From Barron’s, April 15, 2024 (Part 2)
Apr 13, 2024 14:00:38 GMT
chang, Chahta, and 5 more like this
Post by yogibearbull on Apr 13, 2024 14:00:38 GMT
Pg 10. PREVIEW & REVIEW (consolidated). TAX FILING DAY is Monday, 4/15/24. About 12% file for extensions, but approximate tax due must still be paid by 4/15/24 to avoid penalties (5% plus 0.5% for underpayment) and interest due (8%); exceptions are for disaster areas announced by the IRS, and for those, filing for extensions may not be required. (IRS Direct Pay can also be used for payments and extensions).
DATA THIS WEEK. Retail sales, business inventories on MONDAY; housing starts, capacity utilization, industrial production on TUESDAY; existing home sales, LEI on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Bearings company Timken (TKR; yield 1.5%; fwd P/E 14.1; debt/EBITDA 2.1; buybacks; supplies to auto, conveyor belt, industrial machinery industries; cyclical business (so, high P/E at depressed earnings troughs, but low P/E at peak earnings); 40% of sales recurring; 12% of sales from China; organic growth and also by M&A; new CEO Tarak Mehta, 09/2024- (from ABBNY); pg 21).
BEARISH.
Pg 11: At the Q1 Earnings Season kickoff, big BANKS didn’t impress. JPM, C, WFC fell on profit-taking. Jamie DIMON (JPM) also had worries about global problems and the possibility of rate-storms (high and unusual rate volatilities).
Pg 12: BIRD FLU/H5N1 (Avian flu) has hit COW herds in several farms in multiple states. Sickened cows produce less milk, or off-color and thick milk (they soon become dry-cows). The recovery time is about 10 days. H5N1 spreads from birds to poultry to mammals, and contaminated milking equipment may also be a factor. There is no approved testing regime (or regulation for testing) for cow herds, and mass testing isn’t feasible now. Many farms also hide these problems, but the word gets out. The danger is that H5N1 may pass to humans through milk, cheese and meat. But pasteurization should kill it in milk and cheese, and cooking should kill it in meats.
Pg 14: BITCOIN was left for dead during the crypto Winter and Ice Age (all within a short span from late-2021 to late-2022), but Wall Street has revived it as a money-making machine. First came the SEC approval of several Bitcoin ETFs (BlackRock IBIT, Fidelity FBTC, etc; these can be held in regular brokerage accounts and that creates an impression of their legitimacy), now comes their acceptance by institutional investment committees and advisors (well, they can also charge advisory fees on crypto holdings) for 1-5% allocations, and then the investor FOMO. The upside may be meaningful (Bitcoin +140% over 12-mo), but downside may have limited impact on the portfolio. Cryptos are crazy-VOLATILE. Debates about crypto’s value or usefulness may be endless and futile (not real asset, nor currency, nor security; forget about cash flows). Bitcoin market-value is $1.3 trillion (more when other cryptos are included); (new) spot-Bitcoin ETF AUM is already $55 billion in a few weeks (including the hemorrhaging but still #1 Grayscale GBTC that up-converted from a special trust to ETF). Bitcoin’s 4-year HALVING event in April will make them scarcer when the demand from ETFs, etc is exploding –price projections range from achievable $90,000 by 2024 yearend to wild $1 million by 2030 (Cathie WOOD who has her own ARKB; also see Q&A). Fidelity is now all-in with spot-Bitcoin ETF, custody, brokerage, 401k; US Coinbase/COIN has been a survivor despite difficulties with the US regulator(s); the new spot-Bitcoin ETF lineup includes the Who’s Who of the investment world. There are REGULATORY concerns about high risks to investors/consumers, market manipulation, and various abuses. But the crypto industry wants Congress to pass new legislation(s) as it opposes SEC’s de facto regulation-by-enforcement citing very old laws (from 1930s, 1940s). There are also skeptics such as Jamie Dimon of JPM (but he is OK with JPM custody of Bitcoin), Goldman Sachs, Vanguard, (Warren Buffett), etc.
