Barron’s Weekend Summary: Energy has taken a central role in global affairs, soaring last year as the war in Ukraine upended the market.
Cover Story:
-Energy has taken a central role in global affairs, soaring last year as the war in Ukraine upended the market. Now, commodity prices are tumbling again, the stocks are wobbling, and an even bigger change—a global transition to clean energy—appears to be around the corner. To understand how all these dynamics will play out in the coming years, Barron’s convened a roundtable of energy experts that met May 9 on Zoom. The group included Helima Croft, head of global commodity strategy and Middle East and North Africa research at RBC Capital Markets; Dan Pickering, founder and chief investment officer at Pickering Energy Partners; Christyan Malek, global head of energy strategy and head of Europe, the Middle East, and Africa oil and gas equity research at JP Morgan; and Karim Fawaz, director of financial and capital markets at S&P Global Commodity Insights.
Interview:
-See Cover section for this week’s interview feature.
Tech Trader:
-How should investors play the artificial intelligence software mania.
The obvious bets are so well known that it seems everyone owns them. The consensus big winner is Nvidia, which makes graphics processors used to train the large language models at the heart of generative AI. Nvidia shares have more than doubled this year already, and the company now ranks as the fifth most valuable tech stock, ahead of Meta Platforms and Tesla. Microsoft was the market’s first pick on AI software, given its large stake in ChatGPT creator OpenAI and the introduction of AI features into a host of Microsoft applications. The stock is up 33% this year, and has a market value of $2.4T, trailing only Apple. Alphabet shares were shunned earlier this year after Microsoft unveiled an AI-powered version of its Bing search engine. But Alphabet has been investing in AI for at least a decade and recently announced AI advancements of its own. The stock is up 39% in 2023. Also creeping into the discussion: Oracle, which has an agreement to host Nvidia-powered supercomputing services on the Oracle Cloud. Oracle shares are pennies from an all-time high, up 26% for the year.
Then there are the crowd favorite but speculative AI plays: enterprise software maker C3.ai was up 30% this past week; data analytics firm Palantir Technologies was up 23% on the week, while voice-enabled AI play SoundHound rallied 10%. But if AI is going to be world-changing technology along the lines of the internet, the cloud, the smartphone, electricity, and air travel, there have to be other ways to play it, right? Brook Dane, a Goldman Sachs tech portfolio manager, who was a guest this past week on Barron’s Live, our daily webcast and podcast. He’s fully focused on finding the next AI winners even though it’s still early. But, one of his favorites is Marvell Technology (MRVL), which makes chips used in data center connectivity.
The Trader:
-Apple has ruined this market. And it’s the biggest impediment to more gains.
That might seem like an odd thing to say. The S&P 500 index rose 1.6% this past week, while the Dow Jones Industrial Average gained 0.4% and the Nasdaq Composite rose 3%. Apple, which was up 1.5% for the week, certainly did its part. But at some point in the past couple of weeks, depending on data providers, Apple’s market capitalization, at $2.76T, topped the combined market cap of the entire Russell 2000RUT –0.62% index of small-cap stocks. Michael Arone, chief investment strategist at State Street’s US SPDR exchange-traded fund business worries that this concentration of gains is “contributing to investor anxiety,” says Arone, adding that it’s why investors have had an uneasy feeling about the market rebound since October.
-Porsche’s stock might prove to be as appealing as the company’s cars. The problem is: which Porsche stock to buy? US investors can be forgiven if that sounds like an odd question. Porsche stock isn’t nearly as straightforward as Ford, GM or Tesla.
There are American depositary receipts of Porsche Automobil but that isn’t Porsche , the car maker. It’s a holding company that owns about 25% of the ordinary stock in Porsche and about 53% of the ordinary stock in Volkswagen. Porsche, the maker of the famous 911, is actually named Dr Ing hc F Porsche AG, though it’s usually just referred to as Porsche. The ticker of the US-listed ADR is DRPRY. The company has 911 million shares outstanding in Germany, a total composed of 455.5 million ordinary shares and 455.5 million preferred shares. In Germany, it trades under the ticker P911. (Clever, huh?)
That’s the one investors uninterested in complexity should consider buying. Though the stock is up roughly 40% from its initial public offering about eight months ago, there’s still room for more gains, if trading in Ferrari. Ferrari sells fewer, more expensive cars than Porsche, but both companies are low-volume, ultra-luxury car makers that have no problem selling out their annual production—and are less impacted by a slowing economy or affordability issues.
