BArrons : Comcast, Atlanta Braves, and 3 Other Forgotten Value Stocks With Poten

Comcast, Atlanta Braves, and 3 Other Forgotten Value Stocks With Potential to Grow

Growth stocks and large-caps led the market in 2023. That suggests the best bargains now reside among value and small-cap names.

That’s the view of Jonathan Boyar, head of Boyar Value Group, a New York–based asset management and research firm that compiles an annual list of 40 undervalued stocks with potential catalysts for a turnaround. “There are a lot of good opportunities in small-caps today, but you have to be choosy,” Boyar says. “Almost half [of small-caps] are unprofitable, and debt maturities are coming due.”

Boyar Value has compiled the so-called Forgotten Forty for the past 30 years. The portfolio has gained an average of 9.9% annually over the past 15 years, versus 8.4% for the Russell 3000 Value index. But it has lagged behind the S&P 500’s 11.8% average annual gain in that same span.

Barron’s recently spoke with Boyar about five ideas from the 2024 edition of the Forgotten Forty.

Medtronic, a maker of medical devices, has been buffeted in the past few years by supply-chain disruptions and the underperformance of the company’s diabetes-management business. The latest hit to the stock came from investor excitement about a new class of weight-loss drugs; their uptake is expected to dent demand for various medical procedures and devices.

Boyar sees aging populations in developed countries and improving standards of medical care in emerging markets as long-term tailwinds to the sale of medical devices and equipment. Medtronic has a promising robotic-assisted surgery system, he notes, with a lot of growth potential.

Medtronic shares have fallen almost 40% from their mid-2021 high, and now trade around $84. Boyar applies a five-year average enterprise value-to-Ebitda (earnings before interest, taxes, depreciation, and amortization) multiple of 17 times to fiscal 2025 estimated Ebitda, to yield a price target of $121 a share—a prospective gain of 44%. That’s before a dividend yield of 3.3%. Medtronic has lifted its payout for 46 consecutive years.

Boyar also sees a favorable risk/reward for Comcast stock, up 16% in the past year. The company’s Xfinity cable business is highly profitable, and its NBCUniversal Media unit has the best balance sheet among traditional media companies.

Although broadband subscriber growth has slowed, Boyar says Comcast has been able to continue growing due to price increases. Network investments should yield more subscriber growth in the future. NBCUniversal has generated cash from the sale of Comcast’s Hulu stake to Walt Disney. Meanwhile, its theme parks are performing well, and losses are shrinking at the Peacock streaming service.

All that means plenty of free cash flow to direct toward Comcast’s dividend—current yield: 2.7%—and share buybacks. The company has returned more than 20% of its market value since the start of 2021. Boyar calculates an intrinsic value estimate for Comcast of $70 a share, up 63% from the stock’s recent $43.

Atlanta Braves Holdings is a holdover from the 2023 Forgotten Forty, but it is a different stock today. Until July 2023, it was a tracking stock representing ownership of Major League Baseball’s Atlanta Braves, whose parent was John Malone’s Liberty Media.

After a spinoff, the Atlanta Braves is now a stand-alone, public company. That paves the way to an eventual sale of the team. Sports franchises are trophy assets that trade on prestige and scarcity value, not business fundamentals or team performance—with valuations seemingly climbing ever higher.

Boyar values the Braves at nearly $3 billion, a 15% premium to Forbes’ valuation of the franchise. He assigns another $356 million in value to real estate holdings around Truist Park, the Braves’ home.

Adjusting for cash and debt, Boyar gets an equity value of $3.4 billion for the Braves, or about $55 per share, compared with the stock’s recent $42. It just might take a sale of the team to get there.

IAC’s portfolio looks set for a strong year in 2024, Boyar says, with improvement in the fundamentals and the option of monetizing holdings. The Barry Diller–founded holding company owns shares of publicly traded Angi and MGM Resorts International, plus stakes in Dotdash Meredith, Care.com, and Turo.

Boyar expects revenue and earnings at Angi and Dotdash Meredith to improve in 2024. A Turo initial public offering would be another positive catalyst. IAC owns about 30% of the car-sharing platform, which it carries on its balance sheet at a total-company valuation of about $1.3 billion. More recent purchases of Turo equity have been at a valuation closer to $3 billion. An IPO could help close the gap.

Shares are too cheap given the sum-of-the-parts value of IAC’s holdings, Boyar says. Its stakes in MGM and Angi are worth $2.8 billion and $1 billion, respectively, at recent prices, and it has $619 million in net cash. Added together, those figures exceed by more than $150 million IAC’s recent market value, before considering the value of any of its other holdings, which Boyar puts at around $1.5 billion. The sum-of-the-parts math gets to $69 per IAC share, 33% more than the stock’s recent $52.

