Barron’s Weekend Summary: Tellus, a finance start-up, has denied any connection to Silicon Valley Bank
Barron’s Weekend Summary
Cover:
-Tellus, a finance start-up, has denied any connection to Silicon Valley Bank and has stated that it has zero exposure and does not have any funds with the bank. It claims its banking partners are JPMorgan Chase Bank and Wells Fargo Bank, both of which are FDIC-insured. However, these partnerships did not exist. Tellus's savings app advertised yields close to 4% on its website, while its current rates are 5%. Both JPMorgan Chase and Wells Fargo Bank expressed surprise when asked about their ties to Tellus, stating that they are working with Tellus to update their website and remove their company's name.
Interview:
-This week, Barron’s presents Fidelity mutual fund manager Joel Tillinghast, who will retire at the end of 2023 after a multi-decade career in managing the $26.2B Fidelity Low-Priced Stock fund. Tillinghast, 65, began managing the fund in 1989, focusing on small- and mid-cap stocks trading at a discount to their intrinsic value. Over the years, the strategy expanded to include larger companies with growth potential. The fund has returned an average of 12.6% since inception, compared to annual returns of 10.4% and 9.2% from the S&P 500 and Russell 2000 indexes. Tillinghast has lagged behind the large-cap index over the Big Tech-dominated past half-decade but still ranks in the top 22% of peer funds.
Tech Trader:
-Synopsys, the largest provider of electronic design automation (EDA) software for semiconductors, has been underappreciated in the AI boom. Despite its market value of $85 billion, it has grown alongside the rise of chips in consumer products. Shares of Synopsys have increased 75% this year to $560, compared to Nvidia's 235% increase and Palantir Technologies' 174% increase. The increased demand for AI chips and Synopsys' aggressive rollout of AI-powered features could drive a long-term increase in demand for Synopsys' software
The Trader:
-Gilead Sciences, once one of the hottest biotech stocks, is expected to recover from its 2016 blowup. The company's dominant HIV business is expected to see low-single-digit sales growth annually to just over $28 billion by 2025. Analysts predict Biktarvy, its HIV treatment, will hit almost $14 billion in 2027, up from just under $12 billion this year. The company is moving past recent increases in research-and-development costs, leading to increased margins and earnings per share growth at about 6% annually for the next couple of years. Oppenheimer analyst Justin Kim and team have named Gilead a top pick for the coming year, with moderation of expense growth as a priority from 2024
Features:
-Consumer prices fell for the first time in over three years, with the headline personal-consumption expenditures price index falling by 0.1% in November. However, volatile cooling energy prices are a main driver of the disinflation or deflation if you will. The core index, which excludes energy and food prices, rose by 3.2% year over year, still above the Federal Reserve's goal of 2% inflation. Inflation's retreat has been uneven, with goods prices dropping 0.7% in November and services prices advancing 0.2%.
-Nike stock fell after a disappointing second-quarter earnings report and a negative sales outlook. Two Wall Street analysts downgraded their ratings on shares. Nike expects sales to soften for the rest of its fiscal year, partly due to consumer spending skepticism in China and Europe. To offset this, Nike plans to save $2B over the next three years through product assortment simplification, automation, and reduced management layers, with the majority of the savings used to fuel growth.
Europe:
-The Middle East conflict has started to disrupt global trade and increasing shipping costs. Houthi militants in Yemen are using anti-ship missiles and drones to target commercial shipping traffic in the Red Sea, allegedly to support Palestinians. The US is forming an international naval force to protect shipping lanes. The Red Sea is a key shipping corridor, with Egypt's Suez Canal carrying 12% of global trade and 21% of container-ship traffic. Major shipping lines have paused transits. The Panama Canal, 7,000 miles away, is facing a drought, limiting daily crossings and limiting the number of ships passing through it.
Emerging Markets:
-In 2024, central banks worldwide are expected to lower interest rates, potentially boosting the performance of emerging markets. The MSCI Emerging Markets index has seen a 5% return this year, compared to a 26% gain for the S&P 500 index. However, markets outside China have seen better results, with the iShares MSCI Emerging Markets ex-China fund up 15% due to strong rallies in Indian, Brazilian, and Mexican stocks. Emerging markets with large current-account deficits are vulnerable to interest rate swings, which can drain capital flows and negatively impact investment, domestic consumption, and growth.
Commodities:
-US energy producers are facing geopolitical challenges, with rising energy production in the US countering efforts by authoritarian states like Saudi Arabia and Russia to control prices. Brent crude prices are down 18% from their 52-week high in September, to just over $79. This shift in energy production is expected to benefit investors despite ongoing geopolitical conflicts. In the past, US producers paid down debt rather than ramping up production, a strategy that was criticized by the White House.
Streetwise:
-this week, jack Hough has developed a taste for caramelized popcorn: Utz Brands, a snack company with a small share of PepsiCo's distribution, is growing and has a 25% upside. Mizuho Securities has rated Utz with a Buy rating, predicting shares to hit $19 in a year. The company, based in Hanover, produces up to three million pounds of snacks per week, with half of it being potato chips. Utz is concentrated in the Northeast, Mid-Atlantic, and Gulf states and is the top non-Frito brand in New York City, Boston, and Ohio.