Barron’s Weekend Summary:
Cover Story:
-Bud Light is the latest casualty in a battle over whether companies are embracing too many progressive goals on everything from gender identity to climate change. Companies from BlackRock to Walt Disney are under siege as political attacks on progressive corporate policies heat up ahead of the 2024 elections. Some companies are fighting back—notably Disney—and there is scant evidence of firms retreating from environmental, social, and governance, or ESG, initiatives. At the same time, conservative calls to boycott consumer brands and financial companies accused of corporate “wokeism” have gained momentum, and several Republican-led states have passed laws or rules penalizing companies they view as hostile to their economic or social interests.
Interview:
Matthew went to work for Marty Whitman, the legendary value investor who founded Third Avenue Management in 1986. He started “about one step above the mailroom” in 2000 and climbed the ladder to portfolio manager of the firm’s flagship $900M Third Avenue Value fund, which he has overseen since late 2017. Last year, the fund returned 17.5%, including reinvested dividends, while the S&P 500 returned a negative 18.1%. That performance placed Third Avenue Value in the first percentile of its category, according to Morningstar, meaning that it delivered better returns than 99% of its peers.
Tech Trader:
-On Thursday evening, Apple reported March-quarter results above expectations. Revenue fell by 3% year over year, but iPhone sales were actually up. Apple stock surged 5% on the earnings and revenue beats. Overall demand for computers and smartphones has been in free fall, following a large pull forward in spending during the pandemic. Last month, IDC said worldwide shipments of PCs fell 29% in the first quarter from a year earlier. Similarly, Intel—the largest supplier of PC processors—recently reported a 36% decline in revenue for the March quarter. The mobile phone market isn’t much better. Canalys, a research firm, said first-quarter worldwide shipments for mobile phones fell 13% year over year due to difficult economic conditions. On Wednesday, Qualcomm, the leading maker of mobile processors and 5G wireless chipsets, posted a 17% revenue decline in the March quarter, while giving a markedly worse-than-expected forecast, citing softening demand for smartphones.
The Trader:
-Haters of Starbucks stock were out in force Wednesday, despite an earnings report that showed everything going the company’s way. But, rather than sell, this is a chance to buy the stock on the dip. Starbucks’ earning report had much to like. Sales grew about 14% year over year to $8.72B, better than forecasts for $8.41B. The company gained millions of new Starbucks Rewards members, and both store traffic and total spend per store visit increased. Even the beginnings of the recovery in China, still not fully reopened, drove a moderate sales gain in the region. Profit margins beat estimates as increases in the cost of food and wages moderated. That drove earnings up 25% to 74 cents a share, better than the expected 59 cents. What seems to have raised analysts’ concerns is that management only reaffirmed its fiscal 2023 same-store-sales guidance for 8% growth, without raising its forecast.
-One would expect the Federal Reserve’s likely pause in raising interest rates to trigger a bullish response from the markets. That’s not what happened—and for good reason. The S&P 500 index had gained 7.7% this year, partially on hopes that the Fed will take a break. Economic growth has been slowing, dragging down inflation with it, providing Fed Chairman Jerome Powell with a reason to stop tightening monetary policy, if he so chooses. That’s a relief to the market, which struggled last year with some of the fastest rate hikes in history. Yet the stock market dropped when the Fed raised rates by a quarter-point but indicated that a pause is, indeed, on the way. The S&P 500 fell 0.8%, while the Dow Jones Industrial Average dropped 1.2%.
Features:
-It’s the Berkshire Hathaway annual meeting in Omaha, Nebraska. Some 30,000 Warren Buffett fans and Berkshire Hathaway shareholders have descended on Omaha for the annual ritual often called the “Woodstock for Capitalists.” The weekend kicked off with a Shareholder Shopping Day on Friday, with many of Berkshire’s dozens of subsidiaries showing off their wares in an enormous hall at the CHI Health Center. The main event on Saturday is the annual meeting itself and hours of questions for Buffett and his partner Charlie Munger, plus vice chairmen Greg Abel and Ajit Jain.
-CNH Industrial, a peer of Deere DE and Caterpillar CAT +2.24% , posted record first-quarter earnings and raised full-year financial guidance. The stock was down in early trading, until the jobs report bailed out the market. Friday morning, CHN, a maker of farm equipment and heavy machinery, reported earnings per share of 35 cents for the quarter on sales of $5.3 billion. Wall Street had expected earnings per share of 32 cents on sales of $5.1B. A year ago, the company earned 28 cents per share on sales of $4.6B. The company now expects 2023 sales to grow 8% to 11% from 2022, up from a previous range of 6% to 10%, and kept a free-cash-flow estimate range from $1.3B to $1.5B.
European Trader:
-European banks are looking better than their US counterparts. And investors are bullish on European bank stocks. The iShares MSCI Europe Financials exchange-traded fund has lost 10% over the past 10 years, while shares of US peers doubled. European banks trade at an average of 0.8 times tangible book value, says Elias Chrysostomou, an analyst covering the sector for T. Rowe Price. The U.S. ratio is 1.2. The tables may be turning. As the U.S. wraps up its third big bank rescue in seven weeks with JPMorgan Chase absorption of First Republic Bank, the European Union and the United Kingdom have remained relatively undisturbed. The continent’s one financial implosion, Swiss-based Credit Suisse, had been building for years and could safely be called idiosyncratic.
Emerging Markets:
No update this week for this column
Commodities:
-Shares of Enviva, a producer of industrial wood pellets, dropped after the company said it would eliminate its quarterly dividend and provided a weaker outlook for this year. Enviva’s press release on Wednesday it now expects a net loss ranging from $136M to $186M for 2023—compared with its previous outlook for a net loss of $18M to $48M. Enviva shares tanked 65% to $7.57 in Thursday trading, as both investors and Wall Street appeared concerned about the company’s update. Shares traded as low as $7.50, a new all-time intraday low, based on available data back to April 2015, according to Dow Jones Market Data.
Streetwise:
-This week, Jack Hough (there’s only the podcast version of the Streetwise column) discusses individual bonds versus funds? We revisit a listener question special from February, 2023, with questions on passive investing, robo advisers and bond funds.