Interactive Brokers Group is a unique player in the online brokerage industry. It is smaller but faster-growing and more international than peers. Compare IBKR’s 2.5 million accounts—growing by more than 20% a year—with Fidelity’s 43 million or Charles Schwab’s 35 million.

Unlike major U.S. online brokerages, which have moved to zero-commission trading, 95% of IBKR clients pay fees. That is largely a function of the international user base: Payment for order flow, which supports the zero-commission trading business model, is already or soon will be banned in Canada, the U.K., Australia, and Europe.

The result is a highly profitable business: IBKR generated $2.1 billion in pretax earnings on $3.1 billion of revenue in 2022. IBKR also has a “fortress” balance sheet, Boyar says, with more than $9.4 billion in excess capital. He values the stock at 20 times 2025 expected earnings—versus a 10-year average multiple of 26 times—or $124, representing 43% upside.

The 2023 Forgotten Forty had some notable winners, including Uber Technologies, highlighted in Barron’s and up 123% in the past 12 months, and Booking Holdings, up 62%. If investors embrace more value-oriented and small-cap stocks this year, as Boyar expects, the latest list of names will be forgotten no more.

BArrons : Chile’s Lithium Deal Is Good News for EVs

Chile’s Lithium Deal Is Good News for EVs

Chile’s government sneaked in a last-minute New Year’s gift for the coming generation of electric-vehicle owners around the world: a public-private partnership to extend the life of the world’s cheapest lithium basin by 30 years.

That would be the Atacama salt flats in the high Andean desert, where local miner Sociedad Química y Minera and U.S.-based Albemarle produce a quarter of the global supply of the essential mineral for EV batteries. SQM’s concession was set to expire in 2030. That will now move to 2060, as the firm enters a 50-50 joint venture with state copper giant Codelco.

The deal marks a pragmatic tilt for Gabriel Boric, the 37-year-old ex-student activist who became Chile’s president in 2022, vowing extensive progressive reforms. He’s making common cause with SQM’s dominant shareholder, Julio Ponce Lerou, a son-in-law of late dictator Augusto Pinochet who was fined in a stock manipulation scandal 10 years ago. “For the government, Ponce has been considered a sort of devil,” says Juan Carlos Guajardo, founder of the Plusmining consultancy in Santiago.

Chile will need a lot more compromise to fulfill its lithium destiny. The nation of 20 million sits on the world’s largest proven reserves. But exploration has been constrained by a Pinochet-era law designating lithium a strategic metal, for its presumed importance to nuclear energy. Moves to scrap that statute have been stymied by divisions between statists and free marketers in Congress, says Francisco Acuna, a Santiago-based consultant with raw-materials specialist CRU. “There’s a political paralysis around lithium,” he says.

Australia has taken advantage to power past Chile in production of the now-strategic metal. Neighboring Argentina should surpass it by 2028, shrinking Chile’s global market share to 15%, CRU projects.

Plenty remains unresolved on the Atacama deal itself, which is still in memorandum-of-understanding, or MOU, stage. The current extraction method there—sucking lithium brine to the surface and then letting the liquid evaporate over a few months—could exhaust water resources over the next 35 years. Sustainable exploitation depends on so-far unproved improvements like reinjecting brine or “direct extraction” of metal from underground deposits. “There’s guidance in the MOU on ‘moving toward new technologies,’ but it’s very vague,” Acuna says.

Albemarle’s concession, in a different section of Atacama, stretches until 2043. So, it isn’t a primary concern for now. SQM and Codelco will pool resources at a greenfield deposit called Maricunga. Production there is years away, at best.

Argentina’s lithium prospects benefit from that country’s federal structure, which has given mining-friendly governors in two northern provinces a free hand to nurture investment. An obstacle, Acuna notes, is the national government’s tangle of currency controls, which can keep foreign investors from repatriating profit. Just-elected pro-business President Javier Milei may lack the political strength to untangle them. “It will take a bit more time to see if Milei can change course,” Acuna says.

Consultant Guajardo, for his part, is opening an office in Melbourne. “It looks like Australia will do the right thing in the current mining boom, while Latin American countries struggle,” he says.

Chile’s cost advantage may grow increasingly important as the lithium market matures, though. Prices plunged 80% last year to below $10,000 a ton. Guajardo sees them settling at $20,000 to $25,000 over the next decade. “Lithium is not a scarce mineral, and that’s starting to be evident on the supply side,” he says.

More good news for EV manufacturers and drivers.

BArrons : The Power Grid Is Changing. What It Means for Utility Stocks—and Your

The Power Grid Is Changing. What It Means for Utility Stocks—and Your Electricity Bill.
Renewable energy will make life more complicated but could be a boon for the companies providing it.

The year is 2051 and newly married, first-time homeowner Olivia is driving to work. (Olivia was one of the most popular baby names in 2020, and she has just turned 31.)

