Barron’s Weekend Summary: Microsoft is currently ranked as the most valuable company globally
Cover:
-Microsoft's shares closed at a record $404.87, with a $3T market cap, and it is currently ranked as the most valuable company globally. MSFT stock has outperformed the S&P 500 index over the past one, three, five, and 10 years. If purchased at its IPO in 1986, it would be worth over $22M today. Over the past decade, Microsoft stock has risen almost tenfold, matching the tenure of CEO Nadella, who has revitalized the company from a moribund state.
Interview:
-No interview this week
Tech Trader:
-Earnings reports from the five most important tech companies are just days away, with Alphabet and Microsoft providing updates on Tuesday, followed by Amazon, Apple, and Meta Platforms on Thursday. IBM shares soared on strong fourth-quarter results, with signs of strength for its nascent artificial intelligence software and consulting business. Workflow management company ServiceNow posted a beat-and-raise quarter, indicating faster uptake for new AI offerings than any product launch ever. Seagate, which has been struggling in recent quarters, reported a rebound in demand for cloud data center hard drives. However, Intel stock fell on Friday after its revenue outlook resulted about $1B short of Wall Street's estimate. Texas Instruments added to a series of disappointing earnings reports from chip makers serving industrial and automotive customers. Tesla slumped on an earnings disappointment, and Logitech swooned on cautious comments about the outlook for videoconferencing systems.
The Trader:
-The market continues to rise despite risks in the week ahead, including the Federal Open Market Committee's announcement of its monetary policy decision on Wednesday. There is only a tiny chance of a rate cut, and federal-funds futures suggest less than a 50% chance that Jerome Powell and company will lower rates in March. However, investors seem disinclined to worry about the results of Apple, Amazon.com, Microsoft, and Alphabet's report. The stock market celebrated good economic data, with fourth-quarter US gross domestic product coming in at an annualized rate of 3.3%, above forecasts for 1.8%. But Investors need to worry about the bad news, particularly given signals from other parts of the market, such as treasuries, which have seen a 0.2 percentage point difference between the two-year and 10-year yields.
-Chip stocks are experiencing a surge, but not those dealing with auto makers. As for the automotive-focused chip stocks, these have sent warnings about the slowdown and seeing their stocks tumble. NXP Semiconductors gets 56% of its sales from the auto industry and offered disappointing guidance in November, predicting fourth-quarter sales of $3.4B, a 2.7% year-over-year growth. Despite these challenges, NXP could flourish after its Feb. 6 earnings report, which is expected to report earnings of $3.66 a share. The company is managing its inventory well, with the number of days products sat on shelves declining on average from the prior quarter.
Features
-The third report from the 2024 Barron's Roundtable presents investment recommendations from Henry Ellenbogen, Rajiv Jain, Abby Joseph Cohen, and Mario Gabelli. The four investors have varying stock-picking styles, but share a common interest in finding value. Henry, the managing partner of Durable Capital Partners, prefers private markets, platform companies, and franchises with compounding value. Rajiv, the chairman and CIO of GQG Partners, places big bets on fast-growing businesses benefiting from a changing world. Abby, a Columbia Business School professor, teaches about the potential revival of US blue chips and Japanese REITs. Mario Gabelli, chairman and CEO of Gabelli Funds, is known for his expertise in corporate lovemaking and companies likely to prosper from mergers and spinoffs.
-Biotech stocks have seen a significant increase in investor interest, with CG Oncology's IPO generating a 96% surge in its first day of trading. This indicates that investor enthusiasm for biotech stocks is still strong, and the sector is expected to continue growing. However, the SPDR S&P Biotech ETF, which tracks smaller and midsize biotech stocks, is still down nearly 50% from its high point in early 2021, despite a 30% rise since November. The ETF has seen gains in early January due to deal announcements at the annual JP Morgan healthcare investment conference, but has dipped in the weeks since.
Europe:
-The European Central Bank (ECB) has left interest rates unchanged this month. Despite historically low unemployment rates in the 20 Eurozone nations, the weak growth outlook and rapidly slowing inflation will put more pressure on the ECB. The ECB is determined to ensure inflation returns to its 2% medium-term target in a timely manner and will set policy rates at sufficiently restrictive levels for as long as necessary. President Christine Lagarde stated that it is "premature to discuss rate cuts" and reiterated the importance of data-dependent decisions.
Emerging Markets:
-No update this week
Commodities:
-President Biden has announced a pause in the approvals of liquefied natural gas export plants to review their environmental, security, and economic impacts. This is the first major setback in the energy industry, but it is unlikely to significantly impact major stocks. The projects that could be delayed are unlikely to enter service before 2027, and the US export capacity is expected to double by the end of the decade. Despite global liquefied natural gas demand growing rapidly, capacity is growing even faster. Existing LNG projects and those under construction are expected to meet or exceed global demand through 2029. The decision has not caused concern for energy investors, as natural-gas prices have ticked up and the First Trust Natural Gas ETF has declined slightly. However, some analysts believe that a plant delay could benefit existing players in the industry, such as Cheniere Energy, which built the first US LNG export facility and whose market share was threatened by an influx of competitors.
Streetwise:
-Jack Hough observes that oil prices have experienced a wild ride in recent years, with prices falling to $37 per barrel during the pandemic (due to empty highways and full storage tanks) and then rising to $120 in summer 2022. Texas crude has recently sold for $77, down from $90 at the end of September but up from $72 since the start of this year. The futures curve suggests that oil prices will fall from the high to low $70s from now through 2027. Oil stock analyst Jason Gabelman, at TD Cowen, is cautious, assuming high $70s for now but $65, on average, in 2026 and 2027. However, he upgraded Exxon Mobil to Outperform from Market Perform, predicting a healthy stock gain with its 3.7% dividend yield. Oil companies like Exxon can still profit well even with low oil prices, as they have brought down the break-even price needed to cover their dividends by $20 a barrel since the early days of the shale drilling revolution.