Barron’s Weekend Summary: Barron’s presents its list of the 25 top CEO’s for 2023
Cover Story:
-In this issue, Barron’s presents its list of the 25 top CEO’s for 2023. This is decidedly not a stock-picking exercise—top CEOs often come attached to ambitious stock valuations. The thread that links them all is their ability to have thrived through the mayhem. The list was chosen by a panel of editors and reporters through a process of screening, nomination, discussion, and debate. “Picture the 1957 jury drama 12 Angry Men, only collegial and half female, with no murder charges.” Barron’s emphasizes recent management actions that have positioned companies for success. Many of the CEOs on the list, but not quite all, have had stellar stock returns. Warren Buffett made the list, as did Jamie Dimon, Sundar Pichai and Tim Cook.
Interview:
-This week, Barron’s has published its recent interview with Mark Costa, director of the investments group at Brandes Investment Partners in San Diego and portfolio co-manager of the $300M Brandes International Small Cap Equity fund. who discovered value investing as a college student, when the style was decidedly out of favor. It was 1998—two years before the dot-com bubble burst and small value began to outshine megacap growth. “I started reading books on value and it made sense that you can actually price businesses. These aren’t just stocks you’re speculating on based on what other people think they’re worth,” says Costa. Overall, the team manages $725M in its international small-cap strategy. Barron’s spoke with Costa on June 7 about the outlook for international small-cap stocks and some of his top picks, including aerospace firm Rolls-Royce Holdings, which makes and maintains high-powered engines. The Stock Is Revving Up amid optimism about new CEO Tufan Erginbilgic’s ability to boost the aerospace company’s shares.
Tech Trader:
-This has been a fantastic year to invest in technology stocks. The Nasdaq Composite is up 30% as we near the midyear mark. After the Nasdaq tumbled 33% last year, investors flocked back to tech stocks, for multiple reasons. Throughout 2022, the Federal Reserve steadily ratcheted up interest rates, effectively reducing the value of future earnings, damaging tech highfliers, both public and private. But the Fed appears nearly done. The AI frenzy could reach a crescendo. Meanwhile, the introduction last year of ChatGPT by OpenAI—just over 200 days ago—has triggered a frenzy of investor interest in generative artificial-intelligence plays, driving huge gains across the market’s largest technology stocks. Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Tesla, Meta Platforms, Taiwan Semiconductor, Broadcom, and Oracle —the 10 largest US-listed tech companies by market value—have an average gain of 76%.
The Trader:
-The US is on the cusp of an industrial supercycle, partly fueled by $2T in spending coming from new federal plans for infrastructure and electric-vehicle development. You wouldn’t know a boom is coming from looking at how the industrial sector performed this past week. The Industrial Select Sector exchange-traded fund dropped 2.1%. That’s not the worst-performance in the S&P 500—that honor goes to the Real Estate Select Sector ETF, which dropped 4.9%. But it’s also far from the best. Still, this looks like a good time to buy the industrial dip. Besides all that new spending and reporter biases, there are other reasons for increasing exposure to manufacturing stocks now. The best is that the industrial economy looks to be finally bottoming out.
-Tesla’s shares have soared this year, but they’re also exceptionally volatile. The stock has ranged from about $102 to $315 over the past year. The $213 gap is more than 100% of the average closing price over that span. The same calculation for Apple yields about 40% of the average price. With Tesla, it’s often easy, or easier, to see why the stock is moving up or down. It’s not always simple, though, to understand why it moves so much for the given reason. Consider the recent run. Coming into Thursday trading, Tesla shares are up about 42% since May 25. Two things happened that day. First, Nvidia stock soared 24% after reporting its AI-related business was doing much better than anyone expected. Then, Tesla and Ford Motor announced a deal allowing Ford drivers to use Tesla’s charging stations.
