Barron’s Weekend Summary: One might think, from the stock market or Twitter, that Tesla and electrification are the only things that matter today in the world of transportation
Cover Story:
-One might think, from the stock market or Twitter, that Tesla and electrification are the only things that matter today in the world of transportation. But there’s a lot more to the story, including autonomous driving, ride-sharing, robotics, and mobility technology, to name just a few salient trends. Plus, there are 300 million vehicles already on the road in the US alone that still need care and repair.
Interview:
-No interview this week
Tech Trader:
-In the first four months of the year, billions of investors’ capital was vaporized in what could be the quickest collapse of dollar value in hedge fund history. Tiger Global’s main hedge fund fell by more than 40% through the end of April, with Bloomberg estimating the losses for the firm at roughly $16B. Many other large brand-name technology funds own the same names as Tiger and are likely to be down as much or more.
The Trader:
-Some preferred issues have fallen nearly 30% in price this year—a huge decline for an asset class many investors have viewed as relatively low risk. The losses reflect the rise in long-term interest rates and a widening in yield spreads relative to Treasuries. Most preferreds are perpetual, which can make them acutely sensitive to rate changes. Many are down more than long-term Treasury bonds, including the iShares 20-Year Treasury Bond exchange-traded fund, which is off 22% in 2022.
-The market reacted violently to the Federal Open Market Committee, which hiked the federal-funds rate target by half a percentage point for only the second time this century. Officials detailed plans to reduce the Federal Reserve’s bloated balance sheet, a process known as quantitative tightening.
-Liberty Formula One stock had been racing ahead, but a recent pullback before the Miami Grand Prix could be a buying opportunity. All of that would have been unimaginable six years ago. Miami didn’t have a race, Formula One Group didn’t have a tracking stock, and the sport looked like it was slowly disappearing. When John Malone’s Liberty Media announced that it was acquiring Formula One Group from private-equity firm CVC in 2016, he was met with skepticism.
Features:
Investors are giving less credit to slide decks and press releases, says Credit Suisse auto analyst Dan Levy, who has an Outperform rating on GM, with a $58 price target, about 45% above its current price below $40. “The message from investors is to show us EV volume and a compelling product that show you can challenge Tesla in an EV world.” The company defends its deliberate EV rollout pace, pointing to its lengthy development of a fitting vehicle platform for its innovative Ultium battery system. “We’ve taken the time to do it right,” Paul Jacobson, GM’s chief financial officer, tells Barron’s. “Ultium allows us to have the infrastructure to support multiple vehicle segments with the same battery platform. It allows us to scale with efficiencies that no one else can replicate.”
-According to the SEC, Nvidia failed to disclose that crypto-mining was a significant element of its revenue growth from the sale of its gaming graphics processing units (GPUs) during consecutive quarters in 2018. Nvidia agreed to a cease-and-desist order and to pay a $5.5M penalty, but did not admit or deny the SEC’s filing. A spokesperson for Nvidia told Barron’s the company was declining to comment.
-Toyota isn’t ignoring the EV revolution—it wants to sell 3.5M EVs a year by 2030—but it is still hedging its bets by focusing on hybrid models that combine electricity with the conventional internal combustion engine. That choice carries its own risks, and it could mean that Toyota gets pushed aside by start-ups and incumbents, just as it did to the traditional players when it burst onto the US scene back in the 1970s. “Losers will be those slow to cannibalize their existing highly profitable [internal combustion engine] cars with very unprofitable EVs, where all the growth is,” says Gary Black, co-founder of the Future Fund Active exchange-traded fund. “Losers will include the legacy Japanese manufacturers like Toyota.”
European Trader:
-Biotech company Oxford Nanopore Technologies, which listed in London eight months ago, produces Covid-19 technology to identify new variants, but its expertise in testing DNA and analyzing data is where its growth lays. Its technology, with more than 2,000 patents, could disrupt the sequencing market, and is superior to rivals because of the combination of its portability, ability to process real-time data, and skill in reading ultra-long DNA fragments. Potential applications stretch far beyond healthcare, and span agriculture, epidemiology, industry, and education.
Emerging Markets:
-War, inflation, and a default have dealt emerging market bonds an especially hard blow, and souring sentiment on emerging markets broadly hasn’t helped. But for intrepid investors, this corner of the bond market is already looking more attractive. There’s no sugarcoating the pain. The iShares JP Morgan USD Emerging Markets Bond exchange-traded fund has lost 15% this year, compared with the 10% loss in the iShares Core US Aggregate Bond ETF.
Commodities:
-The bold move by the European Union to phase out its Russian oil and natural gas use will likely exacerbate the already low levels of inventories, boost oil and gas prices, and accelerate the move to renewable energy. Major energy companies that are already making the transition away from fossil fuels look set to gain. Investors who don’t mind a risk should consider buying top-quality energy companies such as BP and Shell. Both are well-run companies that are investing heavily in alternative energy such as wind, solar, and biomass. Over the next year, UBS forecasts double-digit returns of 13.8% and 12.6%, including dividends, for Shell and BP, respectively, according to reports from the bank.
Streetwise:
-In his weekly podcast, jack Hough discusses Bitcoin-ETF’s: “The CEO of the largest crypto fund makes the case for a Bitcoin ETF. Plus, a VanEck Portfolio manager shares why he's putting crypto in his inflation-fighting fund.”