She parks her electric vehicle at an office building at 6:45 a.m. and plugs in her EV, getting a free charge at work. About half of the vehicles sold in the U.S. are still gasoline-powered, but there are enough EVs that it makes sense to get there early. Just after lunch, Olivia gets an alert on her phone that her car isn’t charging. On this scorching July day, the electric company needs the energy to meet peak cooling demand. She understands—and also understands the opportunity it offers, as she taps a “sell” button on an app. Her car starts to discharge electricity to the building’s battery, which will power the lights and air conditioning during peak hours, lowering the building’s total cost of operating by not relying on the grid.

Olivia gets something, too. By the time she leaves work, her car has discharged about 40 miles worth of electricity, knocking $3 off her monthly bill. She could have sold more, but she wanted to make sure she had enough left to get home.

Olivia’s car isn’t the only thing responding to the heat wave. So does her two-bedroom bungalow in a nice suburban neighborhood, which uses a heat pump to cool down. In an alert on another app, she learns that the electric company had lowered her thermostat to 68 degrees in the morning, cooling her home ahead of expected peak demand. The utility then set the thermostat to 75 degrees in the afternoon, and reset it to 72 degrees about an hour before she got home.

Olivia isn’t surprised—she elected to allow the utility to change temperatures to get more favorable rates. Now she’s thinking about adding solar panels and battery storage to her home so she can sell power back to the grid when demand is highest. There would be an upfront cost, but her electricity bill would drop even further.

Sure, it’s complicated—and Olivia isn’t always a fan of the apps that keep pushing alerts to her phone. It’s worth it, though. Olivia spends less on electricity and gas than her parents did a generation ago. Welcome to the grid of the future.

Getting there won’t be easy. “The grid” refers to everything that goes into the production, storage, transmission, distribution, and consumption of electricity, and it’s set to go through big changes. Production of electricity will have to increase as power-hungry data centers proliferate along with EVs, and as home heating and cooling go electric. The sources of all that electricity will shift to more-renewable sources like solar and wind, which will also necessitate more energy storage assets—think batteries—as well as more-robust transmission lines. Behind the curtain will be more software and artificial-intelligence tools coordinating it all.

For homeowners, it means more complexity in exchange for a lower total energy bill. For utilities, it means growth. And for the companies that build grid infrastructure, make the electrical hardware, and write the software to control it all, it means big opportunities.

Not much has changed for the power grid over the past couple of decades. The U.S. consumed about 4.2 trillion kilowatt-hours of electricity in 2022, a record, but overall demand has been sluggish—just 0.4% growth annually since 2000. About 60% of that comes from burning coal and natural gas. Another 20% comes from nuclear power, with another 20% from renewable sources.

The subdued demand growth has meant that the industry has been focused on the maintenance of existing assets, and not investing for the future. The transformers—those buzzing boxes that convert voltage into levels that can be used in homes and offices—are essentially identical to the ones used 20 years ago. The biggest change homeowners may have noticed is the automatic meters that have replaced the monthly visits by a utility employee.

All told, publicly traded electric utilities have spent some $134 billion a year on average maintaining their $2 trillion asset base, according to the Edison Electric Institute, with few dollars going to drive the modest growth.

Such complacency won’t cut it in the years ahead. Data centers are growing as more data move to the cloud. What’s more, AI computers are power hungry, needing five or six times more power compared with their less-sophisticated computing ancestors. Heat pumps, which are replacing conventional heating and air conditioning, shift demand from natural gas and heating oil to the grid. While the transition away from internal combustion engines to EVs hasn’t happened as quickly as some imagined, it’s still happening—and powering all of those cars will take a lot of electricity. Right now, EVs account for less than 1% of total electricity demand. That could be anywhere from 5% to 15% by 2050, depending on how fast EVs get adopted.

All told, electricity use could grow by 2% a year over the next decade, ending years of stagnation. “I just think we’re going to have massive amounts of electrification everywhere,” says Reaves Asset Management CEO Jay Rhame. “Every utility has a story where demand growth is the highest it has been in forever.”

Demand isn’t the only thing that’s changing—so is how electricity is produced. In the past, coal- or gas-fired power plants would be cranked up as needed to deliver electricity. For the most part, it has worked. But that’s about to change. New capacity is desperately needed—the Department of Energy sees capacity expanding by 2.6% annually over the next 20 years, about double the rate since 1990—making the grid 70% larger. Roughly 70% of that will be renewable, a source of energy that is more dependent on climate conditions than fossil fuels.

Production will also be increasingly decentralized. Utilities will still generate the bulk of the electricity, but it will also come from a Walmart store with a solar roof, a Tesla
TSLA

-0.18%
owner with a backup battery, or a homeowner with a standby generator made by Generac Holdings. They’re all potential producers that will be able to send electricity to the grid at times of peak demand.

