & Losses. But there may be more complications if one holds cryptos directly as most brokers don’t report them on 1099.
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. ISM manufacturing PMI, ISM services PMI, construction spending on MONDAY; JOLTS report, factory orders on TUESDAY; international trade deficit on THURSDAY; consumer credit, jobs report (+180,000), unemployment rate (3.8-3.9%) on 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. CME (a beneficiary of higher rates, it would be hurt by rate cuts and the resulting decline in rate futures trading volumes; its other futures products won’t be able to absorb the rate shock; after M&A, dominant exchanges now are CME and ICE, but CME is less diversified; it has been customer-unfriendly in the areas of its dominance, so customers have cheered upstarts such as FMX/BGC; CME also doesn’t account for cross-margining; note that futures can trade only on one exchange; pg 12)
Hershey (HSY; yield 2.8%; fwd P/E 20.2; buybacks; soaring cocoa prices have hurt sales and profits; bad weather, wildfires, crop diseases have reduced cocoa supplies; stock is now attractive; pg 13);
Convenience stores (SVNDT (Japan; 7-11, Speedway), CASY, MUSA, ANCTF (Canada; Circle K), Buc-ee’s, Kwik Trip, Mavrik, Sheetz, Wawa, etc; 2/3rd of 150,000 convenience stores are still mom-and-pop (chains with less than 10 stores), so there are opportunities for consolidation; they offer decent food at reasonable costs (high costs of fast-food alternatives is also helping), Gulp-size drinks, long hours (many 24/7), clean restrooms, some even have own brands, along with gasoline/diesel and/or EV charging (snack while EV charging); several are located in busy areas or large super stores; no worries about e-commerce, so AMZN-proof; pg 14).
Nuclear energy (CEG (2022 spinoff from EXC), PEG, TLNE (direct supply deal with AMZN), VST; nuclear accounts for 18% of the US electricity generation; it’s reliable and continuous 24/7 energy; high energy demands from AI, data centers and EVs can be met cleanly by nuclear energy, so these stocks are doing well; independent nuclear plant operators benefit more from fluctuating market demand, but not those owned by utilities; the Inflation Reduction Act has also provided tax credits; it has been a tough business due to some high profile accidents and only 2 nuclear plants have come on line in the US since 2000 (but it’s different elsewhere); there is also coming competition from small modular nuclear reactors under contract/construction; pg 22);
Unilever/UL (the biggest ice cream maker and seller in the world cannot make Ben & Jarry’s profitable enough; B&J has an independent board, is active on political and social issues, and has even sued UL in the past over corporate disagreements; a difficult 24-year marriage (2000- ); spinoff or sale likely; for ice cream lovers, don’t bring up obesity, climate change, inflation, etc.; EXTRA).
BEARISH.
Pg 20, Q&A/Interview. Cliff ASNESS, AQR Capital (a quant firm). Firm AUM is $103 billion vs $226 billion peak in 2018. Value and diversification will comeback one day. Value ex-US did fine, and so did many other quant strategies ex-US. He studied under Eugene FAMA (Nobel, 1998), so has personal tilt to relative value, but the firm runs many strategies. He uses relative valuations within the sectors but is otherwise sector neutral. 2020-22 were tough years for relative value, and 2020 was even worse than the dot. com bubble era of 2000. Ironically, the pandemic fixed valuations to some extent. Since 1900s, 80% of the US outperformance has been from P/E expansion, but that may not be forever or even repeatable. There are comparable non-US companies with better valuations; and bear markets haven’t been repealed. Diversification with stocks-bonds-alternatives is a prudent strategy, not a chart-beating strategy. Global stock-bond 60-40 returned real +4.5% (meaning after inflation) for 120 years from 1900-2020, but going forward, that may be only real +2.9% over the next 5-10 years (implication is that bonds may lag). Strangely, companies investing in private equity/companies offer good competition for the public alternatives. But a problem with private- equity or credit is that they don’t mark-to-market (MTM) and use concentrated and leveraged strategies (just as public hedge funds), so they appear to have less risks in the near-term but that is ridiculous. Citing long lockout periods for this practice is no excuse. He is active on X/Twitter and in trying to be helpful, he often ends up in nasty arguments – he is polite but can be rude-back.
Pg 23, INCOME. SHAREHOLDER YIELD (%dividend + %buybacks) are rising with debt financing; the debt/EBITDA is rising. In theory, companies have sufficient free cash flow to support these, but they like to borrow instead. Techs are leading in shareholder yield too.
EXTRA. Treasury auctions have been received well despite larger Treasury issuances. Demand for longer maturities has been strong. The belly of the yield-curve (2-10 years) is attractive as the rates will be coming down later in 2024.
EXTRA. DIVIDEND stocks rallied in March as 10-yr yield remained stable (watch the YTD high of 4.352%), and the forecast is for Fed rate cuts. Mentioned are SDY, NOBL (but this is a crowded area with many ETFs such as VIG, VYM, SCHD, etc).
Pg 24, FUNDS. Managers of international MIEJX / MIEKX like Japan; companies in Japan are now more investor-friendly. Managers also have a disciplined sell strategy, but they can hold out of favor stocks with attractive long-term prospects. (By @lewisbraham at MFO)
Pg 25, ECONOMY. What if it’s one-and-done for the FED in 2024? There are many crosscurrents. INFLATION has been moderating but is still high; the PCE was +2.5% yoy, core +2.8%. But short-term inflation is ticking up lately, so this may be as good as it gets for a while. The stock and bond market RALLY has added double-digit trillion to wealth that is supporting consumer spending. Speculative assets are also flying. The Treasury has been issuing more T-Bills than T-Notes/Bonds to counter Fed’s QT. POWELL has said that the Fed is watching the labor market, but it isn’t showing any signs weakness. So, the arguments may continue for 0 or 3 cuts, but don’t be surprised if it’s just 1 cut in Summer.
Pg 26, TECH TRADER. Mary MEEKER, Bond Capital, and once the Queen of the Net/Dot. com, is now into AI (related technologies and applications), cryptos, blockchains. The IPO market is coming back despite the past excesses with SPACs. Startups keep the free markets interesting by challenging and often succeeding vs the incumbents. The difference now is that AI is capex intensive, so not everyone can jump in, and big techs are making deals with small techs. Global acceptance of cryptos is rising (about 7% now), but will the US sit this out? She remains bullish on the US despite many issues – geopolitical, political, social, debt, etc. But foreigners still want to come to the US.
Pg 54, THE BACK STORY (Kenneth PRINGLE). The US military resources are so stretched with the Ukraine aid that another war may be a huge surprise. So, many geopolitical threats should be taken seriously and be concerning – the nuclear threats by Russia, the escalation of Israel-Hamas into a wider Middle East war, the Chinese threats against Taiwan (and others), the N Korean threats against S Korea. Deterrence doesn’t work if the US is seen unable or unwilling to respond. Would the Herculean war efforts during WWII be even possible now (industry nationalizations, high taxes, war bonds)? Those weren’t repeated for Vietnam or anything else.
Pg 55, RETIREMENT. Advisors say (and per IRS Rep’s conversations with Barron’s) that one doesn’t have to check the digital-assets/crypto box on 1040 if one has only crypto ETFs – the futures-based or the new spot-Bitcoin (really an issue for 2024 filings). Just complete Schedule D and Form 8949 as for other Capital Gains & Losses. But there may be more complications if one holds cryptos directly as most brokers don’t report them on 1099.
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