Barron’s Weekend Summary: Over 3,000 real estate professionals attended the annual Inman Connect New York conference in Midtown Manhattan
Cover:
-Over 3,000 real estate professionals attended the annual Inman Connect New York conference in Midtown Manhattan, marking the largest gathering since a Missouri court penalty against select brokerage firms and the National Association of Realtors (NAR), the industry's top lobbying group. The verdict has put brokers in an uncomfortable role of pushing for reform of the same organization that helps safeguard their golden goose, an industry-standard 5%-plus commission. NAR, founded in 1908, is part standards body, part Realtor advocate, and part industry lobbyist. It owns the trademark to the word Realtor and sets standards for the regional databases known as Multiple Listing Services (MLS). Membership in NAR is almost required for anyone looking to market a home.
Interview:
-Barron’s interviewed Jonathan Curtis, the chief investment officer of Franklin Equity Group and lead portfolio manager of the Franklin Technology fund. He has over 30 years of experience in the tech sector. He started his career as a software developer and test engineer and has been picking tech stocks for Franklin since 2008. Franklin Technology, a Luxembourg-based fund, returned over 54% in 2023 due to bets on most of the Magnificent Seven, a group of top-performing tech companies. Curtis sees more gains ahead for both the stock and the sector due to his bullish view on artificial intelligence. In a recent interview with Barron's, Curtis discussed his favorite stocks and the future of AI, predicting that the strength in the Magnificent Seven will broaden out this year, as he believes this is the start of a new business cycle in tech.
Tech Trader:
-The tech sector's top five companies, with a combined market value of $10T, reported earnings within 48 hours of each other. The week's earnings race was a draw, with Meta Platforms and Amazon.com up, Apple down, and Microsoft flat. The tech giants' results offered key insights into the outlook for technology, markets, and the planet. Microsoft posted a beat-and-raise quarter, besting Wall Street estimates in every category, with 28% growth in its Azure cloud business on a constant-currency basis. Microsoft's Copilot software for Office adoption was double the September-quarter rate. Meta, a more under-the-radar AI play, holds significant promise for targeting advertising and content to Facebook and Instagram users. CEO Mark Zuckerberg has committed to increasing his bet on AGI, or artificial general intelligence, which could magically solve all the world's troubles if it doesn't wipe out humanity.
The Trader:
-Philip Morris International's stock has fallen 1.1% since the start of 2024, lagging behind the Consumer Staples Select Sector SPDR's 3.1% rise. The stock is stabilizing in the low $90s, and earnings could be the catalyst for the shares to head higher. Sales for the quarter are expected to grow 10.5% to $9B, and the increased adoption of the company's smokeless products, including its IQOS heated tobacco, and should offset declines in traditional cigarette sales. Smokeless tobacco products are growing at an annual clip of just under 5% globally and could hit $124B by 2029.
-Copper is rallying, up 8% to $3.87 a pound since mid-October. The market is expecting increased demand for auto makers, consumer-goods manufacturers, and copper due to the better-than-expected economy. The Federal Reserve is likely to cut interest rates, and China is releasing $140B in monetary stimulus. As copper approaches the low-to-mid $3.90s, a breakout could signal confidence in the economic outlook and potentially lead to prices reaching $4.20, a level briefly touched in January 2023. Copper, closely associated with China, is testing resistance of a 'coil' developing for the past year.
Features:
-Demand for travel outside of China has been significantly reduced due to Covid-19, with the capacity of flights leaving and entering China reaching just over half of the same period in 2019. Domestic flights made up 92.6% of domestic flights last month, while flights into or out of China made up only 7.4%. Analysts are now more realistic about the recovery of Chinese leisure spending, including overseas travel, compared to their highly optimistic forecasts. The pessimism is based on the continued failure of consumer spending to rise. Morgan Stanley analysts predict that demand may take longer than expected to recover from 70-80% of pre-Covid levels.
-GE has published its final annual report on February 2, with the company splitting into GE Aerospace and GE Vernova in the coming weeks. Aerospace is GE's aviation business, while Vernova includes GE's power-generation businesses. GE Healthcare Technologies was spun out in 2023. The company will no longer be known as General Electric since its inception in 1892. CEO Larry Culp, who joined the board in 2018 amid significant business turmoil, believes that the company's financial health is in good shape. GE's industrial businesses generated free cash flow of $5.6 billion in 2017, $4.5 billion in 2018, and $3.9 billion in 2019. However, things have improved, with GE generating $5.2 billion in 2023 and expected to generate more than $6 billion in 2024.
Europe:
-Ferrari's stock has risen after the sports car maker reported a solid fourth quarter, with earnings per share of €1.62 ($1.75) on sales of €1.52B ($1.64B). Despite lower deliveries, sales rose 11%. Ferrari expects 2024 earnings per share of more than €7.50 on sales of €6.4B, in line with Wall Street projections. Shares were up 11.6% at $387.08, while the S&P 500 and Nasdaq Composite were up about 0.7% and 0.8%, respectively. Ferrari stock is on pace for the largest percent increase in more than three years, with a 2% year-to-date increase and a 37% increase over the past 12 months. However, this is more akin to luxury brand than maker-like stock performance: BMW shares are down about 3% this year and Mercedes-Benz Group shares are up about 1% in 2024, but down 9% over the past 12 months.
Emerging Markets:
-“On a zero-to-10 scale, Brazil today is a seven,” says Daniel Gewehr, head of Latin American equity strategy at Itaú BBA. Brazil's central bank has reduced interest rates from 13.75% to 11.25% due to easing inflation, with an expected 9% increase later this year. This could drive listed company earnings up 14% year-on-year at an index level. Domestic-related stocks, such as car-rental leader Localiza and jewelry chain Vivara, are seen as the most attractive. Emerging markets portfolio manager Verena Wachnitz believes the market is cheap due to earnings growth. Localiza is the only top-10 Brazilian stock in the index, while B3, parent company of the Bolsa exchange, is seen as a potential beneficiary. However, the effect on big banks like Itaú Unibanco Holding and Banco Bradesco is less clear, as lower rates may lead to lower interest margins, fewer nonperforming loans, and potential loan growth.
Commodities:
-A drone attack by Iran-backed militants in Syria and Iraq killed three US troops in Jordan, leading to retaliatory strikes and concerns about a tipping point in the Mideast conflict. Despite this, crude prices have barely budged and US gasoline prices have fallen since Hamas attacked Israel on October 7. Traders are hesitant to attribute much risk premium to oil prices, as barrels of oil are still being transported worldwide despite heated rhetoric, attacks, and blockades. In 2019, Iranian-backed forces attacked assets in the Persian Gulf, causing oil prices to spike 10% in a day. RBC Capital Markets analyst Helima Croft sees a "very real risk of a return to the 2019 playbook."
Streetwise:
-Allen Media Group's $14.3B offer for Paramount Global is likely to appear more generous as time passes, according to a bearish investment bank's buyout math. The $30B offer, including debt, works out to $21.53 per nonvoting share and more for voting shares. Investors are betting that Shari Redstone, Paramount's controlling shareholder, is unlikely to accept the offer. Just three years ago, BofA Securities valued Paramount at $53 a share. However, by early last year, BofA had marked down its value for Paramount to $32 a share and lowered its price target to $9, believing that Paramount was overly resistant to a sale. This week, BofA remains with $9, stating that Paramount is an attractive takeover target.