Barron’s Weekend Summary: The rising generation of octogenarian workers won’t be the first:
Cover Story:
-The rising generation of octogenarian workers won’t be the first: Look no further than the current resident of the White House and many members of Congress (the median age in the Senate is 65). In the upper ranks of the business world, it has long been common to see leaders in their 70s (Blackstone’s Stephen Schwarzman, 76, is a current example), 80s (see: Barry Diller, 81, or Carl Icahn, 87), and, in some cases, even 90s (ever heard of a 93-year-old investor named Warren Buffett?). But the staggering size of the boomer cohort could mean changes to workplaces and the economy that we haven’t seen before. From bolstering a labor market that’s facing a shortfall of prime-age workers to pushing back against the ageism that remains rampant in many industries, the generation that never trusted anyone over 30 could continue to play changemaker as it pushes 80.
Interview:
-Barron’s has interviewed Alan Patricof, who at the age of almost 88 has spent more than 50 in the investment business. Patricof was present almost at the creation of the venture capital industry, and has helped fund an astonishing number of companies in the course of a highly successful career. His first firm, Alan Patricof Associates, was an early investor in Apple. Later, he backed a variety of digital-media start-ups at Greycroft Partners, which he co-founded in 2006 and where he is now chairman emeritus. Long past the age when most of his peers packed it in—and packed up for Florida—Patricof co-founded yet another VC firm, Primetime Partners, in 2020, to invest in companies serving the over-60 market.
Tech Trader:
This coming week, three major pieces of news will align in a way that could shift the dynamics of the technology sector in dramatic and unanticipated ways. Within the span of a few days, Apple will launch an updated iPhone; the Department of Justice will finally bring its three-year-old antitrust case against Google to trial; and the UK-based chip design firm Arm Holdings will likely go public. Each event carries potential payoffs for investors, along with big risks. On Tuesday, Apple will hold its annual fall launch event, dubbed “Wonderlust” this year. The event will almost certainly be focused on the debut of the iPhone 15. (Analysts also expect new Apple Watches and potentially updated AirPods.)
The Trader:
-The Walgreens Boots Alliance (Walgreens for short) needs a new CEO. Walgreens shares have tumbled since Rosalind Brewer announced on Sept. 1 that she was stepping down. That could present a buying opportunity if the company makes the “right” choice for a new leader. However, Walgreens shares have slumped 13% in September, that’s nothing new—they have lost two-thirds of their value over the past five years. The problems are wide-ranging: Growth has been sluggish, it missed out on buying a pharmacy-benefits manager the way competitor CVS Health has, and its pivot to buying physician practices has dragged down profitability. With the stock down so much, investors apparently think Brewer’s replacement will probably fail too. Turning the company around will be tough. Walgreens’ total operating margin is expected to have fallen to just under 3% this year from just over 5% in 2018. Earnings per share are expected at $3.95 from $6.01 in 2018. The stock now trades just under six times EPS estimates for the next year, a mere fraction of the S&P 500 index’s 19 times.
-The S&P 500, after all, dropped 1.3% this past week, while the Nasdaq Composite fell 1.9%, and the Dow Jones Industrial Average dropped 0.75%. It’s starting to feel like the setup for yet another September scare. Nevertheless, the index could make a new high before January. And here’s why. The S&P 500 has powered through a wall of worry to gain 16% so far this year, navigating obstacles such as a mini banking crisis, higher interest rates, and recession fears. Now the Federal Reserve’s interest-rate-hiking campaign is almost over, while the economy continues to muddle through. If all goes well, earnings will start growing again in 2024, justifying higher valuations and more gains.
Features:
-AAR isn’t a household name, but every airline knows it because it sells used, repaired, and overhauled engine and airframe parts they need to keep their planes flying. The $2B company also provides repair and maintenance services at seven facilities spread across the North America. What’s more, AAR is an aerospace parts distributor. More planes flying equals more business for the company.And more planes are in the air. April 2023 was the first month that worldwide domestic air traffic—flights that originate and land in the same country—exceeded prepandemic levels. The domestic airline industry finally put Covid in the rearview mirror. International air traffic is also growing but hasn’t eclipsed prepandemic levels yet. In July, the latest global data available, international travel was about 11% below July 2019 levels. There’s still room for recovery.
-The rate of inflation has been a challenge for some companies’ earnings, while providing a boost to others—perhaps none more so than processors, distributors, and other middlemen. As prices rise, so does their take. That applies to the likes of Visa and Mastercard perhaps most of all, but also to the numerous distributors of goods that bridge the gap between producers and manufacturers and their end customers. Several have been recent Barron’s picks, including Ferguson, Pool, Watsco and Wesco International.
Europe:
-UBS needs to clean up before the combined group can reliably make money. “The profit number tells us that UBS did not really find any toxic assets on Credit Suisse’s balance sheet,” says Johann Scholtz, an analyst covering European banks at Morningstar. “Management’s artwork starts now.” Credit Suisse is still losing $2B every quarter, estimates Andreas Venditti, head of banks research at Bank Vontobel. The gaping wound is its investment bank, where revenue plummeted 78% year-over-year in the latest results, costs just 15%. UBS CEO Sergio Ermotti aims to slash head count commensurately. But firing investment bankers is apparently expensive, too. UBS has earmarked $10 billion for “restructuring expenses,” Scholtz says. Ermotti of the investment bank that are thriving, like the U.S. leveraged finance practice.UBS also added $4.5B in litigation provisions, preparations./
Emerging Markets:
-Mexico is doing well. The latest political news from our southern neighbor was no surprise: The governing Morena party tapped former Mexico City Mayor Claudia Sheinbaum as its candidate to succeed Andres Manuel Lopez Obrador in presidential elections next June. What is surprising is the sound economy that AMLO, as the incumbent leader is known, looks set to leave behind. Mexican gross domestic product is on track for a second year of 3% growth. The iShares MSCI Mexico exchange-traded fund (ticker: EWW) has climbed by a quarter over the past 12 months. The peso is up 14% against the dollar, even as the greenback dominates most world currencies. Inflation has halved to 4.6% annually, leaving the central bank plenty of room to cut its 11.25% prime rate.
Commodities:
-Workers at liquefied natural gas projects in Australia operated by oil major Chevron went on strike Friday after talks with employers broke down. The industrial action could disrupt global supplies of natural gas, which were impacted last year after Russia invaded Ukraine. Australia is the world’s biggest producer of LNG. European natural-gas prices were up 9% on Friday. US gas prices rose about 2%. No further talks have been scheduled after five days of discussion, mediated by the Fair Work Commission, an Australian regulator. The dispute concerns pay, overtime, job security and rosters, and the strikes are designed to escalate over coming weeks.
Streetwise:
-This week, Jack Hough is taking on Hollywood, specifically Disney and Charter Communications are locked in what’s called a carriage dispute. In the clinical language that cable uses to describe the entertainment business, companies like Disney that fill channels with shows are programmers, and ones like Charter that sell bundles of channels are MVPDs, or multichannel video programming distributors. Programmers make money by charging MVPDs carriage fees to include their channels in bundles, and by selling advertising on those channels. MVPDs charge viewers for the bundles and get a modest share of the ad slots, which is why commercial breaks are often a mix of national pitches for big brands, local ones for car dealers and furniture stores, and ones for the cable service itself.