Barron’s Weekend Summary: A Barron's analysis finds that four states fined Dollar General a total of more than $1M for price inaccuracies in 2021 and 2022
Cover Story:
-A Barron's analysis finds that four states fined Dollar General a total of more than $1M for price inaccuracies in 2021 and 2022. More than 100 people shared complaints about pricing errors at Dollar General with the Ohio Attorney General’s office, according to court filings. Some described feeling scammed, told of heated in-store arguments, and explained how they relied on the store while living on a fixed income or using food-assistance benefits. “The amounts are small but add up,” said one, in a complaint to the attorney general. “I only want to pay the fair price without feeling cheated.”
Interview:
Logic propels value-oriented juggernauts such as Costco Wholesale to keep winning new and loyal customers each year, while magic helps explain why so many shoppers are eager to part with more than $7,000 for a rare Louis Vuitton Capucines bag. “Even curbside pickup can be magical,” says Oliver Chen, a senior equity research analyst at TD Cowen. Barron’s spoke with Chen about consumer spending trends: The consumer is generally becoming more discerning. Inflation is taking more wallet share, specifically for food and essentials, and housing costs and interest rates are higher, too. That is putting pressure on spending for other, more-discretionary items. Higher costs are having a disproportionate impact on middle- and lower-income consumers: Walmart and Grocery Outlet Holding are benefiting, while discretionary [retailers] including Macy’s, Target, and Nordstrom are seeing a negative impact. Entry-level luxury is also under pressure, which is a newer phenomenon.
Tech Trader:
Google, a unit of Alphabet, on Tuesday launched a beta version of Bard, a general purpose chatbot along the likes of Open AI’s ChatGPT and its corporate cousin, Microsoft’s Bing Chat. Tech Trader has tested Bard, comparing the results to both Bing Chat and ChatGPT, and the results are fascinating and a little alarming. For one thing, it would appear that Bard “thinks” of itself as a tall, hot-looking white guy. Malcolm Harris, the author of the new book Palo Alto: A History of California, Capitalism, and the World, says there’s something predictable about a Google chatbot describing itself as tall and fair-skinned. “That’s precisely the man Silicon Valley imagines itself to be,” Harris says. “Silicon Valley’s tech often implies a user just like that one, but so far we haven’t been able to entice the tech itself to say the quiet part aloud … I’m not surprised to see the outlier height; the Stanford milieu has a century-long obsession with tall people. The school asked applicants for their height stats into the ’80s, with a preference that left the dorms chronically short of extra-large seven-foot beds during the 20th century.”
The Trader:
-This past week, the Dow Jones Industrial Average gained 376 points, or 1.2%, the S&P 500 index finished up 1.4%, and the Nasdaq Composite rose 1.7%. All three fell about 1% after the Federal Reserve raised rates a quarter point on Wednesday. The go-nowhere action of the market over the past few days—despite some significant events, such as Fed speeches and Credit Suisse agreeing to be taken over by rival UBS Group UBS –0.94% (UBS)—is emblematic of recent trading. The S&P has bounced between 3700 and 4200 for the past few months.
-In a scary market, investors should seek security—cybersecurity, that is.
-With bank stocks tanking, the Fed still raising rates, and recession risks rising, finding safe places to invest in appears harder than ever. But in a dangerous world—one where a hack might just be a click away—demand for cybersecurity is growing. It’s likely to stay healthy, even in an economic downturn. Cybersecurity “spending has held up extremely well—Rock of Gibraltar-like spending,” Wedbush analyst Dan Ives tells Barron’s.
Features:
-Preferreds are a senior form of equity whose dividends come before those of common stock. Preferred shares issued by banks, however, account for about two-thirds of the $400 billion market and the twin bank failures have highlighted the credit risk in these securities. In fact, the preferreds issued by SVB Financial Group and Signature Bank, the failed banks’ parents, might have little or no recovery value. Trading in their New York Stock Exchange–listed preferred and common shares has been halted. And an unlisted SVB preferred issue aimed at institutional investors was fetching about 10 cents on the dollar late this past week over the counter.
