Barron’s Weekend Summary: Automobile electrification is advancing rapidly. Tesla may have led the way, but the legacy automakers are catching up quickly
* Cover Story:
-Automobile electrification is advancing rapidly. Tesla may have led the way, but the legacy automakers are catching up quickly. Ford has big plans to win the battle for battery supremacy. But so does General Motors, which plans to spend $35 billion on vehicle electrification by 2025, up from prior spending guidance of $27 billion, while Volkswagen, the world’s largest auto maker by volume, plans to build six battery facilities in Europe by 2030. Tesla, with a big lead over the legacy auto makers, is still investing in battery capacity and technology. Overall, auto makers controlling about 50% of the global vehicle market have earmarked about $75 billion for battery development and manufacturing through the end of the decade.
* Interview:
-Barron’s spoke with Paul Gallant, tech policy analyst at the Cowen Washington Research Group. Earlier in his career, Gallant spent nearly a decade as a lawyer at the Federal Communications Commission, before moving to the Street, where he’s been assessing the investor implications of Washington decision making for nearly two decades. Ultimately, Gallant sees risks for Big Tech, but maybe not the ones most investors are worried about.
* Tech Trader: -All five Big Tech giants reported results this past week. “Amazon.com and Apple posted disappointing results within 30 minutes of each other on Thursday. One such report would have been a rarity. In unison, they felt like a modest quake in tech land. Their earnings followed a similarly weak performance from Facebook —now Meta—earlier in the week. Alphabet did a little better, but Microsoft was the clear winner, posting better-than-expected results and impressive guidance.”
* The Trader:
-There are plenty of reasons to sell stocks, including the latest bout of disappointing earnings results from some of the big tech companies. But, there’s also one highly compelling reason to hold: the stock market continues to go up. “A sourpuss, particularly one who sold during September’s 5% drawdown—especially in the face of so much bad news—might suggest that the market resilience is something to be feared, not celebrated. Regardless, the pros, at least, may have no choice but to go all in, especially if they need to catch up with the market by the end of the year, notes Frank Gretz of Wellington Shields, and that could keep the bull market rolling.”
-Wondering whether to invest in AMC or Cinemark? Barrons suggests AMC is the better bet. “During the first seven months of the year, AMC stock (ticker: AMC) gained more than 1,600%, while Cinemark (CNK) fell 11%. With the Delta variant causing people to stay away from the cinema, memes, not movies, were clearly driving the stocks. That’s no longer the case. Since the end of July, Cinemark has gained 21%, while AMC has dropped 4.5%. The shift in stock performance suggests that investors are watching the box office again—and like what they see. With Delta fading and a strong slate of movies on tap, expect Cinemark stock to continue rallying.”
-First, it was car companies. Then it was industrials. But, few were expecting quarters this bad from the two tech titans. Now, Apple and Amazon.com “are getting hit by global supply-chain woes that only seem to get worse. And if big tech isn’t immune, then shortages are likely to be a growing risk for companies this earnings season and beyond.”
* Features:
-“Deere said midday Saturday that it had reached a tentative deal with the United Auto Workers union, two weeks after workers at the agricultural equipment giant went on strike after rejecting an earlier contract proposal. The strike will continue until the contract is ratified, the UAW said. The union is expected to put the new deal to a vote of its membership.”
-On Friday, Merck said that “it had withdrawn a premerger notification filed with the Federal Trade Commission for its planned acquisition of Acceleron Pharma in order to give the FTC ‘additional time for review.’ The company said it would refile the form on Monday. As a result of the refiling, it said it had extended the deadline for its tender offer to Acceleron (ticker: XLRN) shareholders, which was set to expire on Nov. 10. Shareholders will now have until Nov. 18 to tender their shares.”
-IBM’s pending spinoff of Kyndryl, a gigantic provider of managed IT services, will be completed next week. But Kyndryl shares are already trading on a “when issued” basis, providing an early look at how investors will value the business. The terms call for IBM to issue its shareholders one Kyndryl share for every five IBM shares outstanding.
* Europe:
-Daimler, parent of Mercedes Benz said that “operating profit in the third quarter rose 18% from the same period last year as cost cuts and a priority on high-end models helped it navigate through the global chip shortage.” But Daimler also noted that unit sales dropped by 25% in the quarter, but sales remained at the same level as last year, at €40.1B billion ($47B billion) against €40.3 B last year.
-Shell has been under pressure this week after activist investor Daniel Loeb’s Third Point wrote a letter to his shareholders urging the oil company to split itself up. Shell has “too many competing stakeholders pushing it in too many different directions, resulting in an incoherent, conflicting set of strategies attempting to appease multiple interests but satisfying none,” the letter said.
* Emerging Markets:-In an op-ed, Eric LeCompte, director of Jubilee USA Network writes that “The Covid-19 crisis hit developing countries harder than wealthy countries and the effects will linger longer. The International Monetary Fund projects that advanced economies will return to their prepandemic growth trends in 2022, while developing countries will see persistent losses continue for several more years.”-“Turkish companies are among the best run in emerging markets, if they weren’t held back by the macro environment,” says Jacob Grapengiesser, a partner at East Capital. Erdogan faces re-election by June 2023 with approval ratings at a six-year low, around 40%. He previewed his comeback strategy on Oct. 21, when his handpicked central bank cut interest rates by 2 percentage points to 16%, despite inflation nearing 20% a year.
* Commodities:“Meats have led the rise this year in US food costs, while prices for fresh fruits and cereals, including those made from oats, are also higher on the back of drought conditions in parts of the nation. Restaurant menu prices, known as food away from home prices, have outstripped the rise in food at home, or retail store prices, this year.”
* Streetwise: This week Jack Hough looks at post-pandemic travel. And the nine-month cruise has attracted his interest. “Some travel vendors are thinking big. Royal Caribbean Group just announced a nine-month Ultimate World Cruise, starting in December 2023 and hitting every continent, with more than 150 excursions from Machu Picchu to the Great Wall. Prices with business-class flights and precruise gala: about $61,000 to $112,000 per person. Drink deeply and spill plenty—booze and laundry service are included.”