Barron’s Weekend Summary: Mall and retail stocks are back.
Cover Story:
-Mall and retail stocks are back. Brands that merged their bricks-and-mortar operations with digital strategies are seeing sales soar and stock prices rise, lifted by a strong market and consumers champing at the bit to spend their pandemic savings. The stock prices of many major mall-based retailers have soared, including Macy’s, Nordstrom, Famous Footwear parent Caleres, and Signet Jewelers, which all gained at least 100% in the past 12 months.
Interview:
-Barron’s interviews David Heikkinen, a managing director at the Houston-based asset manager Pickering Energy Partners. He has been advising investors about oil and gas companies for decades, after working as an engineer at Royal Dutch Shell early in his career. Heikkinen thinks oil and gas companies are at a turning point as the energy transition takes place, and he expects current trends to be profitable for companies focusing on both old and new forms of energy. He spoke with Barron’s recently about where to find opportunities. An edited version of the conversation follows.
Tech Trader:
-Software for running call centers provides the next big opportunity for investors. NICE might be the largest tech company you’ve never heard of. After an 80% gain over the past 18 months, the company has a stock market value of roughly $20 billion. Five9 posted revenue growth of 38% in its September quarter, bashing Wall Street estimates, just like NICE. Five9’s results were driven by 51% growth in the company’s enterprise business. The company has since picked up a couple of new Buy ratings from the Street. Another option is RingCentral (RNG), a Covid-era darling whose shares are down 27% this year. The company competes in both call-center and cloud-based telephony. This past week, RingCentral reported 47% sales growth in its latest quarter.
The Trader:
-Johnson & Johnson said it would separate its consumer health division into a new company, leaving behind a pharmaceutical and medical-device business that it said would still be the largest healthcare company in the world. History suggests that investors shouldn’t be hasty to buy into the split.
-“Rising prices got much of the blame for the stock market’s bad week. On the surface, that seems like a reasonable stance. The S&P 500 index declined 0.3% this past week, while the Dow Jones Industrial Average fell 0.6% and the Nasdaq Composite dropped 0.7%.
Most of the damage came on Wednesday, when the Labor Department released October’s consumer inflation report. It showed the consumer price index jumping 6.2% from the previous year. Strip away volatile food and energy prices, and the core CPI still climbed 4.6%. Both numbers were up from September, and both were more than economists had predicted.”
Features:
-“As the shape and contents of the proposed Democratic bill strengthening the social safety net come into focus, so is the size of the tax bill that rich people are poised to receive. But are they going to be the only ones bound for more taxes?
New estimates from the Tax Policy Center are projecting that the top 1%—households making at least $885,000 a year—could pay an extra $55,000 in taxes next year if the Build Back Better bill passes in its current form.”
-‘A record 4.4 million Americans, or 3% of the workforce, voluntarily left their jobs in September, the Bureau of Labor Statistics announced Friday, accelerating the so-called Great Resignation. The total eclipsed the prior record of 4.27 million Americans who quit their jobs in August.
Covid-19 has led workers to re-evaluate what’s important to them and what they want out of life. Many have concluded that work no longer fits into that picture, according to Northwestern Mutual’s 2021 Planning and Progress Study.”
- China has long been seen by investors as a valuable asset for U.S. multinationals. It’s now at risk of becoming a liability. Yahoo! is exiting China amid tighter data privacy laws. Las Vegas Sands shares tumbled in September on signs Beijing would increase scrutiny of casino operations. Qualcomm’s market share in China’s smartphone chip market slid earlier this year as the U.S. restricted sales to Huawei Technologies. Nike went viral on Chinese social media—not in a good way—as it faced backlash over a company statement related to forced labor in the Xinjiang province of China. Caterpillar is grappling with fierce local competition, while Starbucks’ sales have suffered amid China’s zero-tolerance Covid policy.
Europe:
-AstraZeneca had previously indicated that it would provide the vaccine at cost, but only during the pandemic for developed countries, following the terms of its agreement with Oxford University, the vaccine developer. It will continue to make no profit on vaccines sent to developing nations.
The group said revenue increased by 47% in the quarter ended in September on a constant exchange rate basis, to $9.7B. Pandemic vaccine revenue amounted to $1.05B
Emerging Markets:
-“The passage of Xi’s “historical resolution” at the gathering of the party’s Central Committee confirms that he will break with precedent and pursue a third term in 2022. It also formalized approval of the way political, economic, and military affairs have been handled under the 68-year-old-leader—all of which have grown in controversy globally under Xi.’
-India’s Prime Minister Narendra Modi “provided one of the bright spots of the COP26 climate summit—setting India’s first net-zero carbon target, 2070, and promising 50% of power from renewable sources by 2030. Meeting that shorter-term goal would mean quintupling the country’s solar generation to 500 gigawatts, nearly matching China’s pace of new installations for the rest of this decade. India, the No. 3 carbon emitter, currently gets three-quarters of its electricity from coal. Conglomerates like Reliance Power and Tata Power are leading the green charge, committing tens of billions of dollars to renewable energy. Industrial consumers from JSW Steel to IT powerhouse Infosys have ambitious plans to decarbonize on the demand side.
Commodities:
Wheat prices surpassed $8 a bushel for the first time in nearly nine years, with demand for the commodity going strong and supplies expected to end the 2021-22 marketing year at their lowest in more than a decade.
“Global demand remains robust, at record or near-record levels, with foreign buyers aggressively purchasing wheat supplies during the past several weeks,” says Sal Gilbertie, president and chief investment officer at Teucrium Trading. Meanwhile, the US Department of Agriculture estimates that US wheat ending stocks for 2021-22 will be 583 million bushels, the lowest since the 2007-2008 marketing year.
Streetwise:
-Jack Hough discusses the rehabilitation of the Barbie doll and the renaissance of Mattel: “Barbie’s image has been rehabilitated, and sales are bouncing back smartly for Mattel. Also, Qualcomm is quickly scooping up business that makes it less dependent on smartphones, and in particular, Apple. I recently caught up with the fairly new CEOs of both, and they’re fixing things that have held the shares back.”