Features:
-Negotiations over the debt ceiling resumed late Friday after talks were put on hold earlier in the day, according to The Wall Street Journal. A White House official said negotiators were meeting Friday night on Capitol Hill, the Journal reported. Earlier, Rep. Garret Graves (R., La.) walked out of negotiations with the White House after failing to come to an agreement on raising the debt ceiling. “We’ve decided to press pause because it’s just not productive,” Graves told reporters.
-Tesla investors can feel relieved that their CEO Elon Musk can devote more attention to the cars and less to Twitter, which got a new CEO in the form of Linda Yaccarino. Now they can start thinking about what comes next for Tesla, wwhose shares closed at $180.14, up 1.8% Friday while the S&P 500 and Nasdaq Composite dropped 0.1% and 0.2%, respectively. With Friday’s gain, shares are now up almost $12, or about 7%, since Musk tweeted out on May 11 that he had found a new CEO for Twitter. For the week, shares rose more than 7%, boosted by the company’s annual meeting of shareholders where Musk reaffirmed his commitment to running his car company.
European Trader:
-BT Group said it wants to reduce its workforce by possibly more than 40% by the end of the decade. While the British telecommunications company is not the first to credit artificial-intelligence for enabling mass job cuts, the scale of the reduction could set a new bar for US peers such as AT&T and Verizon. BT said Thursday that its total workforce –including employees and third-party contractors–will fall to between 75,000 and 90,000 by between fiscal 2028 and fiscal 2030, from 130,000 currently. That’s a potential 55,000 workers to go.
CEO Philip Jansen said around 10,000 of the job cuts would be due to automation and digitization, including the use of AI technology.
Emerging Markets:
-Investors who don’t mind playing with some fire may find ways to make some gains in Turkey based on the tried and tested policies of President Recep Tayyip Erdogan, who is all but certain to win re-election in the forthcoming runoff vote following the May 14 elections. One way to play Erdogan’s re-election is through the country’s hard-currency bonds, most of which are yielding between 9% to 10% annually. Chances of default look low, even with five more years of Erdogan. “There are other single-B sovereigns out there that offer higher yields, he says, referring to Turkey’s credit rating, one notch into junk. “But they don’t have Turkey’s strong repayment history, favorable public debt ratios, or diversified economy,” says Blaise Antin, head of sovereign research at TCW.
Commodities:
-Gasoline prices are falling fast heading into Memorial Day, but it’s no guarantee that will get more people behind the wheel over the holiday weekend. Demand for gas has been lackluster this year despite the drop in prices, and some experts see little chance of that changing.
At $3.50/gallon, average national gas prices are $1 less than they were a year ago. That milestone has been matched only three times in recent history—during the 2009 recession, the 2015 OPEC supply glut, and the height of Covid in 2020, according to Patrick De Haan, head of petroleum analysis at price-comparison company Gas Buddy. In general, oil prices are weak because of slowing demand around the world, as high interest rates and other issues are weighing on economic growth. Products like gasoline and diesel, which were in short supply last year during the early stages of the war in Ukraine, are now less scarce.
Streetwise:
-While ‘green’ hydrogen has produced interesting results in testing, hydrogen exposed stocks have not. The hydrogen hype cycles has focused on consumer uses, like fuel cells for cars. But the one to consider now is more about using industrial-scale hydrogen to clean up fertilizer and steel. And the perks have never been bigger. The US is suddenly offering $100B for clean hydrogen production. That’s a bonanza, or a mirage, depending on the precise definition of clean hydrogen, which, it turns out, lawmakers didn’t quite nail down. But guidance is coming, and projects have begun. Some things aren’t so different. Clean hydrogen’s heyday remains far off. “Broad adoption, in our view, should not take place in the foreseeable future,” wrote a team of JP Morgan analysts this past week. The world’s lightest element is still Hindenburg-ing investor cash. Defiance Next Gen H2HDRO, an exchange-traded fund of clean hydrogen and fuel-cell plays, has lost 69% since launching just over two years ago. This isn’t a criticism of clean hydrogen technology by some cranky stock market scribbler who last studied chemistry a third of a century ago and took to it like a vampire to holy water. It’s a complaint again st the investment case. (That other stuff checks out.)