Barron’s Weekend Summary: This year, Barron’s annual healthcare roundtable focuses on emerging themes across the industry
Cover Story:
-This year, Barron’s annual healthcare roundtable focuses on emerging themes across the industry, from the ability to “interrogate” biology with computational tools to the evolution of value-based care. The challenges are many, but the news is good, not only for innovative biotech and cash-rich pharmaceutical companies, but also for nimble managed-care providers and purveyors of much-needed medical devices and life-sciences tools.
Tech Trader:
-One of this year’s most surprising tech deals was the acquisition of the movie-rental kiosk chain Redbox by Chicken Soup for the Soul Entertainment. Don’t let the name fool you: Chicken Soup for the Soul is a video-streaming company that just happens to have grown out of the popular book series. Today, Chicken Soup owns Crackle and other ad-supported video-streaming services. The Redbox deal gives the business some real scale, and it has turned the company into a bargain-bin small-cap bet on the future of video—one that the market is largely ignoring.
The Trader:
-The S&P 500SPX –1.72% index fell to a three-month low this week, down 4.6%. Growth stocks were hardest hit as the Nasdaq Composite slid 5.1%. The Dow Jones Industrial Average finished the week down 4.0%—its lowest close of 2022 and on the cusp of a bear market, down 19.6% from its all-time high. Meanwhile, the Federal Reserve’s interest-rate hike on Wednesday, and its hawkish projections, sent the two-year Treasury note yield to a fresh 15-year high, at 4.21%, as prices tumbled. Oil hit its lowest level since January on Friday, at $78.74/bbl, reflecting concerns about the global economy.
-Costco stock slipped 2.6% in after-hours trading on Thursday, because investors were hoping for a more than they got from the retailers earnings.
Costco posted net income of $1.87 billion for the quarter, or $4.20 a share, slightly better than analysts’ consensus for $4.17/share. Sales were $70.8B. That Costco pulled off a beat shouldn’t be shocking. Between its long history of upbeat earnings and robust monthly sales updates—the last of their kind among the major retailers—Costco Wholesale’s (COST) quarterly earnings results typically don’t include many surprises. That was true of its fiscal fourth quarter as well: We already learned earlier this month that the quarter’s comparable sales were up double digits when it provided its August update.
Features:
-High-yield bonds are finally living up to their name after the broad selloff in fixed-income markets this year. Better known as junk, the $1.5T sector looks appealing, as yields have risen to an average of 8.8% from 4.4% at the start of 2022, according to the ICE BofA US High Yield Index. Junk debt offers an alternative—or supplement—to stocks. Junk bonds aren’t without risk. The ICE index had a negative total return of 12.6% in 2022 through this past Thursday, though that’s better than the 20% decline (including dividends) of the S&P 500. And many investors understandably balk at buying debt of leveraged companies heading into a potential recession.
-Ford Motor stock tumbled this past week after the company warned of continued parts shortages, but Wall Street doesn’t seem worried—and neither is Barron’s. In a Monday disclosure, Ford said it won’t be able to finish 40,000 to 45,000 higher-margin trucks and sport utility vehicles it had planned to produce by the end of the third quarter. The company said the output shortfall, combined with $1B in higher-than-expected costs, would result in a quarterly operating profit of about $1.4B to $1.7B, well below analyst forecasts for $2.9B.
European Trader:
-Russia’s invasion of Ukraine unraveled the European energy markets this year. The sudden shortfall of natural gas is raising fears about how the region will cope with sky-high prices. SSE (formerly: Scottish and Southern Energy), once one of the United Kingdom’s famous Big Six power providers, may nevertheless be in good shape after selling off its retail business and focusing on renewables ahead of the crisis. It now relies relatively less on gas for power generation, while still being able to take advantage of higher wholesale power prices. SSE isn’t exposed to households’ ability to pay whopping heating bills. And the company’s outlook brightened after new Prime Minister Liz Truss ruled out a windfall tax on profitable energy firms.
Emerging Markets:
-Brazilian markets aren’t supposed to thrive on the eve of a presidential election. Especially when the rest of the world is going to hell in a handbasket. Particularly when the incumbent, far behind in the polls, threatens a Trump-style stop-the-steal campaign, with military backing. The iShares MSCI Brazil exchange-traded fund has climbed by nearly a quarter over the past two months. The S&P 500 is down 2% during that period. The Brazilian Real is up 7% against the dollar, while other currencies wilt.
Commodities:
-Natural-gas prices have seen a steep decline from their peak last month, likely providing an opportunity for investors ahead of the winter heating season. “The market has greater confidence that Europe will have sufficient gas supplies to get through winter without running out of gas,” says Rodney Clayton, portfolio manager for the Virtus Duff & Phelps Select MLP and Energy fund. As of Sept. 19, the European Union’s working gas in storage stood at 960.26 TWh, which is at 86% full, according to data from the Gas Infrastructure Europe’s Aggregated Gas Storage Inventory.
Streetwise:
-Jack Hough thinks you should look at falling stock prices and higher interest rates as with some relief. “It might not be great, but it’s normal. Stocks and bonds are tumbling. Housing has weakened. And I haven’t heard a word about nonfungible cartoon monkey tokens in maybe three months. Strategists are now turning to truly bizarre assets—two I spoke with this past week recommended purchasing long-term Treasurys. One also said to favor shares of companies that generate cash, and he wasn’t talking about Bitcoin mining. I don’t want to set off a panic, but financial markets appear to be careening toward normal. If left unchecked, ordinary assets could soon reach price levels that imply adequate long-term returns.’