Pg 16. Indian HOUSING market is booming with average prices of $95/sq ft in Mumbai (business center; Bollywood), $74/sq ft in Bengaluru (India’s “Silicon Valley”), $68/sq ft in Hyderabad (growing tech-city), and $58/sq ft in Delhi (so, the capital city isn’t the most expensive). Property stocks are doing well with the S&P BSE Realty Index +125% in 12-mo. New real estate regulations (2016 RERA, etc), tax laws and limits on currency circulation are providing a boost to real estate. Spec-building is still common (i.e. advance purchases of unbuilt apartments/ condos). Indian economy is strong (#1 growth in Asia) and is benefitting from the move away from China. Foreign fund inflows (business and private) are strong. With an average income of $2,100/yr, and growing number of billionaires, the inequality has gotten worse. Unemployment among college graduates is high. (see related pg 22 story on India-funds)
Pg 22, FUNDS. INDIAN stocks are hot (INDA +40% over 12-mo). The overall economic, political, and demographic story is good, but the Indian market is expensive (& has been so for quite a while). India-focused funds include EPI, ETGIX, FLIN, INDA, INDIX, MINDX, PIN, SMIN, WAINX; the EM funds with India exposure include CEMDX, GQGPX, VWO.
Pg 23, INCOME. After spinoff of its healthcare business as SOLV, 3M/MMM may lose its Aristocrat status (rules will apply to post-spinoff combo). SOLV has a high debt/EBITDA ratio and may not pay dividends for a while. MMM faces product liability lawsuits. Analysts doubt that MMM can boost the current dividend of 6.5% with a payout ratio of 75%. But dividend cuts have benefitted companies such as AT&T/T.
Pg 24, ECONOMY. Much talked about soft landing is quite rare, only in 1967, 1985, 1987, and among those, the environment today is most like 1967 when a period of high inflation followed. After a hot CPI report, the expectations are now for fewer Fed rate cuts (< 3). The fed fund rate of 5.25-5.50% isn’t restrictive as it is below the nominal GDP growth of +5.9% (reported is the real GDP growth). In the JPM annual report, Jamie Dimon noted that indicators today look good superficially, but there are various pressures around – inflation, geopolitical, global trade, reshoring, energy transition, etc. He said that future rates may be very volatile between 2-8% (more like a rate storm) and he has prepared JPM for that (forget about the happy talk of Fed targeting +2% average inflation). Gold rally despite higher dollar and rates is also pointing to such uncertainties.
Pg 25, TECH TRADER. In Q1 tech earnings, look beyond direct AI and infrastructure stories. AI is very capex intensive. But heavy applications of AI are in software, and some related companies have already run up. Mentioned are NFLX, MSFT, AAPL, META, GOOGL, AMZN, DELL, HPE, ANET.
Pg 26, Q&A/Interview. Cathie WOOD, ARK Invest (2014- ). She likes TSLA, disruptive tech (ARK ETF ARKK), COIN, Bitcoin (ARK ETF ARKB); she is skeptical of pricey NVDA (sold recently) with growing global competition. AI is a great story, but it hasn’t contributed to company financials. Generative ChatGPT became very popular in a very short time, but its monthly users peaked at 200 million, and that has declined a bit. Free AI has no commercial future except as giveaways within the software bundles by giant corporations. Customized and applications AI will have a better future and she mentioned PATH, PLTR, PD, SQ, RBLX. AI will change the nature of jobs, but jobs will grow overall – that has been the historical experience with industrialization, computers, automation, robotics. The recent US jobs report was strong, but much of that was from part-time jobs. In general, new technologies are deflationary. Some regulation of AI is desirable but watch for splintered overregulation by many countries. The dollar is too strong and that is causing difficulties in the rest of the world, but that weakness will come back to hit the US. Strangely, gold has been rising even as the dollar and interest rates have risen – there is high demand for gold from the rest of the world reflecting economic and political uncertainties.
Pg 54, OTHER VOICES. Alex GUERRIER, DonorsChoose (a 501c3 organization that allows contributions for public school classroom projects). Covid was at its peak 4 years ago with schools closed during the lockouts. But its effects on student education linger on via disrupted family lives, health issues (including mental health), academic schedules. Students who have fallen behind cannot catch up without support and the situation is getting worse for them. Teachers are burned out and leaving in frustration. Lower test scores post-Covid reflect these problems. This will have a serious impact on our economy due to lower job and income potential and lower GDP. But critical supports systems are ending at this critical juncture (Fed ESSER funds end in 09/2024). Bipartisan efforts should be made to continue these programs. Private funds like the 501c3 DonorsChoose are making some impact (people can make grants to it from their DAFs). Some companies have educational support arms, e.g. Panda Cares from Panda Restaurant Group, donation matching program by UAL, etc. But more public and private efforts are needed.
