Barron’s Weekend Summary: The UAW strike is not the most important problem that Ford, GM and Stellantis (Chrysler) have to worry about
Sat, 16 Sep 2023 14:00 PM EST
Cover Story:
-The UAW strike is not the most important problem that Ford, GM and Stellantis (Chrysler) have to worry about. Rather, the big three US automakers are facing significant challenges as electric vehicles (EVs) gain popularity in the US. Ford plans to spend $7B on battery plants and EV manufacturing facilities in Kentucky and Tennessee, while GM commits to $35B from 2020 to 2025. This investment is expected to consume half of their spending on new models, plants, and equipment over the next three to four years. Despite record high sales in the first half of 2023, EVs still account for 7% of new-vehicle sales in the US and 22% in California. Despite competition, Tesla's company still accounts for nearly 60% of all EV sales in the US. To remain long-term players in EVs, Ford and GM must continue to spend significant amounts of money.
Interview:
-This week, Barron’s has interviewed Sharvin Mossavar-Rahmani, Chief Investment Officer of Wealth Management at Goldman Sachs. Mossavar-Rahmani, an economist, has been bullish on the U.S. for more than two decades, and bearish on China since 2013. Those calls look even better today, given the diminishing likelihood of a U.S. recession even as China’s growth sags and its financial troubles grow. Mossavar-Rahmani has spent more than 30 years at Goldman, has long warned about China’s rising debt load and the challenges it poses for the world’s second-largest economy. Despite cheap valuations abroad, Mossavar-Rahmani has urged clients to keep their portfolios tilted toward US stocks. Last year, as inflation concerns in the US grew and pessimism about the stock market set in, she rightly encouraged investors to stay put in US stocks.
Tech Trader:
-The start of US (et altri) v. Google, Washington’s’s antitrust case over the Alphabet unit’s domination of search. The trial will unfold over the next two months, and a decision won’t likely come for months after that. But if the U.S. wins and stops Google from paying Apple and others for search traffic, things will get interesting. The US et al vs. Google implies that the very future of internet search is at stake. There were other big stories in tech over the past week. Arm launched its IPO and now trades in rare territory (it’s the most expensive tech stock not named Nvidia) while Apple, which launched the iPhone 15, needs a new iPhone strategy altogether.
The Trader:
-The coming week’s meeting of the Federal Open Market Committee is unlikely to help guide the markets. The Federal Reserve will meet on Tuesday and Wednesday to contemplate its next monetary-policy move and offer projections for interest rates, economic growth, and inflation. The futures market is pricing no change in rates this time.
“The data flow since the July meeting largely supports a wait-and-see approach,” wrote Michael Gapen, Bank of America’s chief U.S. economist. “Recent data should leave the Fed encouraged by ongoing disinflation but concerned about reacceleration in inflation because of the strength in activity.”
-Nvidia is not the only artificial-intelligence game in town; if you missed getting in early in the chipmaker’s stock, there are plenty of other opportunities for investors looking to cash in on AI. AI is the gift that will keep on giving for businesses in the years ahead—but for investors, the easy money has already been made. AI-interested investors can consider the hyperscale data centers companies, namely Amazon.com, Microsoft, and Alphabet. They’re the ones buying up as many of Nvidia’s chips as they can get their hands on to power various applications of AI. But those stocks haven’t been exactly sluggish lately either.
Features:
-Mercury specializes in electronics and chips for the US (and allies) aerospace and defense industries. Mercury boasts over 300 programs with some 25 defense contractors, and its products are found in F-16, F-18, and F-35 fighter jets; Predator and Reaper unmanned aerial vehicles; and RTX’s Patriot surface-to-air missiles, to name just a few. Mercury Systems has been moving up the value chain from components to entire subsystems—a transition that requires spending billions on mergers and acquisitions and research and development. The company has made 14 acquisitions since 2016, including firms that make aircraft display systems, radio-frequency components, ruggedized computers and servers, and flight control units.
-Arm Holdings launched a highly anticipated initial public offering and it was a big hit with Wall Street. Indeed, Arm’s IPO might be the first “tech IPO of any consequence since Intel spun off Mobileye Global 11 months ago—and it went as well as could be hoped.” Arm is now trading for about 25 times its most recent full year of revenue—and at more than 100 times profit. The stock closed the week up 19% from the offering price, at $60.75. The public market is valuing Arm at $65B, about $10B below memory chip leader Micron Technology (MU), which generates 10 times as much revenue as Arm.
Europe:
-Desmond Lachman is a senior fellow at the American Enterprise Institute presents a gloomy picture of Germany’s economy: “A whole variety of past economic policy mistakes cast a dark cloud over Germany’s longer-run economic prospects. Among the more glaring of these was Germany allowing itself to become overly dependent on Russia for its energy supply. As a result of this dependence, and in light of the country’s large, energy-intensive heavy industry sector, Germany was the country hardest hit by the cessation of Russian natural gas exports and the spike of natural gas prices following Russia’s Ukraine invasion.”
Emerging Markets:
-No update this week
Commodities:
-No update this week
Streetwise:
-Jack Hough considers how private equity compares to the stock market. Private equity funds include Blackstone (BX), KKR, Apollo Global Management (APO), and Carlyle Group, and they are now publicly traded. If you buy their shares, you’re making a stock market bet that other investors will increasingly look beyond the stock market for returns, which is pretty esoteric of you.The premise of the argument stems from two books about private equity that just happened to have been published within a week of each other this week. And they are: These Are the Plunderers: How Private Equity Runs—and Wrecks—America and the other is Plunder: Private Equity’s Plan to Pillage America. The books focus on social impacts and mention returns only briefly. Hough doesn’t take a favorable view.