Barron’s Weekend Summary: Stocks have regained momentum after a bleak start to the year,
Cover:
-Stocks have regained momentum after a bleak start to the year, with the tech highfliers leading the way. The S&P 500 index reached its first all-time closing high of 4839.81 on Friday, marking its first such record in over two years. The Barron's Roundtable, held on January 8 in New York, discussed 19 potential contenders and a variety of attractive bond funds. Speakers included William Priest, chairman and co-chief investment officer at TD Epoch, David Giroux, Sonal Desai, Scott Black, and John W. Rogers Jr., founder of Ariel Investments. The discussion highlighted the potential of these companies to attract value-conscious investors.
Interview:
-no interview this week
Tech Trader:
-The ad industry is facing a growing problem in 2024, with many ads and wasted money. Google, the parent company of Google, has threatened to phase out third-party cookies in Chrome, which controls 65% of the web browser market. This move is expected to disrupt the ad industry, as Apple's Safari browser already blocks third-party cookies. CEO Mark Zagorski, CEO of DoubleVerify, believes that the ad market is more upbeat this year than last year, with a sense that the market is not ready for a boom. DoubleVerify's role is to ensure advertisers get what they pay for, ensuring ads are seen and not appearing adjacent to problematic content.
The Trader:
-Legislators from both parties have agreed on a tax proposal with business-focused provisions, which could stimulate investment spending and generate a corporate windfall. The plan includes expansions of child and low-income housing tax credits and ending a Covid-era employment-support program. The Tax Relief for American Families and Workers Act of 2024, published on Tuesday, undoes provisions in the 2017 tax bill that rolled back favorable research, depreciation, and interest deductions starting in 2022. The big winners will be stocks of companies that spend the most on research, equipment, and interest payments.
-The S&P 500 index rose 1.17% in a holiday-shortened week, closing at a new record for the first time since January 2022. The Dow Jones Industrial Average added 0.72%, and the Nasdaq Composite jumped 2.26%. U.S. bank stocks generally slid after reporting fourth-quarter 2023 earnings, weighed down by billions of dollars of special charges to pay back regulators for backstopping failed regional banks' deposits last year. Semiconductor stocks had a particularly strong week after Taiwan Semiconductor Manufacturing gave a bullish forecast for the year ahead. However, investors have proved hard to impress, with 88% of the 43 S&P 500 companies reporting by Thursday morning beating the consensus earnings-per-share estimate. Wall Street's consensus calls for 11% S&P 500 EPS growth in 2024, which would help justify an index trading at about 20 times forward earnings.
Features:
-BP, the former British Petroleum, has refocused on its oil-and-gas business, particularly its U.S.-oriented operations. The company aims to boost its American oil-and-gas production by over 50% by 2030 and produce half of its projected output of two million barrels a day in the U.S. Despite its ambitious goals, the market has not yet noticed. BP's U.S-listed shares trade around $34 after hitting a 52-week low, fetching just seven times projected 2024 earnings of $5 a share, which is cheap even for big European energy companies. This shift in focus is expected to benefit BP's beaten-down stock.
-Microsoft has revealed that Russian hackers have accessed the email accounts of some of its senior leadership team, allowing them to read some messages and attached documents. The company identified the threat actor as Midnight Blizzard, also known as Nobelium. Microsoft has previously discovered attacks on its software by Midnight Blizzard, including an attack affecting small businesses in August. The attack began in late November using a password spray attack on a non-production test account, allowing access to a small percentage of Microsoft corporate email accounts.
Europe:
-Desmond Lachman, a senior fellow at the American Enterprise Institute and former deputy director in the International Monetary Fund's Policy Development and Review Department, discusses the fate of the Euro, which was launched 25 years ago with bold promises. However, despite the fanfare and bold promises of prosperity, economists like Milton Friedman and Martin Feldstein criticized the Eurozone for not meeting the basic conditions for an optimum currency area and questioning the wisdom of a monetary union before a political union. In 2024, the promise of economic growth and political integration in the euro zone has largely been unfulfilled, and the jury is still out on whether the euro will have its final day of reckoning.
Emerging Markets:
-No update this week
Commodities:
-As part pf the Barron’s Roundtable discussion, David Giroux, CIO, T. Rowe Price Investment Management, discussed his favorable expectations for some commodity investment. For the first time in a decade, Giroux is recommending an energy stock: Canadian Natural Resources, an oil-sands company with a market cap of $73 million, is a potential investment for investors. With a reserve life of 29 years, CNQ can grow production by 3% to 5% a year in a capital-friendly, low-risk way. The company is set to hit its net debt target of $10B by the end of the first quarter, and will pay back 100% of its free cash flow to shareholders. This will result in a 4.3% dividend yield and a 3%-4% reduction in share count. CNQ is one of the best capital allocators I have ever dealt with. Despite concerns about the sustainability of Russia's oil production due to Western sanctions and the Middle East, there are many reasons to be positive on energy.
Streetwise:
-Jack Hough is hungry and he feels like a Whopper. Burger King (part of is reportedly considering a franchisee fliparoo, with Oppenheimer). BK stated it's a good idea and the stock could make investors nearly 20% over the next year. The chain has a history of turnarounds, starting in the 1950s with the original California restaurant and later being bought out by franchisees and sold to Pillsbury in the 1960s. In 2014, 3G Capital of Brazil combined Burger King with Canada's Tim Hortons and took it public as Restaurant Brands International.