Pg 55, RETIREMENT. Retirees may have different considerations for RENTING vs OWNING homes. Many sell their large homes and rent smaller apartments to have flexibility in case they move to senior communities. But if they plan to stay for several years, it may still make sense to buy a smaller house. One consideration is that while there is a shortage of single-family housing, many multifamily apartment buildings are under construction (there have also been several condo-to-apartment conversions), and that may make renting cheaper than owning in the future.
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. Retail sales, business inventories on MONDAY; housing starts, capacity utilization, industrial production on TUESDAY; existing home sales, LEI on THURSDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Bearings company Timken (TKR; yield 1.5%; fwd P/E 14.1; debt/EBITDA 2.1; buybacks; supplies to auto, conveyor belt, industrial machinery industries; cyclical business (so, high P/E at depressed earnings troughs, but low P/E at peak earnings); 40% of sales recurring; 12% of sales from China; organic growth and also by M&A; new CEO Tarak Mehta, 09/2024- (from ABBNY); pg 21).
BEARISH.
Pg 11: At the Q1 Earnings Season kickoff, big BANKS didn’t impress. JPM, C, WFC fell on profit-taking. Jamie DIMON (JPM) also had worries about global problems and the possibility of rate-storms (high and unusual rate volatilities).
Pg 12: BIRD FLU/H5N1 (Avian flu) has hit COW herds in several farms in multiple states. Sickened cows produce less milk, or off-color and thick milk (they soon become dry-cows). The recovery time is about 10 days. H5N1 spreads from birds to poultry to mammals, and contaminated milking equipment may also be a factor. There is no approved testing regime (or regulation for testing) for cow herds, and mass testing isn’t feasible now. Many farms also hide these problems, but the word gets out. The danger is that H5N1 may pass to humans through milk, cheese and meat. But pasteurization should kill it in milk and cheese, and cooking should kill it in meats.
Pg 14: BITCOIN was left for dead during the crypto Winter and Ice Age (all within a short span from late-2021 to late-2022), but Wall Street has revived it as a money-making machine. First came the SEC approval of several Bitcoin ETFs (BlackRock IBIT, Fidelity FBTC, etc; these can be held in regular brokerage accounts and that creates an impression of their legitimacy), now comes their acceptance by institutional investment committees and advisors (well, they can also charge advisory fees on crypto holdings) for 1-5% allocations, and then the investor FOMO. The upside may be meaningful (Bitcoin +140% over 12-mo), but downside may have limited impact on the portfolio. Cryptos are crazy-VOLATILE. Debates about crypto’s value or usefulness may be endless and futile (not real asset, nor currency, nor security; forget about cash flows). Bitcoin market-value is $1.3 trillion (more when other cryptos are included); (new) spot-Bitcoin ETF AUM is already $55 billion in a few weeks (including the hemorrhaging but still #1 Grayscale GBTC that up-converted from a special trust to ETF). Bitcoin’s 4-year HALVING event in April will make them scarcer when the demand from ETFs, etc is exploding –price projections range from achievable $90,000 by 2024 yearend to wild $1 million by 2030 (Cathie WOOD who has her own ARKB; also see Q&A). Fidelity is now all-in with spot-Bitcoin ETF, custody, brokerage, 401k; US Coinbase/COIN has been a survivor despite difficulties with the US regulator(s); the new spot-Bitcoin ETF lineup includes the Who’s Who of the investment world. There are REGULATORY concerns about high risks to investors/consumers, market manipulation, and various abuses. But the crypto industry wants Congress to pass new legislation(s) as it opposes SEC’s de facto regulation-by-enforcement citing very old laws (from 1930s, 1940s). There are also skeptics such as Jamie Dimon of JPM (but he is OK with JPM custody of Bitcoin), Goldman Sachs, Vanguard, (Warren Buffett), etc.
Pg 16. Indian HOUSING market is booming with average prices of $95/sq ft in Mumbai (business center; Bollywood), $74/sq ft in Bengaluru (India’s “Silicon Valley”), $68/sq ft in Hyderabad (growing tech-city), and $58/sq ft in Delhi (so, the capital city isn’t the most expensive). Property stocks are doing well with the S&P BSE Realty Index +125% in 12-mo. New real estate regulations (2016 RERA, etc), tax laws and limits on currency circulation are providing a boost to real estate. Spec-building is still common (i.e. advance purchases of unbuilt apartments/ condos). Indian economy is strong (#1 growth in Asia) and is benefitting from the move away from China. Foreign fund inflows (business and private) are strong. With an average income of $2,100/yr, and growing number of billionaires, the inequality has gotten worse. Unemployment among college graduates is high. (see related pg 22 story on India-funds)
Pg 22, FUNDS. INDIAN stocks are hot (INDA +40% over 12-mo). The overall economic, political, and demographic story is good, but the Indian market is expensive (& has been so for quite a while). India-focused funds include EPI, ETGIX, FLIN, INDA, INDIX, MINDX, PIN, SMIN, WAINX; the EM funds with India exposure include CEMDX, GQGPX, VWO.