All of that is still very much a work in progress. As unpopular as a local utility might be when prices spike, the U.S. grid is incredibly reliable. The average American spends about six or seven hours without power each year. Decentralization could lead to more price volatility, with electric-power prices rising faster than inflation at times, and customers will be forced to deal with a less reliable grid, with a neighborhood transformer going down when too many EVs plug in all at once—a problem that can be addressed with newer, more sophisticated equipment.

In the worst-case scenario, the result looks a lot like Texas in February 2021, when millions of residents lost power for as many as four days, due to severe cold. Both natural gas and wind assets failed, with a lack of gas production accounting for a significant portion of outages.

Some of the problems will be solved by creating better infrastructure, including the development of higher-capacity cables, which would add transmission capacity without increasing the number of transmission towers needed, and updated hardware designed to handle the ebbs and flows of demand. Texas, for its part, didn’t cast aside renewable energy after the blackout. Instead, it reassessed margins of safety and updated forecasting and interdependence methodologies.

The grid has “got to be slightly bigger, but a lot smarter,” says Thierry Godart, general manager of Eaton’s Energy Automation Solutions unit, which sells hardware and software ranging from smart electric meters to automation software and predictive analytics.

The industry already employs complicated acronyms, including Droms, Derms, and VPPs, for the kinds of software it needs to handle the grid of the future. Droms is short for “demand response optimization and management systems,” which can change the thermostats in houses to manage electricity demand when the grid is under strain. The more sophisticated systems include demand forecasts and logic to precool homes so there is no spike in demand following a weather event.

Derms, short for “distributed energy resource management systems,” can orchestrate the growing number of distributed generating assets including solar roofs, businesses with their own generators, and even battery storage owned by anyone. VPPs, or virtual power plants, will aggregate megawatts of electricity generation from things such as solar panels on top of a Walmart and sell them to a utility.

“It isn’t about putting in poles and wires,” says AutoGrid CEO Ruben Llanes. “Optimization and efficiency are very important.”

Over the next 30 years, some $9 trillion, or about $300 billion a year on average, should be spent adding generating, transmission, and distribution assets while upgrading in-home technology such as smart metering, connected thermostats, and smart, connected circuit breakers. Some of that will be spent by businesses looking to cut their utility bills, and some will be spent by homeowners adding solar panels to their roofs or adding batteries and backup generators to ensure they never go without power. Most of the spending will fall to the existing utilities and independent power companies.

Utilities won’t mind. The grid of the future will mean more electricity to generate, distribute, and manage—and faster growth than they have had in the recent past. The capital spending means sales and earnings growth as regulators allow utilities to earn a return on their outlays. NextEra Energy
NEE, with about 34 gigawatts of clean generating capacity, is already the largest producer of utility-scale renewable power in the U.S., with roughly 10% of total U.S. nonnuclear renewable capacity.

More important for investors, it has grown earnings at a rate of about 11% a year on average for the past three years. While Wall Street projects growth to slow to about 7% for the coming three years, that slower growth may already be reflected in the stock, which trades for 18 times estimated 2024 earnings, down from a three-year average of almost 26 times.

Edison International should benefit from being based in California, an early adopter of renewable energy. California means wildfire risks, something that has kept a lid on valuations for utilities based in the state, but more than 20% of all the cars sold in the state during the first three quarters of 2023 were all-electric, which should drive demand for electricity. Edison International’s earnings are expected to grow at an 8% clip over the next three years, up from 1% annually over the past three. Shares trade for about 14 times earnings, in line with historical levels.

American Electric Power, one of the largest utilities in the U.S., serves more than five million customers across 11 states, including Oklahoma, Texas, and Tennessee. Those states are among the fastest-growing, and power demand is increasing with the population. That provides AEP with a kicker, with the utility expected to grow at a 6% annual rate over the next three years, about the same as the past three. It trades at 15 times 2024 earnings, down from an average of 18 times.

Growth has already started to show up for the established suppliers of electrical components and software, including Hubbell, Eaton, and France’s Schneider Electric. Those opportunities are starting to be reflected in the stocks. Hubbell, a key supplier of transmission and distribution equipment to utilities, has grown earnings at an average annual rate of about 26% a year for the past three years, including fourth-quarter estimates for 2023, but is expected to grow by just 8% over the next three years.

That is probably a conservative view. Mizuho Securities analyst Brett Linzey, who has a Buy rating and $370 price target on the stock, expects the inventory adjustments that hurt volumes in 2023 to have normalized in the fourth quarter, which should help earnings beat consensus estimates. Other stocks benefiting from that dynamic include Schneider Electric, which has grown earnings at about 22% a year on average for the past three years but is expected to grow them at a 10% clip over the next three, and Eaton, which has grown earnings at 29% a year for the past three years but is expected to grow by just 9%.

