Barron’s Weekend Summary: National pharmacy chains have become an endangered species in the US
Cover:
-National pharmacy chains have become an endangered species in the US, having grown from 18,600 in 1990 to over 22,500 in 2010. They had some success, squeezing out independent pharmacies and increasing the share prices of Walgreens Boots Alliance and CVS Health. However, their business model is under pressure, with Rite Aid's bankruptcy filing, CVS's share price down over 30%, and unrest among chain pharmacists. The biggest problem is declining reimbursement rates for prescription drugs, which are unlikely to disappear.
Interview:
-Alesia Haas, Coinbase's chief financial officer, has been a key figure in the company's financial struggles, despite the company's stock price rising nearly 400% last year. Haas joined Coinbase in 2018 after a career in traditional finance at companies like General Electric, Merrill Lynch, California's OneWest Bank, and Och Ziff Capital Management. Despite the company's painful results during the crypto winter of 2022-23, the company's fortunes and shares rebounded, driven by the anticipated launch of spot Bitcoin ETFs. Coinbase's biggest vulnerability could be its legal battle with the Securities and Exchange Commission, which charged the company last year with operating an unauthorized exchange. Coinbase denies the allegations and has vowed to fight the SEC in court, a battle that could prove existential for the company and all of crypto.
Tech Trader:
-Walt Disney, Fox, and Warner Bros. Discovery have announced a sports-only streaming joint venture that will offer viewers content from major college and pro sports networks. The deal could shake the U.S. television market, shifting TV from evolution to revolution. The companies are building a sports-based version of services like YouTube TV and Sling TV, offering digital alternatives to old-school cable, removing news and entertainment programming from the cable bundle.
The Trader:
-McDonald's' recent earnings report has boosted its stock and created an opportunity for investors to buy shares in the fast-food giant. The company's long-term returns have been 15% annualized over the past decade, including reinvested dividends, outpacing the S&P 500's 13%. The company's fourth-quarter earnings beat expectations even if sales narrowly missed, causing a 3.7% drop in the stock. Still, McDonald's' overall business remained strong, with total sales growing 8% to $6.41B, driven by higher menu prices. Cost inflation brought a lower gross margin, but the company was able to spend less on other items, resulting in a profit of $2.95 a share.
-The South Korean stock market has been struggling in recent years, with the Kospi Composite Index dropping an annualized 4.5% over the past three years. This is below the S&P 500's 10% return and the MSCI World Index's 7.6%. Despite moderate GDP growth and exciting companies like Samsung Electronics, few investors want to own stocks in a country with a price/book ratio of just 0.2 times, making companies worth less than their total net assets. Regulatory changes could potentially boost the market and make it a more attractive investment destination.
Features:
-Microsoft has surpassed the previous record set by Apple, which reached $3.09T in July, with a market cap of $2.916T. The company's market value surpassed the previous record set by Apple, which reached $3.09T in July. Microsoft is the first US Company to close with a market cap greater than $3.1T. Over the past 12 months, shares have soared 60% due to enthusiasm about its artificial intelligence software. Microsoft reported quarterly revenue and profit ahead of Wall Street's forecasts, and CEO Satya Nadella highlighted the company's AI gains.
-Tesla stock closed higher for a fourth consecutive day on Friday, offering relief for investors who have held it as it has slid to start 2024. However, the recent trading action is not what shareholders should want. Tesla stock closed up 2.1% at $193.57, while the S&P 500 and Nasdaq Composite were up 0.6% and 1.3%, respectively. New Street Research analyst Pierre Ferragu predicts that Tesla will ship 8.4M vehicles in 2030, implying an average annual growth of about 25% for the coming seven years. Ferragu expects a lower-priced Tesla to be launched in 2025 and sell around 5M units a year by the end of the decade.
Europe:
-Arm Holdings has become one of the most popular artificial-intelligence stocks in the US market, with shares down 3.1% to $110.38. The company's success validates its decision to take the chip designer public last year at a high valuation. Despite initial skepticism about the company's potential benefits from AI spending, Arm's focus on licensing designs for CPUs and exposure to the smartphone market has changed. Premium smartphones now have AI capabilities, increasing the royalty rates Arm receives. The company is also making progress in cloud servers and the automotive sector.
Emerging Markets:
-No update this week
Commodities:
-Indonesia's population has seen a significant increase in annual GDP per capita over the past 30 years, with Greater Jakarta becoming the world's second most populous metropolis. President Joko Widodo (aka Jokowi, as he’s known), who is set to end his 10-year term, has been instrumental in this progress, overseeing the rollout of Jakarta's metro and Southeast Asia's first high-speed rail line. However, his lack of accomplishments may impact Indonesia's business dynamism, as he has not significantly reduced the influence of a self-dealing elite. Indonesia's president, Jokowi, has failed to diversify from China, losing out to more nimble neighbors. Instead, Jokowi has focused on leveraging nickel, a key element in the current generation of electric-vehicle batteries. Indonesia produces over half of the world's raw nickel, and the president forbade export to force smelters and battery makers onto his shores. However, this strategy won't yield the same "human capital spillover" as Vietnam-style investment into electronics and other manufacturing. The outgoing leader has also failed to address Jakarta's environmental peril, instead focusing on building a new capital at Nusantara.
Streetwise:
- Uranium prices have dropped after reaching their highest level in 16 years, with lithium, the lightest metal, multiplying more than five times in price in less than a year after CME Group launched a futures contract in 2021. Uranium doubled in price since summer to $106 per pound before dipping to just below $100. Two niche exchange-traded funds, Global X Uranium and Sprott Uranium Miners, took in over $1B in fresh investor cash over the past year, with assets under management swelling to a combined $5B. Bulls predict the uranium market will be undersupplied for decades, while bears are few. Two key events have affected uranium prices: the 2011 Fukushima nuclear plant tsunami and Russia's invasion in 2022. The latter led to a nuclear power revival, with life extensions, reactor refurbishments, and the call for new builds. In markets like the US, companies are experimenting with small reactors using factory components.