Features:
-Oil markets have been buzzing over a potential return of Iranian oil to the market amid press reports of renewed US-Iranian talks. Moreover, Iranian production had already started recovering. The US withdrew from the nuclear-weapons deal in 2018 and re-imposed sanctions that had been relaxed under the agreement. Iranian production fell by roughly two million barrels a day and hit bottom in mid-2020. Since then, output has increased by about one million barrels a day, with Iran claiming to have produced just over three million barrels a day of crude oil in May. Even with US sanctions in place, Iran has worked with countries including China to evade US sanctions.
-On Friday, Yevgeny Prigohizn, the head of the Russian mercenary Wagner Group, released a series of audio messages blaming the Russian military for an apparent attack on Wagner’s forces. He then proceeded to launch an operation to take over the city of Rostov on Don, Saturday morning. Is it a coup attempt? Coup or not, the Russian state appears to be taking the situation seriously. At midnight, Moscow time, Russian President Vladimir Putin had been briefed, and “necessary measures [were] being taken,” Putin’s spokesman said, according to state media. The Wagner Group has played a critical role on behalf of Russia in its war with Ukraine. It isn’t clear what the Kremlin might do or how that might affect its thinking.
Europe:
-Germany’s recent economic plight might offer some clues to what may lie ahead for the US. Germany, Europe’s economic powerhouse, went into recession after its gross domestic product fell over the past two quarters. Much of the blame for the recession has been laid on weakness in Germany’s key manufacturing sector, which has been crippled by energy costs from the Ukraine war and the withdrawal of government spending after the Covid pandemic. Germany’s downturn has dragged down the entire 20-nation euro area, pulling it into recession as well. It’s an atypical recession. The reason: German unemployment has remained near historically low levels. In April, Germany’s jobless rate was running just below 3%, even lower than the U.S. level of 3.4%. The anomaly of a recession with low unemployment has implications for everyone from investors to workers to central bankers. On the one hand, it may mean that interest rates have to go higher than previously thought to bring down inflation. On the other hand, the downturn caused by higher rates could turn out to be less painful than past experience would imply—that is, the rebound can start off on a strong foot.
Emerging Markets:
An interest rate hike from 8.5% to 15% would rank as shock and awe in most places. In Turkey, with inflation galloping at 40% annually, it made an almost flat landing. The lira, whose value has cratered by 80% against the dollar over the past five years, lost another 6% following the central bank’s decision on June 22. “This was definitely at the very low range of expectations,” says Blaise Antin, head of sovereign research at TCW. Still,
Turkey’s Eurobonds still look attractive at yields around 9%. The rates move was the de facto public debut of the hoped-for economic dream team that president Recep Erdogan unexpectedly appointed after winning re-election in May. Mehmet Simsek, a respected economist with long experience at Bank of America, returned as finance minister. Hafize Erkan, who worked at Goldman Sachs for a decade, took over the central bank.
Commodities:
-New clean fuel standards from the Environmental Protection Agency are good news for renewable natural gas companies like Opal Fuels and Clean Energy Fuels, but appear to be less favorable for companies more focused on renewable diesel, like Neste. The EPA sets standards that force oil refiners to mix a certain amount of renewable fuels—made from things like plants and animal waste—into the fuel supply, or otherwise pay for credits from renewable fuel companies like Opal. In a release Wednesday, the EPA said the new standards would reduce the amount of foreign oil that the US has to import by 130,000 to 140,000 barrels per day between 2023 and 2025.
Streetwise:
-This week, Jack Hough looks at 60/40 investing. The basic premise of 60/40 investing is that stocks, the 60%, are lucrative but manic, while bonds, the 40%, are boring but dependable. Put the two together, and each will make up for the faults of the other, leaving an investor with respectable long-term returns and bearable short-term swings. Thus, Hough is not especially keen, noting that stocks are precariously priced, and bonds might not offer the protection they promise according to a recent report from Jared Woodard, head of the Research Investment Committee at BofA Securities. Investors in the most popular index funds, he argues, are likely to be disappointed from here. “Diversifying away from these broad benchmarks today is actually your only path to getting the kinds of returns that maybe you’re used to,” says Woodard. “That kind of has that feeling of like the guy in the adventure movie who says, you know, ‘Come with us if you wanna live.’ ”