The expectation that growth will return to normal is playing out at infrastructure companies that will build out the grid, too. Quanta Services has grown earnings at about 23% a year on average for the past three years, but analysts project growth of 16% for the coming three years. That solid growth is reflected in the stock, which trades for about 24 times estimated 2024 earnings. Likewise, Sterling Infrastructure provides building services for data centers, transportation, energy, and other customers. It has grown earnings at 40% a year on average for three years, but Wall Street sees that falling to about 12% a year. Sterling shares are up 120% over the past 12 months, but the stock trades at less than 17 times 2024 earnings per share.

Clough Capital Partners CEO Vincent Lorusso is a fan of Sterling. “They are just so well positioned in areas where [the U.S. is] going to continue to invest a lot of capital,” he says.

Wall Street sees earnings growth decelerating at Hubbell, Eaton, Schneider, Quanta, and Sterling. That doesn’t mean they have peaked, just that analysts are loath to assume good times last forever and tend to project normalized results into the future.

Don’t expect rooftop solar stocks like Sun Power and Sunnova Energy International to get the biggest boost from the grid of the future. There is roughly 40 to 50 gigawatts of small-scale solar generating capacity in the U.S., representing some 3% of total U.S. generating capacity, and the $2.7 billion in sales expected to be generated in 2024 is a tiny portion of the hundreds of billions spent growing and maintaining the grid. What’s more, neither stock is profitable, and neither generates free cash flow yet. They are also as dependent on interest rates and capital markets to fund their growth as they are on the grid.

First Solar, on the other hand, is a leader in utility-scale solar technology. It has a market capitalization of about $18 billion and is profitable. Sales and earnings are expected to grow at about 25% and 60% a year on average, respectively, over the coming three years. Shares trade for just 13 times estimated 2024 earnings because sales and earnings tend to be cyclical and tied to government policy.

The grid of the future could make it a winner.

>>> US Close Dow +0.07% S&P +0.18% Nasdaq +0.09% Russell -0.34%

Closing Stock Market Summary
Stocks and bonds had a somewhat choppy session. The S&P 500 closed just below 4,700 with a 0.2% gain. The Nasdaq Composite and Dow Jones Industrial Average each logged a 0.1% gain while the Russell 2000 declined 0.3%.

Market participants were digesting the December Employment Situation Report and the December ISM Services PMI. The former featured better than expected nonfarm payrolls, average hourly earnings, and a steady unemployment rate versus expectations for an increase. The latter showed a larger than expected deceleration in December service sector growth. Together, those reports stirred uncertainty about rate-cut expectations.

The solid employment numbers may keep the Fed from cutting rates as much as the market had expected, whereas the soft reading for business activity in the nation's largest sector would perhaps keep the Fed aligned with the market's rate-cut expectations.

The 10-yr yield shot to 4.09% after the jobs report, but moved as low as 3.95% following the PMI number. It settled the day at 4.04%, which is five basis points higher than yesterday. The 2-yr note yield, which is most sensitive to changes in the fed funds rate, settled the session at 4.39% after dipping to 4.32% earlier.

A late afternoon rollover in (AAPL 181.18, -0.73, -0.4%) shares weighed down the major indices following news that the DOJ is getting close to filing an antitrust case against Apple, according to The New York Times. The Vanguard Mega Cap Growth ETF (MGK) still eked out a 0.1% gain.

Only three S&P 500 sectors closed with declines -- consumer staples (-0.2%), real estate (-0.2%), and health care (-0.02%) -- while the financials sector (+0.5%) saw the biggest gain.
None of the sectors moved more than 0.5% in either direction.

  • Dow Jones Industrial Average: -0.6%
  • S&P 500: -1.5%
  • S&P Midcap 400: -2.5%
  • Nasdaq Composite: -3.3%
  • Russell 2000: -3.8%

Reviewing today's economic data:
  • December Nonfarm Payrolls 216K (consensus 162K); Prior was revised to 173K from 199K; December Nonfarm Private Payrolls 164K (Briefing.com consensus 132K); Prior was revised to 136K from 150K;
  • December Unemployment Rate 3.7% (consensus 3.8%); Prior 3.7%; December Avg. Hourly Earnings 0.4% (consensus 0.3%); Prior 0.4%; December Average Workweek 34.3 (consensus 34.4); Prior 34.4
    • The key takeaway from the report is that it wasn't weak, so the market is going to have to grapple with the notion that the Fed may not cut rates as many times in 2024 as the market had come to expect at the end of 2023.
  • November Factory Orders 2.6% (consensus 1.3%); Prior was revised to -3.4% from -3.6%
    • The key takeaway from the report is that factory order strength was muted in November excluding transportation.
  • December ISM Non-Manufacturing PMI 50.6% (consensus 52.5%); Prior 52.7%
    • The key takeaway from the report is that the largest sector of the U.S. economy saw a slowdown in activity in December to a level that was just above contraction -- a directional move that should at least keep the Fed from raising rates again if it doesn't elect to cut rates as soon as the market expects.
Monday's economic calendar is limited to the November Consumer Credit report at 15:00 ET.

