Barron’s Weekend Summary: Barron's has published its fifth annual list of the 100 Most Influential Women in US Finance
Cover:
-Barron's has published its fifth annual list of the 100 Most Influential Women in US Finance, which recognizes the leaders in financial services, corporate world, and government who are shaping the economy, markets, and industry in meaningful ways. Women now account for a record 10% of Fortune 500 chief executives and hold more than a third of all S&P 500 board seats. This year's roster includes 23 newcomers, including Titi Cole, head of Legacy Franchises at Citi, who is an "advisor, mentor, and friend" to a deep network of senior leaders. Federal Reserve officials and government leaders are well represented on the list, with Commerce Secretary Gina Raimondo helping navigate the changing US-China relationship and spur a domestic manufacturing revival. The role of chief financial officer is one area where women continue to make strong gains, with the number of female CFOs at Fortune 500 and S&P 500 companies more than doubled to 58 in 2023.
Interview:
-Online shopping flourished during the Covid pandemic, but Dana Telsey, who runs a retail-focused research, sales, trading, and investment banking firm, believes that the brick and mortar stores are what "make the magic happen." Telsey is the CEO of Telsey Advisory Group, and she still visits brick-and-mortar locations every week to see what truly engages consumers, from the mall to Fifth Avenue. She grew up working a cash register at her family's bookstore and believes retail has always been a part of her heritage. Telsey has been included on Barron's annual list of the 100 Most Influential Women in U.S. Finance since it was launched five years ago. She speculates on how the industry might evolve, incorporating artificial intelligence to serve customers even better and shares some of her favorite investment ideas.
Tech Trader:
-Microsoft and Oracle went public in March 1986; and that marked a significant moment in artificial intelligence history. Microsoft's IPO documents did not address AI, machine learning, or large language models, and neither prospectus listed risks tied to the availability of AI chips from Nvidia. Microsoft's role as a leading player in the AI story is well appreciated by investors, as it is the only public company with a market cap above $3T, $400B ahead of Apple. Oracle, on the other hand, is no slouch when it comes to cloud computing and AI. However, the strength of the company's position has only recently become clear to Wall Street. There is still ample room for investors to bet on Oracle's continued turnaround, which was first highlighted in a cover story three years ago. Oracle continues to be a key provider of enterprise software applications and database software, and recently announced new AI capabilities for some of its business apps. The key driver for Oracle is now cloud computing and the associated opportunity in artificial intelligence.
The Trader:
-The US stock market has been largely unaffected by inflation, with the federal-funds futures market predicting a 58% chance of the Fed cutting interest rates by July. However, other financial markets have reacted, with the two-year Treasury yield rising over 30 basis points to 4.7%. The stock market is ignoring these signals, and the Fed may need to provide a wake-up call at its monetary policy meeting, which ends on Wednesday. The current "dot plot" suggests three cuts this year, but it is possible that this could change. The Fed's policy meeting could be highly consequential, as it could "formally extend the wait-and-see period." If the Fed officially dashes hopes of rate cuts this year, the market would not be thrilled, as investors are placing too much emphasis on the timing and magnitude of potential rate cuts.
-Spice maker McCormick has lost nearly half its value since its record high in March 2022. The company's growth has been impacted by the rise of private-label brands, which offer similar products at lower prices. Sales have dropped from 11% to $6.3B in 2021 to $6.7B, and demand has dropped. The market is not expecting much from McCormick when it reports earnings, with analysts expecting sales to drop 1.1% to $1.55B. Lower commodity prices should nudge gross margins up a bit, but earnings are likely to fall two cents to 57 cents a share. McCormick can drive growth with product innovation, such as its Flavor Solutions segment, which aims to identify the types of flavors and foods that new and younger generations are likely to buy. Investors are looking for "improving volume trends as pricing tailwinds wane and innovation ramps," with up to a full percentage point of gross margin improvements this fiscal year.
Features:
-Reddit has announced that the Federal Trade Commission is investigating its agreements to license user-generated content to third parties for AI model training. The company, which is in its early stages of AI data licensing, does not believe it conflicts with the rights of Redditors. The company has not engaged in any unfair or deceptive trade practices and is seeking to raise up to $748M by listing its shares on the New York Stock Exchange under the symbol RDDT. The FTC is interested in learning more about Reddit's plans and intends to request information and documents from the company as its inquiry continues.
-Micron Technology's stock has seen a 61% increase in price, according to Citi analyst Christopher Danely. Danely believes the company should receive a premium due to its increasing AI exposure, which has seen other AI-exposed stocks like AVGO and AMD see a 100% increase in their multiples. The price target hike comes five days before Micron's fiscal-second quarter financial results, and Wall Street is eagerly awaiting management's growth in the AI space. Danely expects the company to post upside to consensus and increased guidance for F3Q24 due to strong DRAM pricing and shipments of higher-priced, higher-margin High Bandwidth Memory, which is used in Nvidia AI systems. Shares of Micron rose 2.1% to $93.37 on Friday.
Europe:
-The European Union has approved the bloc's AI Act, which aims to protect European citizens' rights from certain AI applications and bring stricter oversight to the technology. The Act will affect companies like Alphabet, Amazon.com, Microsoft, and Meta Platforms, as the EU's rules apply to anyone providing AI within the bloc. The potential penalties for violating the Act are considerable, including 7% of a company's global annual turnover in the previous financial year for violations involving banned AI applications. The law passed the European Parliament with 523 votes in favor, 46 against, and 49 abstentions, and the overwhelming majority should ensure it is signed off on by the EU's member states. The Act introduces a stricter regime for "high impact" foundation models, including model evaluations, assessing and mitigating systemic risks, and reporting on incidents.
Emerging Markets:
-No update
Commodities:
-US Steel stock fell 6.4% after it was bought by Nippon Steel. President Joe Biden defended the acquisition as vital for maintaining strong American steel companies powered by American steel workers. The stock closed down 6.4% at $38.26, well below the $55 a share Nippon Steel has agreed to pay. American steel workers would continue to operate U.S. Steel's mills even if Nippon Steel buys the company. The White House did not immediately respond to a request for comment about the fact that U.S. workers would remain in the mills or what new capital and technology from a leading steel company could do for US Steel. Nippon Steel is the fourth-largest steel company in the world, while U.S. Steel is now in 27th place.
Streetwise:
-Jack Hough, a football enthusiast, was surprised to learn about formations in the video game Madden and the Netflix documentary Quarterback. AT&T, once a phone monopoly, was broken into lots-opoly in 1984 by regulators. Over time, the baby bells changed names and then bought each other up, leading to the industry becoming a triopoly. In 2015, AT&T paid $67 billion for DirecTV, a company whose business plan involved mounting dishes to customer roofs. Six years later, it spun that diminished business off into a separate entity. AT&T fought regulators for years for the right to buy Time Warner, but lost it in 2022 for much less than it paid. Today, AT&T is under new management and sticking to phone company services, including wireless and wireline service, fiber broadband, and DirecTV, delivered via the internet. Despite debt from past misadventures, free cash flow is rising, and shares trade at around seven times this year's consensus. The company's 6.5% dividend yield is increasingly credible.