Barron’s Weekend Summary: Growing water scarcity, whether caused by drought, contamination, or deteriorating infrastructure, extends to every facet of our lives
Cover Story:
-Growing water scarcity, whether caused by drought, contamination, or deteriorating infrastructure, extends to every facet of our lives: the clothes we wear, the food and beverages we consume, the cars we drive, and the search engines and electronic devices we rely on. Nor are investment portfolios immune. Water scarcity is emerging as a threat that could heighten business disruptions, crimp profits, and jeopardize growth—especially in thirsty industries such as agriculture, fashion, computer-chip making, and data centers.
Interview:
Matt Burdett, who helps run international equity and global income strategies at Thornburg Investment Management, sees big opportunities in Europe. He says it’s important to look beyond the headlines, to dig deeper to understand what is really going on. “Knowledge is comfort,” he says. Burdett joined Thornburg in 2010 after an earlier career as a medicinal chemist at Sunesis Pharmaceuticals and a stint as an investment banker, focused mainly on biotech. He worked at Pimco as a senior vice president and portfolio manager from 2011 to 2015, and then rejoined Thornburg.
Tech Trader:
Nvidia, the most valuable US semiconductor company, is in a big rut. This week, the chip maker cut its guidance versus analysts’ estimates for the third consecutive time over the past three months, blaming a softening economic environment and a sharp slowdown in demand for its gaming graphics cards. While some investors are hopeful for a quick turnaround, they should remain skeptical. Nvidia is facing multiple threats, including rising competition, an unsustainable pricing structure, and a potential crypto used-card glut that will be difficult to overcome.
The Trader:
-The stock market began this past week on its back foot, an appropriate response as investors appeared to realize that they might have overestimated the chances of a dovish Federal Reserve. Yet the market regained ground heading into the meeting on Friday, as investors bought the dip. Then, Chairman Jerome Powell started talking. He told attendees at the symposium that the Fed needed to bring inflation back down to its 2% goal, that doing so would take time, and that another large interest-rate increase was likely in September. The speech, which could have lasted 30 minutes, took only 10.
-On July 26, Juniper reported earnings after the close, and they certainly seemed to be disappointing. Juniper posted a fiscal second-quarter profit of 42 cents a share, missing forecasts for 46 cents. Its earnings guidance wasn’t much better. It said it would earn 45 cents to 55 cents during the third quarter, while analysts had been modeling for 54 cents. Juniper’s sales were quite strong. Its second-quarter revenue of $1.27B was just ahead of expectations for $1.26B, and it guided to third-quarter sales of $1.3B to $1.4B, above forecasts for $1.29B. The disappointment, if anything, was driven by continued supply-chain issues, which bit into margins.
Features:
Goldman Sachs economists Joseph Briggs and Alec Phillips ran through the numbers of President Biden’s Program for student-loan-debt relief (aimed at canceling up to $20,000 in debt per borrower to households earning as much as $250,000) and gave a conclusion perhaps jarring to the plan’s supporters and detractors alike—that it won’t amount to much, saying the headlines are bigger than the macroeconomic impact.
If all borrowers eligible for the program enroll, it will reduce student-loan balances by around $400 billion, or 1.6% of GDP. That’s not a given—the economists point out that previous programs to reduce loan payments didn’t reach full enrollment.
-The US car industry continues to build out its own electric-vehicle supply chain. That will help all auto makers achieve their EV ambitions, including Ford Motor, General Motors and Tesla. Hopefully, reshoring supply will mean lower costs. It will certainly lessen the industry’s dependence on China for supply of key EV parts. Panasonic was looking to put a new EV battery factory in Oklahoma. In July, Panasonic announced a new battery facility destined for Kansas that would create up to 4,000 jobs.
European Trader:
-The London-listed J.D. Wetherspoon group, which owns about 850 pubs and inns, and 60 hotels, is one of the largest behind Stonegate and Mitchells & Butlers, and shares have suffered from pandemic induced lockdowns. More recently, high inflation has made customers think twice before going out. Spoons, as it is affectionately known, has issued a string of profit warnings citing rising costs. Fierce competition from grocery stores selling cut price alcohol, and older customers staying home for fear of catching Covid have not helped.
Emerging Markets:
Markets have noticed. EU gas futures have more than tripled since mid-June, soaring past the spike they saw when Putin launched his invasion in February. But Western powers show little sign of blinking—that is, rolling back sanctions on Russia—and the vertical rise is starting to look like panic. “Speculators are pricing in as much bad news as we could possibly have: no Russian gas, no LNG [liquefied natural gas], and a really cold winter,” says Jonathan Stern, founder of the Gas Research Program at the Oxford Institute for Energy Studies.
Commodities:
The outlook for aluminum is brightening, and so are the prospects for Alcoa, probably the best pure play on the versatile and light metal—and a cheap one. Alcoa stock looks like a bargain, trading at a level that doesn’t reflect its issuer’s favorable operating costs, improved balance sheet, increased shareholder returns, and one of the industry’s lowest carbon footprints. And investors are ignoring a potentially breakthrough technology Alcoa is developing that could eliminate carbon emissions from the aluminum smelting process.
Streetwise:
In the Streetwise Podcast Jack Hough answers several listener questions on topics ranging from electric vehicle stocks to the outlook for inflation. Plus, is it time to throw in the towel on speculative tech stocks?