>>> Weekly Market Update

Weekly Market Update: Early 2024 unwinds some of the prior year’s optimism

The New Year’s trade opened with a modest unwind of the trading flows that prevailed over the last two months. Treasury yields moved up along with a strong US dollar, while stock indices lost their underlying bid. Defensive groups like energy, utilities and healthcare saw rotation in, while the ‘Magnificent 7’ and other high flying tech names experienced selling pressure. Global economic data turned a bit more hawkish with re-acceleration seen in Eurozone inflation and US payrolls. FOMC minutes underscored the gulf that exists between market expectations and the sense of urgency from the FOMC to begin cutting rates aggressively. The US 10-year yield tracked back to 4% and the VIX volatility index edged a bit higher off of recent cycle lows. For the week, the S&P lost 1.5%, the DJIA was off 0.6%, and the Nasdaq fell 3.3%.

Geopolitics drifted to the forefront of investors’ minds, potentially weighing on sentiment to some degree. The Gaza war dragged on and concerns about a wider conflict resurfaced after a key Hamas leader was killed by a drone strike in a key Hezbollah stronghold in Lebanon. Shipping attacks in the Red Sea continued while the US and allies issued an ultimatum to Iranian-backed Houthis to cease and desist or otherwise face "consequences." Finally, Iran vowed a quick and forceful response to a significant terrorist attack near the grave of the late General Soleimani which resulted in more than 100 deaths. Early in the week, WTI crude tested below $70/bbl, but prices rebounded amid the ongoing uncertainty emanating out of the Middle East.

In corporate news this week, signals for the economy were more weighted towards a slowdown scenario. McDonald’s CEO sent his stock lower with a New Year’s update that mentioned a 'meaningful business impact' from the Middle East war. Walgreens reported some unfavorable US retail trends impacting its Q2, and said it would evaluate strategic options, while slashing its bloated dividend almost in half. Xerox shares dropped after announcing a restructuring that will eliminate 15% of its workforce by the end of the quarter. Automakers reported solid Q4 unit sales, highlighted by Tesla beating production estimates with nearly a half millions cars produced in the quarter. But that success was tempered by an earnings warning from EV sensor supplier Mobileye, suggesting there may be an excess of parts inventory at its customers.

Supply chain issues continued to reemerge as instrument manufacturer Mettler Toledo cut guidance based on delays at a European logistics provider. Global shipping giant Maersk announced it will be diverting all of its containerships away from the Red Sea route, telling customer to prepare for some disruptions. M&A continues to brew in the background, as reports on Friday said that both Ansys and Southwestern Energy are near deals to be acquired by rival firms. Meanwhile the DOJ was said to be wrapping up preparations for an antitrust suit against Apple over its use of market position to protect its core business from competition.


WEEKEND
(CN) CHINA DEC MANUFACTURING PMI (GOVT OFFICIAL): 49.0 V 49.6E (3rd month of contraction and 6-month low)

MON 1/1
(JP) 7.6 magnitude earthquake reported off west coast of Japan; Japan dropped its highest-level tsunami alert hours after; all tsunami warnings were later lifted
(IL) Israeli military official: Thousands of Israeli soldiers are being shifted out of the Gaza Strip [**Note: the first significant drawdown of troops since the war began]
ASML.NL Chinese shipment license partially revoked by the Netherlands government; Reiterates will not impact financial outlook
005930.KR Said to guide 2024 chip unit Op KRW11.5T; notes rebound in DRAM prices, AI-related demand - South Korea press
(SG) Singapore Q4 Advance GDP Q/Q: 1.7% v 0.7%e [fastest growth since Q3 2022]; Y/Y: 2.8% v 1.8%e
(HK) Macau Dec Casino Rev Y/Y: +433.3% v +402.0%e
(CN) CHINA DEC CAIXIN PMI MANUFACTURING: 50.8 V 50.3E [2nd month of expansion; highest since Aug]
YY Baidu terminates previously proposed $3.6B deal to acquire Joyy

TUES 1/2
PNM Avangrid terminates merger agreement; Affirms long-term 5% earnings growth target
(IT) ITALY DEC PMI MANUFACTURING: 45.3 V 44.2E (9th month of contraction) (highest since Sept 23')
TSLA Reports Q4 deliveries 484.5K v 483Ke v 435.1K q/q, production 495.0K vehicles v 482.4Ke
(CA) Canada Dec PMI Manufacturing: 45.4 v 47.7 prior (8th month of contraction and lowest since pandemic)
(FR) France's CMA-CGM, 3rd largest container shipping firm in the world, raises container shipping rates from Asia to the Mediterranean region by 100%; Effective Jan 15
(US) Atlanta Fed GDPNow: Cuts Q4 GDP from 2.3% to 2.0%
(US) NY Fed takes $704.9B in RRP program 5.30%; 78 participating and accepted counterparties (lowest dollar amount since Dec 15th)

