Barron’s Weekend Summary: The grid, which includes production, storage, and transmission of electricity, is set to undergo significant changes
Cover:
-The grid, which includes production, storage, transmission, distribution, and consumption of electricity, is set to undergo significant changes. As data centers and electric vehicles (EVs) grow, the production of electricity will increase, necessitating more energy storage assets and robust transmission lines. This will also require more software and artificial-intelligence tools to coordinate the process. The changes will benefit homeowners, utilities, and companies that build grid infrastructure. Despite a record 4.2 trillion kilowatt-hours of electricity consumed in 2022, overall demand has been sluggish, with 60% coming from coal and natural gas, 20% from nuclear power, and 20% from renewable sources.
Interview:
-Michael Lippert, a former lawyer and Baron analyst, has been successful in buying growth stocks with sustainable competitive advantages. He focuses on companies with durable secular trends that will continue to grow over many years. Lippert's investment maxim is to buy stocks that will outperform their peers in the long run. His Baron Opportunity fund, which has $1.1B in assets, has an average annual return of 17.6% in the past 15 years, outperforming 93% of its large-growth-category peers. The fund has an all-cap mandate, with its five biggest holdings being megacaps. However, lesser-known companies like Gartner, CoStar Group, Rocket Pharmaceuticals, Guidewire Software, and Trade Desk also drive returns.
Tech Trader:
-The Consumer Electronics Show (CES), first held in 1967, is now the largest technology event since Covid-19, with an expected crowd of 130,000. The show covers various technology segments and products, including cars, boats, helicopters, computers, robots, streaming services, televisions, virtual reality headsets, consumer appliances, semiconductors, and more. With over 4,000 exhibitors spread across 2.5M ft2 of exhibit space, the event is expected to attract 130,000 attendees. The show offers an opportunity to meet tech companies, see inventive ideas, and stay updated on trends. However, it is also exhausting with meetings from dawn to the wee hours and a logistical nightmare. CES has been the launchpad for digital watches, camcorders, DVD players, and Atari Pong, but this year's focus will be on the rapid emergence of artificial intelligence software and hardware.
The Trader:
-Goldman Sachs predicts a 3% decrease in net interest income for the year, following a 16% increase for 2023. Credit quality could also be a concern, as consumers have remained resilient over the past four years. Keefe, Bruyette & Woods analysts are neutral on banks, warning that deteriorating credit could cause earnings per share to drop by up to 25%. Selectivity is essential, with KBW highlighting KeyCorp, Webster Financial, and Goldman Sachs as potential opportunities. Meanwhile, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo are set to report their financial results on Friday, with investors eagerly anticipating signs of better financial outcomes in 2024 compared to 2023, which saw rising Treasury yields impact bond bank valuations.
-Walt Disney is facing a contentious battle with activist investors, despite the company's stock losing over half its value since March 2021. Disney has entered into an information-sharing agreement with ValueAct Capital, which pledges support for Disney's board slate. Rival investment firm Blackwells Capital is pushing three of its own directors. Trian Fund Management is the most belligerent, seeking two board seats and lambasting Disney for poor performance. The drama is expected to continue over the next few months, with proxy fights potentially being just what Disney needs.
Features:
-The boomerang generation's struggle to integrate in the workforce is causing parents to grapple with the financial dilemma of supporting their adult children while securing their own financial future. Many parents are utilizing their retirement savings to support their children, with nearly half of individuals aged 18 to 29 living with their families, the highest percentage since the 1940s. A recent Harris Poll survey revealed that nearly 70% of parents with adult children have made financial sacrifices to support their children financially.
-The US labor market ended 2023 with higher-than-expected hiring, low unemployment, and steady wage gains. The December jobs report reveals that the Federal Reserve can continue to fight inflation by holding interest rates steady, rather than considering near-term cuts to spur economic growth. The US added 216,000 jobs in December, surpassing economists' forecasts and exceeding November's revised gain of 173,000. Nonfarm payrolls rose by 2.7M for all of 2023, with an average monthly gain of 225,000 jobs. Key Private Bank's chief investment officer, George Mateyo, believes the Fed should maintain a 'higher for longer' stance on interest rate policy, causing market participants to reconsider their forecasts.
Europe:
-Dividends in Europe experienced a significant drop during the pandemic in 2020, as financial firms were forced to suspend payouts. However, dividends have since rebounded, with a 60% increase across the region. The global payout ratio for stocks, which represents the percentage of company earnings paid out in dividends, has dropped from 35% in 2021 to the low 40s, providing ample room for a dividend recovery. Dividends have followed earnings but have not played catch-up significantly in terms of the payout ratio. Global higher-income stocks have performed well overall in the past four 12-month periods following the Federal Reserve's final interest-rate hike, reflecting their "value plus defensiveness" characteristics. Legrand, a French-based electrical equipment maker, and RELX, a UK digital media company, as they have strong dividend growth, with Sam Witherow, a London-based equity portfolio manager at J.P. Morgan Asset Management expecting RELX to grow its dividend at a 9% annual clip over the next five years.
Emerging Markets:
-Turkey's equity markets have seen positive flows in November and December, with yields on 10-year dollar bonds dropping 200 basis points and central bank currency reserves increasing 40%. Economic policy surprises include President Recep Erdogan's orthodox approach, which has led to increased interest rates and a decrease in inflation. The new central banker, Hafize Erkan, has hiked rates from 8% to 42.5%, with an expected increase to 45% in January. Erkan and finance minister Mehmet Simsek are working on reducing regulations that subsidized credit to favored borrowers.
Commodities:
-Chile's government has announced a public-private partnership to extend the life of the world's cheapest lithium basin by 30 years. The deal will take effect from 2060, as the Atacama salt flats in the high Andean desert are entered into a 50-50 joint venture with state copper giant Codelco. This move is seen as a pragmatic move by Chile's president, Gabriel Boric, who is advocating for progressive reforms. However, Chile will need more compromise to fulfill its lithium destiny, as its largest proven reserves are constrained by a Pinochet-era law designating lithium a strategic metal for nuclear energy. The move has been stymied by divisions between statists and free marketers in Congress.
Streetwise:
-The US stock market is increasingly dominated by artificial-intelligence companies, with the seven biggest tech companies worth more than the combined stock markets of Japan, Canada, and the UK, according to Apollo Global Management. However, only 27% of stocks in the S&P 500 outperformed the index last year, with over 150 index members trading below 15 times forward earnings projections. Most of these companies arest unexciting, with some being deeply challenged and others just unexciting. Verizon Communications and KeyBanc Capital Markets have attracted analyst upgrades, with Verizon Communications projected to top 2% in adjusted Ebitda growth this year.