Pg 23, INCOME. After spinoff of its healthcare business as SOLV, 3M/MMM may lose its Aristocrat status (rules will apply to post-spinoff combo). SOLV has a high debt/EBITDA ratio and may not pay dividends for a while. MMM faces product liability lawsuits. Analysts doubt that MMM can boost the current dividend of 6.5% with a payout ratio of 75%. But dividend cuts have benefitted companies such as AT&T/T.
Pg 24, ECONOMY. Much talked about soft landing is quite rare, only in 1967, 1985, 1987, and among those, the environment today is most like 1967 when a period of high inflation followed. After a hot CPI report, the expectations are now for fewer Fed rate cuts (< 3). The fed fund rate of 5.25-5.50% isn’t restrictive as it is below the nominal GDP growth of +5.9% (reported is the real GDP growth). In the JPM annual report, Jamie Dimon noted that indicators today look good superficially, but there are various pressures around – inflation, geopolitical, global trade, reshoring, energy transition, etc. He said that future rates may be very volatile between 2-8% (more like a rate storm) and he has prepared JPM for that (forget about the happy talk of Fed targeting +2% average inflation). Gold rally despite higher dollar and rates is also pointing to such uncertainties.
Pg 25, TECH TRADER. In Q1 tech earnings, look beyond direct AI and infrastructure stories. AI is very capex intensive. But heavy applications of AI are in software, and some related companies have already run up. Mentioned are NFLX, MSFT, AAPL, META, GOOGL, AMZN, DELL, HPE, ANET.
Pg 26, Q&A/Interview. Cathie WOOD, ARK Invest (2014- ). She likes TSLA, disruptive tech (ARK ETF ARKK), COIN, Bitcoin (ARK ETF ARKB); she is skeptical of pricey NVDA (sold recently) with growing global competition. AI is a great story, but it hasn’t contributed to company financials. Generative ChatGPT became very popular in a very short time, but its monthly users peaked at 200 million, and that has declined a bit. Free AI has no commercial future except as giveaways within the software bundles by giant corporations. Customized and applications AI will have a better future and she mentioned PATH, PLTR, PD, SQ, RBLX. AI will change the nature of jobs, but jobs will grow overall – that has been the historical experience with industrialization, computers, automation, robotics. The recent US jobs report was strong, but much of that was from part-time jobs. In general, new technologies are deflationary. Some regulation of AI is desirable but watch for splintered overregulation by many countries. The dollar is too strong and that is causing difficulties in the rest of the world, but that weakness will come back to hit the US. Strangely, gold has been rising even as the dollar and interest rates have risen – there is high demand for gold from the rest of the world reflecting economic and political uncertainties.
Pg 54, OTHER VOICES. Alex GUERRIER, DonorsChoose (a 501c3 organization that allows contributions for public school classroom projects). Covid was at its peak 4 years ago with schools closed during the lockouts. But its effects on student education linger on via disrupted family lives, health issues (including mental health), academic schedules. Students who have fallen behind cannot catch up without support and the situation is getting worse for them. Teachers are burned out and leaving in frustration. Lower test scores post-Covid reflect these problems. This will have a serious impact on our economy due to lower job and income potential and lower GDP. But critical supports systems are ending at this critical juncture (Fed ESSER funds end in 09/2024). Bipartisan efforts should be made to continue these programs. Private funds like the 501c3 DonorsChoose are making some impact (people can make grants to it from their DAFs). Some companies have educational support arms, e.g. Panda Cares from Panda Restaurant Group, donation matching program by UAL, etc. But more public and private efforts are needed.
Pg 55, RETIREMENT. Retirees may have different considerations for RENTING vs OWNING homes. Many sell their large homes and rent smaller apartments to have flexibility in case they move to senior communities. But if they plan to stay for several years, it may still make sense to buy a smaller house. One consideration is that while there is a shortage of single-family housing, many multifamily apartment buildings are under construction (there have also been several condo-to-apartment conversions), and that may make renting cheaper than owning in the future.
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