WED 1/3
(TW) Taiwan Vice-President William Lai (ruling DPP) and Taiwan opposition party Kuomintang (KMT) Hou Yu-ih [seen as more China-friendly] have 33% and 30% of votes, respectively, according to final TVBS poll, ahead of Jan 13th's elections
(UK) Kantar announces 12 week grocery market share and sales: UK grocery inflation slows to 6.7% v 9.4% prior (the fastest month on month drop on record)
(DE) GERMANY DEC NET UNEMPLOYMENT CHANGE: +5.0K V +20.0KE; UNEMPLOYMENT CLAIMS RATE: 5.9% V 5.9%E
(CN) Chinese Communist Party mouthpiece newspaper urges China regulators to end their erratic moves against Big Tech firms - SCMP
(US) Robert F. Kennedy Jr. reportedly collected enough signatures to appear on the 2024 presidential ballot in Utah [**Note: the first state where the independent candidate has qualified]
(IR) Several explosions heard in central Iran near the grave of General Soleimani, with several people wounded; Iranian official says the incident is considered a terror attack - press
XRX Announced new operating model and organizational structure for company reinvention; Targets 15% workforce reduction in Q1 2024
*US 10-YEAR YIELD TESTS 4.00% FOR THE 1ST TIME SINCE MID-DEC AMID BROAD RISK AVERSE FLOWS
(US) NOV JOLTS JOB OPENINGS: 8.79M V 8.82ME
(US) Atlanta Fed GDPNow: Raises Q4 GDP from 2.0% to 2.5%
(IL) US, UK, Australia, Canada, and others issue joint statement giving Houthi rebels a final warning to cease attacks in the Red Sea or face "consequences"

THRS 1/4
(DE) GERMANY DEC CPI NORTH RHINE WESTPHALIA M/M: -0.1% V -0.3% PRIOR; Y/Y: 3.5% V 3.0% PRIOR (highest Y/Y pace since Sept, but 3rd straight M/M drop, 1st time since 2015)
NXT.UK Q4 Trading Update: Raises again PBT outlook citing sales in Christmas period better than expected; Difficulties with access to the Suez Canal, if they continue, are likely to cause some delays to stock deliveries in the early part of the year
NXT.UK *TTN Research Alert: Next becomes the first major retailer to mention potential impact from Red Sea and Suez Canal disruptions; CEO expects a material impact from shipping delays
(IT) ITALY DEC PMI SERVICES: 49.8 V 49.9E (5th month of contraction)
(EU) EURO ZONE DEC FINAL PMI SERVICES: 48.8 V 48.1E (confirms 5th month of contraction, but highest since July)
(US) BOFA INSTITUTE: WEEK-TO-DEC 30TH TOTAL CARD SPENDING +1.0% Y/Y V +0.5% AVG IN NOV
(US) Top House GOP lawmakers push Senate and the Biden administration to insert restrictive border policies into any government funding bills heading into the Jan 19th and Feb 2nd deadlines - Punchbowl
(CN) China regulators to leave solar wafer technology off its revised list of items restricted from export - press
BELA.GR Exec: Shoplifting exceeded its annual profits last year; The shoplifters were increasing prices for others - FT
MBLY Guides Q1 Rev $458M v $598Me, -50% y/y; Guides FY24 sharply below consensus; Aware of excess inventory at its customers, which expected to be mostly cleared during Q1 and to be at normal levels by end-2024
CAG Reports Q2 $0.71 v $0.68e, Rev $3.21B v $3.24Be; Cuts outlook citing slower expected volume recovery; -0.5% impact on Organic Rev from price/mix v +6.3% q/q; Notes domestic retail business improved substantially q/q
LLY Launches End-to-End digital healthcare experience through LillyDirect, including digital pharmacy for select Lilly medicines with home delivery; Medicines fulfilled by pharmacy service providers through LillyDirect Pharmacy Solutions ship free of charge
(DE) GERMANY DEC PRELIMINARY CPI M/M: 0.1% V 0.2%E; Y/Y: 3.7% V 3.7%
Redfin: U.S. pending home sales dropped 3.3% y/y (prior week -4.0%) during the four weeks ending Dec 31st, the smallest decline since Jan 2022; New listings +9.5% y/y v +12.2% prior
(IL) Israel Defense Min Gallant: Window for Lebanon diplomatic understanding is short
WBA *Notes unfavorable U.S. retail trends impacting Q2, intensifying headwinds from macro-driven consumer pressures; Guides Q2 $1.16 v $0.94e; Holding share in slower market trends in pharmacy script volumes - earnings slides
(US) DOE CRUDE: -5.5M V -3.5ME; GASOLINE: +10.9M V -0.5ME; DISTILLATE: 10.1M V +0.5ME
MCD CEO: Middle East war is causing 'meaningful business impact' to brands like McDonald’s
(US) NY Fed takes $664.9B in RRP program 5.30%; 78 participating and accepted counterparties (lowest dollar amount since June 2021)
COST Reports Dec Total SSS +8.1%** y/y (ex-gas and FX); US SSS +7.4%** (ex-gas and FX)
MTD Cuts guidance: Q4 sales and Adj EPS 'will be below previously-issued guidance', citing delays at a new European logistics provider
US Vice Admiral Copper: There is no sign that Houthis' irresponsible behavior in the Red Sea is abating
(KR) South Korea orders evacuation of YeonPyeong island near North Korean border following North Korea fired artillery shells near the island - Korea press

