Barron’s Weekend Summary: General Electric, once arguably the greatest of American companies, will cease to exist, at least as the industrial titan it once was.
Cover Story:
General Electric, once arguably the greatest of American companies, will cease to exist, at least as the industrial titan it once was. After more than 20 years of decline, the company is entering the final stages of a process that has seen the General Electric of old slowly dismantled—the corporate powerhouse founded by Thomas Edison doesn’t even make lightbulbs anymore—until just three parts remain. Soon, those units—GE’s aviation, energy, and healthcare businesses—will be separated into individual companies, starting with GE Healthcare, which could be spun off in early 2023. It’s a sad end for a giant humbled by missteps.
Interview:
-This week, Barron’s interviews Eli Salzmann loves nothing better than finding a company that’s a “dog of a stock with no momentum” but on the verge of better days. At its core, that is what value investing is all about. Over the course of his 36-year career, Salzmann has proved he has a knack for buying undervalued stocks shunned by the market and delivering stellar returns along the way.
Salzmann is a managing director at Neuberger Berman and senior portfolio manager of the $10B Neuberger Berman Large Cap Value fund alongside fellow portfolio manager David Levine.
Tech Trader:
As a couple of Apple news sites picked up last week, the company recently posted a job listing for a “Senior Product Manager, Demand Side Platform.” Ad tech is complex, so here’s a translation: A “demand side platform” lets ad buyers buy inventory on multiple ad exchanges from a single interface, using automated bidding, which is also known as programmatic. The platform takes a little slice of each dollar deployed. There are a bunch of these DSPs. Meta Platforms has Meta Ads Manager; Alphabet has Google Ad Manager; Amazon.com offers Amazon DSP.
The Trader:
-Inflation is sticky, but economic growth is sticky, too. And that puts the Federal Reserve—and investors—in a bind. Look no further than Friday’s payrolls report release. The U.S. added 528,000 jobs in July, more than doubling estimates for 250,000, while the unemployment rate dipped to 3.5% from 3.6%. If you’re worried about a recession, there’s no sign of one here.
-When Walmart sneezes, the retail sector catches a cold. That was particularly true of the dollar stores after Walmart lowered its full-year guidance in late July, but investors should think twice before turning their noses up at the stocks. Retailers have been under particular pressure this year, as inflation-strapped consumers are being forced to make harder choices. That reality was on display during first-quarter earnings season in May, when both Walmart and Target disappointed; and again in June, when Target lowered its guidance for the second time in a month.
Features:
-Democrats proposed lifting the corporate tax rate to help fund their climate and healthcare package, and if the tax remains part of the deal companies—specifically larger ones—could take a hit. The original proposal included a plan to raise revenue through a 15% minimum corporate tax rate. That could be modified, though higher taxes on companies is likely to remain a priority. If the tax goes through, larger companies would bear the burden. The tax would apply to those that have averaged $1B of adjusted pretax profit in the past three years. Strategists at UBS screened for companies that both fit that bill and have recently been paying less than 15% in cash taxes, and found 102. Of those, here are few that are particularly vulnerable. Utility American Water Works Company, Ameren, Advanced Micro Devices, Nvidia, Broadcom, Apollo Global Management are some of them.
-Blackstone Group is the world’s largest manager of alternative assets such as private equity and real estate. It is also a leader in one of the industry’s biggest initiatives—attracting retail investors. By many measures, the company’s flagship retail product, Blackstone Real Estate Income Trust, is a success. Known as Breit, it has mushroomed in value to $116B since its inception in 2017 and become one of the largest buyers of real estate in the country.
European Trader:
“Airbus is on a very strong growth trajectory regardless of a recession and postpandemic normalization,” says Colin Scarola, an analyst at financial research company CFRA. He sees the stock rising to EUR140 ($143) over the next year, up 35% from its recent level of €104. Plus, the stock yields a 1.4% dividend currently. U.S.-based investors could consider buying the American depositary receipts. The company on July 27 reported better-than-expected first-half profits. Despite the improving profitability, the stock has followed the broader market down. The shares have lost about 8% this year, roughly in line with the performance of the Paris CAC 40 index, which tracks leading French-listed companies.
Emerging Markets:
China’s real estate travails have gripped global attention. Housing in other emerging markets now looks wobbly as consumers, loaded with debt from a postpandemic price boom, face interest-rate hikes and fatter monthly payments. South Korea is a prime candidate. Apartment sales there dropped by half in the first six months of 2022, after prices climbed 20% in two years. The central bank has tightened from 0.5% to 2.25%, and warned of more to come.
-House Speaker Nancy Pelosi’s visit to Taiwan this week has ratcheted up US-China tensions to a new level. The question facing investors now is what shape the escalation takes—and the impact on the global economy. The concern is that the status of Taiwan, the self-ruled island that China claims as its own, draws the US and China into a military conflict that forces the rest of the world to choose sides. Such a conflict would also disrupt the steady balance that has allowed Taiwan to emerge as the epicenter of advanced semiconductor production that helps keep the digital economy humming and is crucial for tomorrow’s superpowers.
Commodities:
-There was no specific commodities column this week. The focus was on the Jobs Report: Jobless claims data released early Thursday showed that the number of Americans filing for first-time unemployment benefits increased again in the last week of July. The data was in line with economists’ expectations. Overseas, the Bank of England decided to raise its key interest rate by half a percentage point from 1.25% to 1.75% in an attempt to fight inflation. It was Britain’s biggest hike in 27 years, and the BoE also warned of a long, looming recession. “Don’t expect Fed officials to shift their hawkish tone in coming weeks, regardless of incoming economic data,” wrote Nicholas Colas, co-founder of DataTrek Research on Thursday.
Streetwise:
-The US is somehow gaining wireless accounts faster than people, says Jack Hough. During the second quarter, there were 2.22M “postpaid net adds,” a smidgen shy of the record set a year ago. Postpaid accounts come with regular monthly bills and make up three-quarters of the market. Net adds are new subscriptions minus canceled ones. The growth works out to 3.9% year over year. More than two-thirds of it was captured directly by telecoms, and the rest came from so-called mobile virtual network operators, including cable companies that pay telecoms for the right to sell piggyback service on their networks.