Barron’s Weekend Summary: Costs are rising as insurers try to price in losses from more frequent and unpredictable storms, wildfires, and other effects of climate chang
Cover Story:
-Costs are rising as insurers try to price in losses from more frequent and unpredictable storms, wildfires, and other effects of climate change. Inflationary pressures, combined with population growth in susceptible areas, are making insurance costlier for everyone. Barron’s has identified four stocks that could capitalize in extreme climate: Allstate, Arch Capital Group, Ryan Specialty Holdings, and Guidewire Software. Each has specific growth and stock drivers, and each focuses on a different part of the industry, from front-line coverage (Allstate), to reinsurance (Arch), brokerage services (Ryan), and software (Guidewire).
Interview:
-This week Barron’s features an interview with Invesco CEO, Marty Flanagan. During 18 years as chief executive of Invesco, Flanagan expanded the asset manager’s foray in Asia and acquired the PowerShares exchange-traded fund brand. He recently stepped down from the top job. Flanagan guided Invesco from a loose collection of eight investment firms with disparate brands and cultures into an integrated top global asset manager. As of June 30, the Atlanta-based company’s assets under management reached $1.54T, up from $386B in 2005 when he took over. That puts Invesco in the top 20 largest global asset managers by AUM. He made two key decisions. First, he significantly expanded Invesco’s existing joint venture with a state-owned firm in China, Huaneng Power). And second was acquiring the PowerShares ETF brand in 2006, which gave the company control of the now-$200 billion Invesco QQQ Trust Series), the most popular index fund following the Nasdaq 100. It set the company on the path to become the fourth-largest ETF provider globally, with 393 ETFs.
Tech Trader:
-Nvidia’s fiscal second quarter, reported Wednesday, was historic in scope. There is little precedent for a chip maker as large as Nvidia doubling its revenue—to $13.5B—in one year. Its data center business, driven by AI demand, was even more impressive, growing 171% year over year and rising 141% from the prior quarter.
“A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI,” Nvidia CEO Jensen Huang said in the company’s earnings statement. “The race is on to adopt generative AI.”
The Trader:
-Shares of Best Buy have fallen 7.7% so far this year, worse than the SPDR Retail exchange-traded fund, which has gained 2.8%, and the S&P, which is up 15%. There’s a good reason for that. Analysts have reduced their 2023 earnings estimates for the retailer by about 12% in the past six months, according to FactSet, more than the consumer-discretionary sector’s 10% drop. The problem is the electronics that Best Buy sells. Following a Covid-era boom, manufacturers and retailers alike had too much inventory, which caused prices and the number of items sold to decline, squeezing profit margins and the bottom line.
-China’s economy was supposed to get a boost when the nation ended its zero-Covid policy—and it did, but an all too brief one. Deflation is a reality, with the consumer price index down 0.3% year over year in July, unemployment among 16 to 24-year-olds so bad that the country will no longer release the data, and the real estate market in turmoil. The People’s Bank of China seems reluctant to do much more than the bare minimum, which risks a further slowdown.
“Investors are waiting for signs that Beijing, facing mounting downside pressures on growth, will adopt significantly more forceful and effective stimulus policies,” writes 22V Research’s Michael Hirson. “The latest signals aren’t very encouraging, suggesting continuation of a conservative approach despite the risks that it is insufficient to address China’s current challenges.”
Features:
-China’s economy is worse now than in the 1970s, says Charlene Chu, senior analyst at Autonomous Research. The country’s economic recovery from three years of strict Covid restrictions and crackdowns on its property and internet sectors appears to be losing momentum. The property sector, which holds 70% of Chinese households’ wealth, is ailing. Existing home prices slid 9% month over month in big cities in July, the steepest decline in a decade. Property developer Country Garden Holdings 2007 +5.19% didn’t make a bond payment and financial products managed by Zhongrong International Trust missed payments to investors, feeding concerns about financial contagion. Chu, a former Fitch Ratings analyst, has become a go-to source for understanding China’s opaque banking system and all things debt. We talked about whether the country is on the edge of a “Lehman” moment, and why she sees no easy fix to get China out of its predicament.
-SharkNinja SN –1.80% has been a consistent and successful innovator in small appliances, an industry marked by slow growth and few exciting new products. Now, its stock can be a consistent and successful investment as well. Vacuums, hair dryers, and ice-cream makers aren’t glamorous products, but SharkNinja has repeatedly come up with distinctive entries that have helped grow and redefine what these products can be. The results speak for themselves. Sales have risen at a 20% annual rate since 2008, when current CEO Mark Barrocas took the top job, and revenue is on track to hit $4 billion this year.
Europe:
-The jet aboard which the Russian warlord and head of the mercenary organization, Wagner Group, Evgeny Prigozhin was flying was an Embraer Legacy 600, but the incident isn’t affecting Embraer’s U.S.-listed American depositary receipts, or ADRs. They rose 3% in Wednesday trading, while the S&P 500 and Nasdaq Composite rose 1.1% and 1.6%, respectively.
The reaction, or lack of reaction, shows that investors don’t attribute the cause to an issue with the plane. Social-media channels close to Wagner said Russian air defenses shot down the jet, The Wall Street Journal reported. Images of debris published by Russian media appeared to have holes like those created by air-defense missiles, the newspaper said. Russian aviation regulators cited by state media didn’t provide a reason for the crash, while some Russian lawmakers said the cause could have been a bomb on board, the Journal said. The government said it is investigating, it reported.
Emerging Markets:
-No updates this week.
Commodities:
-The lack of a big premium results from several factors. For one thing, oil companies are no longer focused on getting bigger at any cost. Instead, shareholders have been demanding that they focus on sending more cash back to shareholders. It’s also becoming more difficult for small and mid-cap oil producers to attract investor attention—and the kind of multiples that lead to rich premiums. Andrew Dittmar, an analyst at Enverus Intelligence Research, expects more acquisitions ahead, because several smaller producers would probably fit well into larger companies and help them expand their resource base.
Streetwise:
-No related updates from Jack this week