While this is certainly worrisome, preferreds still offer a lower-risk way to invest in banks than common shares, and some pros say they now look especially appealing. After its 8.5% drop this month, the sector’s largest exchange-traded fund, the $12.4 billion iShares Preferred and Income Securities, yields 6.5%. What’s more, preferreds issued by most banks now yield over 6%, a nice premium to the 3.7% on a 30-year Treasury bond.
-TikTok’s future as an independent business is in doubt. On Thursday, members of Congress spent more than 5 hours pummeling TikTok CEO Shou Zi Chew with questions about the company’s ties to China’s leadership and the Chinese Communist Party. Not a single member of the committee stood up for the company, which is fascinating, given that TikTok’s short-form video social network is so popular, with 150M monthly active users in the US alone. It is now clear that Congress—and the White House—want TikTok spun off from its Chinese parent ByteDance. And if that doesn’t happen, they say they will shut it down.
European Trader:
-The rising cost of food, the impact of Covid-19, and a price war in Belgium weighed on Dutch retailer Koninklijke Ahold Delhaize in 2022, dragging its stock down almost 8%. But the grocer, which owns Stop & Shop, Hannaford, Food Lion, and online grocery-delivery operator FreshDirect in the U.S., is a strong defensive play because it is well-placed to combat a recession after posting an upbeat outlook. Its shares (ticker: AD. Netherlands) are up 14.4%, to 30.71 euros ($32.91), this year and could rise further.
While inflation is a key worry for European food companies, Ahold is in a better position than most because up to 63% of its sales—and 70% of its operating income—come from the U.S. (The grocer has American depositary shares that trade under the ticker ADRNY.)The U.S. saw lower inflation than Europe in February. Profit margins at grocers are some of the thinnest in retail, so lower inflation will drive down costs.
Emerging Markets:
-Emerging market banks aren’t immune to the turmoil sweeping their Western peers. They are holding up better, though. Shares in Singapore’s biggest bank, DBS Group Holdings, have held up even since March 8, when news of Silicon Valley Bank’s collapse catalyzed market calamity. Indian investor favorite HDFC Bank is off 5%; Itau Unibanco Holding (ITUB), Brazil’s top private financier, is down 8%. That compares with a 10% selloff for BNP Paribas, the largest bank in the Europe Union, and 14% at Bank of America (BAC). Distance from the crisis epicenter may explain part of this outperformance, but not all. Past shocks and endemic volatility have left emerging market financial sectors, on the whole, more consolidated, more firmly regulated, and more careful about matching assets to liabilities than the US and Europe.
Commodities:
Diesel prices at the pump have fallen to their lowest in over a year. That’s good news for consumers, but the decline in prices for the fuel suggests a gloomy outlook when it comes to the US economy. Diesel fuel is ubiquitous in our economy,” says Brian Milne, product manager, editor, and analyst at DTN. It’s a “critical component in industrial production and…supply-chain dynamics.” Weaker demand, however, has led to lower diesel prices. US government data show diesel demand in the first 10 weeks of this year down 12.6% from the comparable period in 2022, says Milne, with the steep drop in demand due to slowing growth in parts of the economy, especially for heavy industry and construction. This slowdown is further pressured by higher interest rates and the recent bank failures increasing expectations for a recession, he says.
Streetwise:
Investors have been rattled by two big US bank failures and high-profile bailouts. Some money managers are warning followers that we’re not safe yet. “Time is running short before the fire becomes a conflagration,” tweeted Pershing Square CEO Bill Ackman this past Thursday. I looked it up in hopes that it was a spa treatment or dessert. Turns out it’s a bigger fire. Investors are particularly down on midsize banks. “There’s not a great place for regional banks, we think, in portfolios now,” says Brad Neuman, director of market strategy at Alger, a money manager.