Barron’s Weekend Summary:For years, laptops and desktops were the bread and butter of the tech sector
Cover:
-For years, laptops and desktops were the bread and butter of the tech sector, and demand was even able to withstand the pressure from smartphones. The pandemic in 2020 caused PC sales to increase by some 25%. But by 2022, as the pandemic restrictions were lifted, PC sales were falling once again. This time, PC makers like Dell Technologies, HP and Lenovo Group are taking a different approach to rev up sales: The PC business is going all in on artificial intelligence.
Interview:
-Barron’s spoke to Charles Kantor, a senior portfolio manager at Neuberger Berman and a manager of the Neuberger Berman Long Short fund. Kantor explained that the principle of the fund is that “you make more by losing less. We are trying to make money while protecting the downside to drive attractive, risk-adjusted returns. But underpinning all of that is a belief in fundamental research—and we think we’re in an environment where doing fundamental research should make a difference.”
Tech Trader:
-Apple reported fiscal fourth quarter results that were even better than Wall Street estimates. Nevertheless, the results failed to impress investors as they made it clear that the quarterly report suggested that for all of the results, the company has stopped growing. The growth, or lack thereof, problem was highlighted in the revenues. They were $89.5 billion, down 1% from the year-ago period, marking a fourth consecutive quarterly decline.
-Rate cuts tend to come when the economy is under threat, thus defensive sectors tend to perform the best over those stretches. Communications services companies such as AT&T and Verizon Communications—as well as those in healthcare, utilities, and consumer staples, tend to thrive in relative terms because people need their products even when times are harder.
The Trader:
-Meta Platforms is the top tech stock now according to Barron’s. Technology stocks have gotten hit—but not all of them equally. Higher profits had pushed the tech sector in the first months of 2023, but the third-quarter earnings results were weaker than anyone expected – such as Alphabet,
which is down about 6% since it reported better-than-expected earnings on Oct. 24 after gaining 50% to start the year. The Technology Select Sector ETF has lost about 8% from its record high hit in late July.
Yet, META has withstood the pressure and the stock has lost a mere 0.1% since earnings.
-While market volatility has fallen, the shares of companies reporting earnings have been moving in allay directions. Roku, Shopify, and Palantir Technologies gained more than 20% after their reports, while Paycom Software, ON Semiconductor, and Estée Lauder (EL) dropped 19% or more. Even if the numbers were not bad, even good, the problem for stocks is that the S&P 500 is already up double digits for the year, reflecting these profits, and investors are always looking to the future.
Features:
-A mere six months ago Chevron was Wall Street’s favorite big energy company. Now, Chevron stock has fallen 17% in 2023, making it the worst performer by far among the half-dozen global super majors this year. Exxon Mobil., rather, dropped a mere 2% over the whole year so far. Most of Chevron’s drop has come during the past few weeks after an unsatisfactory earnings report that included news of a surprise delay in the development of a key oil field in Kazakhstan, while Chevron’s $60B deal to buy Hess failed to excite investors but was seen as a sign of weakness by some.
-Thanks to the yield on the 10-year Treasury sliding on Friday, it’s likely mortgage rates will also fall, pleasing buyers and home building investors alike. The 10-year Treasury yield, with which mortgage rates often move, fell Friday morning after October’s Labor Department jobs data came in cooler than expected. The drop in the yield continues a slump that started earlier this week. At 4.510%, it’s the lowest since Sept. 22, according to Dow Jones Market Data.
Europe:
-The Bank of England decided to follow the lead of the Federal Reserve and the European Central Bank, keeping interest rates unchanged. Like the Fed, the BOE is trying to keep inflation in check. But, its efforts so far have failed to bring inflation within the target despite a series of rate hikes. Between December 2021 and August 2023, the BoE lifted borrowing costs to bring the benchmark to a 15-year high of 5.25%. Now, officials say they are taking a more cautious approach as they evaluate the effects of previous hikes.
Emerging Markets:
No updates this week
Commodities:
-The electric vehicle industry has slowed down and “no one immune from this downcycle,” according to Evercore ISI analyst Stephen Richardson. Meanwhile, lithium miner Albemarle reported third-quarter earnings per share (EPS) of $2.74 from revenues of $2.3B on November 1. That’s far lower than the $3.77 and $2.5 billion, respectively that Wall Street had expected. Consider that a year ago, Albemarle reported EPS of $7.50 from sales of $2B. Thus it’s clear that lithium is losing its luster.
Streetwise:
-Walt Disney could use some ideas for solving its ESPN problem, says Jack Hough. It won’t be easy even with television guru Bob Iger backin the captain’s chair at Disney. The company is evaluating the possibility of bringing in a new partner for ESPN. And to understand the importance of ESPN, consider that ESPN could contribute between 20% and 25% of Disney’s total segment operating income for its fiscal year ended September, and nearly all of its media and entertainment income. Indeed, “sports are easily the best-performing part of traditional TV, and ESPN bills itself, justifiably, as The Worldwide Leader in Sports.” ESPN holds an unparalleled set of sports TV rights. Its operating income this fiscal year could total $2.8 billion—not the worst starting point for a crisis.