Cover:
-This week's Cover presents the second Barron's Roundtable installment (out of three), featuring 11 investment experts discussing various stocks they find attractive this year. Despite their generally bearish outlook on 2025, the panelists continued to discuss these stocks and bond funds. They recommended companies benefiting from artificial intelligence, mergers and acquisitions, new products, expanded markets, or better blocking and tackling of day-to-day affairs. In this week's Roundtable installment, Barron’s collects 34 picks from five experts, including Henry Ellenbogen, Sonal Desai, John W. Rogers Jr., Rajiv Jain, and Mario J. Gabelli. The experts demonstrated that there are numerous ways to uncover value in an otherwise pricey market. The group's investment specialties and analytical approaches demonstrate that there are numerous ways to uncover value in an otherwise pricey market.
Interview:
-No update
Tech Trader:
-Alphabet, the parent company of Google, has been a battleground stock amid skeptics who believe it will lose market share to artificial intelligence. However, Al Root argued that Google is unlikely to lose its dominant share of the search market anytime soon, protecting its $258B in annual ad sales. Google's shares have increased 16% since his article, while the S&P 500 index remains flat. The danger for Google may not be losing market share in search, but rather that search becomes subsumed within the broader category of AI, specifically automated personal assistants. Experts predict that 2025 will be the year of AI agents that can automate tasks on servers, PCs, or smartphones. These agents could access Google Search from any web browser, incorporating Google's results into its process but not clicking on ads. Google is aware of the threat and is fighting on several fronts, including AI summaries of search results, Gemini language models, and custom AI data center hardware, known as TPU.
The Trader:
-Hershey's earnings and stock price have been hit by various headwinds, with analysts forecasting a 19% lower earnings this year compared to 2023. The cost of goods, including cocoa, is expected to rise significantly from 2023 due to cocoa shortages in Africa. Hershey's price increases of 2% in the fourth quarter were not enough to offset these costs. The company's operating profit margin is expected to fall almost five percentage points from 2023 to 19% this year. The overall sales picture has also been poor, with last year's sales declining modestly to $11.16B.
-Stocks surged following inflation data this week, with the S&P 500 increasing by 2.9% to around 6000. The NASDAQ Composite rose by 2.5% and the Dow Jones Industrial Average rose 3.4%. However, the data did not provide much relief, as the consumer price index rose by 2.9% year over year in December, above November's 2.7%. Core CPI, which excludes volatile food and energy prices, gained 3.2%, a tick below forecasts and under November's 3.3%. Inflation remains above the Federal Reserve's 2% goal, with the average headline CPI being 2.7% in the past three months, above the 2.6% average for the three months ending in September. The personal consumption index (PCE) has been running a few tenths of a percentage point below headline CPI, but remains above 2%.
Features:
-The Supreme Court has ruled that the law banning TikTok in the U.S. will not be blocked, but the Biden administration will not enforce it. The White House stated that TikTok should remain available to Americans under American ownership or other ownership that addresses national security concerns. The Supreme Court concluded that the challenged provisions do not violate petitioners' First Amendment rights. The Department of Justice supported the decision, stating that authoritarian regimes should not have unfettered access to millions of Americans' sensitive data. Implementing and ensuring compliance with the law will be a process that plays out over time.
-The US government has committed an additional $590M to Moderna's messenger RNA-based pandemic flu vaccine, as the Biden administration prepares for a potential H5N1 avian influenza pandemic. The award is a significant sum for the US Department of Health and Human Services division, BARDA, which last year gave Moderna $176M to fund the shot's development. The government's recent funding for Moderna's mRNA bird flu shot now totals $766M, approaching the $995M spent on the company's Covid-19 shot in early 2020. The funding will speed up the development of an mRNA-based H5N1 vaccine that is "well matched" to the strains currently infecting cows and birds in the US. Moderna is preparing to advance the pandemic influenza shot into a Phase 3 trial.
Europe:
-The UK's Competition and Markets Authority is investigating Google again, assessing its position in search and search-advertising services and its impact on customers, businesses, and rivals. The investigation will focus on whether Google can shape the development of new artificial-intelligence services to limit competition, its use of consumer and publisher data, and its use of its position to direct consumers towards its own services. Google will continue to engage constructively with the CMA to ensure new rules benefit all types of websites and allow people in the UK to benefit from helpful and cutting-edge services. The US is facing a more consequential antitrust challenge for Alphabet stock, as a federal judge ruled in August that Google had a monopoly in general search services and text advertising.
Emerging Markets:
-No update
Commodities:
-Oil stocks have seen a surge, making shorting or betting against them a stronger bet than buying them. The Energy Select Sector SPDR exchange-traded fund, home to oil producers like Chevron and Exxon Mobil, has risen 13% to $94 since a major low point in late December. This optimism is rooted in several factors, including interest rates, inflation, consumer and business demand, and President Biden's additional sanctions on Russian oil. Oil stocks have seen sellers come in when the price moves into the low $80s since early 2024, and gains in oil stocks have been tapped out since 2014. Technical dynamics are reasons not to buy oil stocks, but there are also plenty of reasons to outright short them. If any of the factors driving them higher disappoint, the downside potential looks substantial.
Streetwise:
-A three-year freight recession is easing, but the overall transport outlook is “better than bad but not necessarily good,” says Evercore ISI analyst Jonathan Chappell. The best stock opportunities are in companies that can bootstrap better results even if outside factors don't fully cooperate. The US economy experienced a net gain of six points after a strong Jan. 10 jobs report and an inflation reading five days later. The overall inflation rate accelerated to a seasonally adjusted 0.4% for December, which isn't ideal for rate cut hopes. However, if we use full-year inflation and strip out energy and food, we get 3.2%, whereas economists were predicting a fourth straight month with a 3.3% reading. The latest number is 3.248%, which is two one-thousandths of a point away from being rounded up to 3.3%, not down. Financial markets were recently pricing in a 92% probability of a first-half rate cut, up from 68% before the inflation report.