Barron’s Weekend Summary: Saudi Arabia is investing over $3.2T to transform its economy by 2030
Cover:
-Saudi Arabia is investing over $3.2T to transform its economy by 2030, aiming to become a high-tech hub and global business destination. Despite the Middle East's instability, the country's investment outlook and stock market have seen an 11% increase in the past year. This aggressive plan is expected to boost sales for non-Saudi companies like Boeing, Oracle, and Hilton Worldwide Holdings, as well as attract Wall Street banks. This aggressive approach is rare in emerging markets, where countries have achieved significant progress within a shorter timeframe.
Interview:
-Barron’s spoke to Natasha Kaneva, the head of global commodities strategy at J.P. Morgan in early December about her outlook for oil, natural gas, and gold. Kaneva predicts a rebound in oil prices in 2024 as demand rises and OPEC holds back supply. The energy market's major players are at a crossroads, with most oil companies trailing the market by double digits in 2023. OPEC will face a tricky decision in 2024 about limiting supply growth to keep prices high, as it cedes market share to competitors outside the alliance. The oil market is on the verge of a structural change, with gasoline demand peaked in 2019 in the US and likely continuing to decline. 2024 is likely the last year of global gasoline demand growth before a slow decline.
Tech Trader:
-No update this week
The Trader:
-T-Mobile US has benefited both itself and SoftBank Group through its acquisition of Sprint from the latter, which included a provision for additional compensation if shares of the combined telecom company traded above a certain level for a long time. T-Mobile has issued SoftBank an additional 48.8M shares worth $7.6B billion, diluting T-Mobile's existing shareholders by about 4%. T-Mobile's outperformance over its peers is due to its fundamentals, with earnings per share set to increase 250% in 2023 and free cash flow rising 75% in 2023. The stock's valuation multiple has gotten cheaper, with its valuation multiple below 16 times, as the S&P 500's price/earnings multiple approaches 20 times. “T-Mobile is an expensive stock only in the world of telecom, where AT&T and Verizon trade for seven and eight times forward earnings, respectively.”
-The S&P 500 index failed to close at a record high in 2023, despite its efforts. The Nasdaq Composite's 43.4% rise fell short of a record, while the Dow Jones Industrial Average managed to climb to 13.7%. Despite the gloomy outlook, the year was considered a success, as the consensus opinion predicted a 2023 recession in the US, but the economy grew at a faster-than-2% annual rate in the first half of the year and accelerated to 4.9% in the third quarter.
Features:
-Hertz's investment in electric vehicles has failed, with the company's stock dropping almost 50% to around $10. The company's Tesla-heavy fleet faces high repair costs and price cuts, while customers are not keen on the cars. Despite these challenges, Hertz's projected 2024 earnings are 8.6 times higher than Avis, and its market value is less than half that of Avis. The investor group controlling Hertz could potentially buy out public shareholders if the stock remains cheap. The current stock price is “overwhelmingly attractive for patient investors,” wrote Chris Woronka, a Deutsche Bank analyst.
-Chevron, one of the world's best-run big energy companies, experienced a 16.5% drop in 2023, worse than its global supermajor peers, including Exxon Mobil. The company's underperformance was due to production shortfalls in two of its largest oil fields in the Permian basin and Kazakhstan, and its $60B deal to buy Hess, a 30% stake in Guyana's offshore field. Despite this, Chevron's shares appear inexpensive, with a 10.7 times projected 2024 earnings and a 4.2% yield. The company plans to boost its dividend by 8% in January and buy back $20B of stock annually after the Hess deal closes.
Europe:
-The Euro climbed over 3% against the dollar in 2023, but the race to cut rates isn't as close as markets think, suggesting further growth in 2024. The Fed is expected to cut rates in March, while the European Central Bank is expected to lower rates in the second quarter. The ECB has been slower to pause rate increases than the Fed and Bank of England, hiking in September and July 2022.
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:
-The cost of food is rising slowly as inflation cools, but elevated energy costs, abnormal weather patterns, and potential interest rate cuts in 2024 could keep prices higher than expected. In November, the consumer price index for food items rose 0.2% from the previous month, about 2.9% higher from the same period last year. The US Department of Agriculture estimated that food inflation will continue to decelerate, with prices increasing 1.2% next year. Food purchased at grocery shops is projected to cost 0.6% less in 2024, down from the agency's 1.6% growth estimate just a few weeks ago. Food consumed at restaurants is predicted to become 4.9% more expensive next year. If the agriculture department's 2024 estimates hit the target, it would be the smallest annual increase in overall food prices since 2017 and the steepest decline in grocery prices since 2016.
Streetwise:
-The 2024 US presidential election could generate $15.9B for the advertising industry, according to GroupM. This is a 30% increase from the last presidential cycle and five times the spending on the recent midterms. Wall Street is bullish on shares of Trade Desk, a key player in placing ads on streaming services. Investment banks Truist and Macquarie have called Trade Desk a favorite, and D.A. Davidson has added it to its list of "Best of Breed" companies. Trade Desk, founded in 2009, has seen revenue grow from $200M to approaching $2B and is growing at about 20% a year.