Barron’s Weekend Summary: When Amazon reports second-quarter earnings on July 28, Wall Street analysts expect revenue growth of just 5%
Cover Story:
-When Amazon reports second-quarter earnings on July 28, Wall Street analysts expect revenue growth of just 5%. That’s a tepid number by Amazon standards, and if things are just slightly worse than expected, revenue could actually decline. It would be a telling moment, with Amazon facing its greatest set of challenges since founder Jeff Bezos began selling books out of his house almost 30 years ago.
Interview:
-This week, Barron’s has interviewed Sammy Simnegar, the Fidelity Magellan manager. He describes himself as a realist. It’s that realism that has made the Fidelity Magellan manager rethink his views about much-loved megacap technology stocks, hold off on bargain-hunting in some hard-hit parts of the market, and be skeptical of all the comparisons to the 1970s. In the past three years, Simnegar has built on a career as an international investor to scout out quality U.S. growth companies for the $23.6 billion Fidelity Magellan fund—once managed by famed stockpicker Peter Lynch—and the $4B Fidelity International Capital Appreciation fund, which he has helmed for 14 years.
Tech Trader:
-Not all tech CEOs are created equal. CEOs with nontechnical business backgrounds—I call them the “suits”—are likely to have a more difficult time making accurate product assessments and picking the right engineering teams. And so it isn’t all that surprising that some of the industry’s lackluster performances have come under such suits. Unity Software CEO John Riccitiello began his career in marketing and brand manager roles at Clorox and PepsiCo after graduating with a business degree. Following a stint at a private-equity firm, he served as CEO of videogame publisher Electronic Arts from 2007 to 2013. During his tenure, EA’s stock fell by more than 60% after he went on an acquisition spree of gaming studios—several of which failed and were shut down in the ensuing years.
The Trader:
-The word is “recession,” and defining one isn’t easy. It’s usually up to the National Bureau of Economic Research to determine when one has started, but it often takes so long that the slowdown is over by the time one is declared. Others point to the technical definition of two consecutive quarters of declining economic growth—something that could be declared as soon as this coming Thursday, when second-quarter gross domestic product is released.
-It’s been a tough three years for restaurants. First Covid-19 kept people from visiting their favorite eateries, while the stop-start return to normal life has kept traffic from returning to normal. And just when everything was looking up, out-of-control food inflation—combined with a shortage of delivery drivers and other staff members—has hit profit margins. Now restaurants have to contend with slowing growth and perhaps a recession, something that has caused the S&P 500 Restaurants sub-index to drop 17% so far this year, in line with the S&P 500.
Features:
-Investors have several ways to protect themselves from continued high inflation, chiefly through the purchase of Treasury inflation-protected securities, or TIPS. Most individual investors are unfamiliar with the $1.7T TIPS market, but these Treasury bonds deserve a place in portfolios.
-Stephen Byrd, Morgan Stanley’s head of North American equity research for power/utilities and clean tech, is overweight on solar stocks Sunrun and AES, as well as hydrogen fuel-cell developer Plug Power. In the longer term, Byrd and his research team at Morgan Stanley believe distributed energy resources, such as rooftop solar, might disrupt traditional utilities as extreme weather events and electric-grid instability increase, energy bills rise, and the cost of solar panels and similar products decline.
European Trader:
Wise is a London listed fintech company. It’s based in the trendy east London district of Shoreditch. Senior executives hot desk next to junior employees. The office is a former tea factory and features a sauna. But its services aren’t nearly as edgy as those of its fintech cousins dealing in cryptocurrencies. Wise simply helps people transfer money between more than 50 state-backed fiat currencies at cheaper rates than what Main Street banks charge. It handled $76B worth of transfers last year and boasts more than 13M customers.
Emerging Markets:
The implosion of China Evergrande last autumn, and a cascade of defaults that followed, smashed those cozy assumptions, and jacked up those yields to double digits for most privately owned builders. The “mortgage boycott” currently sweeping China has driven a fresh bond selloff. Investors are wary of dip buying, however. “Before the boycott, there was a view that we should be closer to the bottom,” says Tracy Chen, a portfolio manager for global credit at Brandywine Global. “Now we see developer stress hasn’t ended yet.”
Commodities:
Gasoline prices have fallen for 37 days in a row, and are now averaging $4.40 per gallon, down from over $5 last month. And the latest government data showed that drivers are using less gas than they were a year ago, probably because they’re still discouraged by high prices. Average prices remain $1.25 more than they were at this time last year. But there are some signs that the drop in prices is starting to convince some drivers to get back on the road.
Streetwise:
This week, Jack Hough looks at railways and railway stocks in the USA. US rails, in particular, have spent years slashing head count and leaning more heavily on the remaining workers to boost returns, but their shares now appear vulnerable in the near term. Service and volumes have slipped, and crew shortages are to blame. A strike has been delayed, but not yet averted. Hiring more workers in a hurry could cost dearly. Not hiring them could be worse