FRI 1/5
(JP) Head of Rengo [largest trade union in Japan] Yoshino: Japan’s corporations need to boost wages enough in the coming fiscal year that the increases exceed the previous period’s gains for a second year; Vital that wages outpace inflation for 2 years
005930.KR Reportedly Samsung cut its Q1 wafer foundry price quotes by 5-15% to attract customers and fill production; Taiwanese firms such as UMC, VIS and PSMC also said to implement price cuts of 15-20% for some customers in Q1 2024 (biggest price cuts since the pandemic) - Taiwanese press
9983.JP Reports Dec Domestic Uniqlo SSS -15.4% y/y (biggest drop since Aug 2021)
(US) Biden administration officials are drawing up plans for the US to respond to a potentially wider, protracted regional conflict in Middle East - Politico
TTN Research Alert: Fed's Overnight Reverse Repo Program (O/N RRP) facility dropped below $670B yesterday for the first time since June 2021; Most recent New York Fed survey of Wall Street’s biggest banks sees ~$625B level as potential trigger for Fed's QT program
(DE) GERMANY NOV RETAIL SALES M/M: -2.5% V -0.5%E; Y/Y: -2.0% V -0.5%E
(UK) DEC HALIFAX HOUSE PRICE INDEX M/M: 1.1% V 0.5% PRIOR; Y/Y: +1.7% V -1.0% PRIOR (3rd straight monthly rise and first positive Y/Y pace since Apr)
2317.TW Reports Dec (NT$) Rev 460.1B -26.9% y/y v 650B m/m; 2023 Rev -7% y/y; Q1 Rev expected to decrease y/y
(CN) China reportedly to start anti-dumping probe into some EU liquor products, including brandy - press
(UK) DEC CONSTRUCTION PMI: 46.8 V 46.1E (4th straight contraction but highest since Aug)
(CN) China troubled shadow bank Zhongzhi formally files for bankruptcy - press
EU) EURO ZONE DEC ADVANCE CPI ESTIMATE Y/Y: 2.9% V 3.0%E; CPI CORE Y/Y: 3.4% V 3.4%E (Core CPI pace lowest since spring 2022)
(IT) ITALY DEC PRELIMINARY CPI M/M: 0.2% V 0.3%E; Y/Y: 0.6% V 0.7%E (lowest annual pace since spring 2021)
(US) More press reports Pres Biden reportedly preparing to keep many of ex-Pres Trump tariffs on $300B of China imports, but still considering lower duties on some consumer goods from China; Biden hasn't made a final decision, but announcement expected in the coming weeks - Axios
(IN) India Govt Official: Current import inventory cushion under threat if Red Sea conflict is prolonged
MAERSKB.DK *Confirms risk with Red Sea and Gulf of Aden continues to be at a significantly elevated level, to divert ALL ships from Red Sea transit
SIMO Reports prelim Q4 Rev growth q/q to slightly exceed the high-end of its original guidance range of 10-15%
(US) US FDA said to allow Florida state to import medications, including for Medicaid, from Canada, where prices are lower - NYT [**Note: would make Florida the first US state to do so]
(US) DEC CHANGE IN NONFARM PAYROLLS: +216K V +175KE (highest print since Sept); Prior month prints saw lower revisions
(US) DEC AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 4.1% V 3.9%E
(US) DEC UNEMPLOYMENT RATE: 3.7% V 3.8%E
(US) NOV FACTORY ORDERS: 2.6% V 2.4%E
(US) OCT FINAL DURABLE GOODS ORDERS: 5.4% V 5.4%E; DURABLES (EX-TRANSPORTATION): 0.4% V 0.5%E
(US) Weekly Baker Hughes Rig Count: 621 v 622 prior (~flat w/w)
ANSS Reportedly Synopsis discussing cash-and-stock deal at around $400/shr, which would value ANSS at around $35B; Talks are exclusive and deal could be announced next week - press
AAPL Reportedly DOJ is in late stages of antitrust probe with focus on how Apple used its range of products and services to block threats to its core business - NYT
SWN Reportedly Chesapeake nearing deal to acquire Southwestern Energy; Combination would create a natural gas firm with an enterprise value of $17B - WSJ