FT : Boss of South African power producer Eskom survived poisoning attempt in De

Boss of South African power producer Eskom survived poisoning attempt in December
André de Ruyter, who resigned after trying to overhaul the troubled utility, claims he was given cyanide-laced coffee

The chief executive of South Africa’s troubled Eskom state power monopoly survived an alleged attempt to kill him with cyanide-laced coffee last month, shortly after submitting his resignation.

The alleged attempt to poison André de Ruyter took place before it was widely known he had resigned, according to people familiar with the details. De Ruyter drank a cup of coffee laced with cyanide on December 12, the people said.

Pravin Gordhan, the minister overseeing Eskom and other state companies, on Saturday confirmed that de Ruyter had informed him of the alleged attempt to poison him. “This attempt on his life will be thoroughly investigated and those responsible must be charged,” Gordhan said.

Eskom said that it “cannot comment further on the poisoning incident involving the chief executive, which occurred during December 2022, as the matter is subject to police investigation”.

De Ruyter, who will stay as Eskom chief executive until the end of March while a replacement is found, did not respond to a request for comment.

The timing of the incident indicates that those allegedly seeking to warn de Ruyter or kill him may not have known he had already quit. The coffee machine at Eskom’s Johannesburg headquarters was out of service, according to people briefed on the incident, but he was served the drink from a different source using his usual mug. He immediately felt nauseous and confused, forgetting familiar words.

De Ruyter had sought to turn round Eskom by taking on alleged criminal syndicates that have been draining the state utility through corrupt coal and other contracts. He has blamed a lack of support from President Cyril Ramaphosa’s government for his resignation, amid a battle to stem the worst-ever blackouts in Africa’s most industrialised nation and tackle rampant graft within the company.

The alleged poisoning underscores the threat to the government’s campaign to root out corruption from South Africa’s state-owned companies. Ramaphosa strengthened his grip on the ruling African National Congress in December with his re-election as leader despite a damaging scandal over a theft at his private game farm.

The main opposition Democratic Alliance said on Sunday that “not only has de Ruyter been left out to dry amid ANC shenanigans but now criminal syndicates within Eskom are palpably hell-bent on cementing their stranglehold on Eskom that is destroying the economy . . . firm and decisive action needs to be taken now”.

South Africa’s EE Business Intelligence first reported on Saturday that de Ruyter had fallen violently ill after drinking coffee at Eskom’s headquarters and been rushed to medical facilities where doctors found he had high levels of cyanide in his blood. De Ruyter told the publication: “I have reported the matter to [the South African police] on January 5 2023, and the case can be assumed to be under investigation.”

Eskom’s crisis is seen as the single-biggest threat to the South African economy and to the ANC’s decades-long grip on power ahead of national elections next year.

In 2022 South Africans endured twice as many power outages as the year before as breakdowns increased at Eskom’s fleet of ageing coal power stations. Newer coal-fired plants also constantly malfunction. The power cuts continued throughout South Africa’s holiday season and into the new year.

De Ruyter made many enemies after his appointment in late 2019, as he launched investigations into alleged criminal syndicates that he accused of worsening the blackouts by pilfering supplies from coal power stations and sabotaging attempts to fix problems. He is protected at all times by a bodyguard, as are other executives and some power station operators at the company.

“Make no mistake Mpumalanga is a gangster province,” de Ruyter told the FT in October, referring to the coal-producing region where many of Eskom’s power stations are located. “We’ve had contractors shot in their cars on the way to site because they didn’t give jobs to the right people.”

The alleged attempt to murder or frighten de Ruyter “shows the intense battle between those who want South Africa to work and thrive; and those who want to corruptly enrich themselves”, Gordhan said.

A plan to split heavily indebted Eskom into separate generation, transmission and distribution units has been opposed by some members of the ANC who see it as a way of reducing state control and privatising the energy sector.

In delayed annual statements released last month, Eskom’s auditors warned of “significant control deficiencies” in the supply of coal, fuel and parts to power stations. In one incident, the auditors added, key documents that they had requested “were purposefully destroyed in a fire”.

South Africa has experienced a marked increase in politically linked killings in recent years, from ANC politicians to state officials and anti-graft whistleblowers. Activists have warned of the spread of assassinations as reprisals for probes into corruption and threats to patronage networks.

FT : US regulatory action on the tech sector may come too late — or not at all

US regulatory action on the tech sector may come too late — or not at all
New EU laws could set an example to Washington in reining in social media platforms, AI and crypto

Between the meltdown of cryptocurrency exchange FTX, Elon Musk’s adolescent toying with Twitter, and the appearance of the disruptive chatbot ChatGPT, 2022 was a confrontational year for tech companies. It left society reeling. Now crashing stock prices have finally delivered a moment of reckoning, bursting the bubble of those who peddled a narrative of unregulated, “permissionless” innovation and its inexorable success.

Although FTX and Twitter must deal with their own leadership problems, and OpenAI’s breakthrough will be seen by many as progress rather than a threat, these disparate examples tell a common story: sooner or later the lack of guardrails produce the potential for damage to society. So can we expect decisive regulatory action this year?

The answer unfortunately, at least in the US, is “no”. Washington’s lawmakers are laughed at in Silicon Valley, where companies are confident that their lobbying spend of about $100mn over the past two years will continue to steer proposed laws away from damaging their bottom line.

In Congress, hopes of finding a majority to rein in crypto brokers and social media giants, or to establish firm regulations of artificial intelligence, seem a mission impossible. Political divides are wider than ever, and the House of Representatives is at a historic moment of dysfunction after struggling to find the next Speaker. In 2022, initiatives towards greater antitrust regulation, data protection and even child protections online never managed to be brought to a vote or win over the majority. Given the speed of democratic decision-making, chances are that the US legal landscape in which billionaire tech bros operate will be remarkably similar at the end of 2023.

For Europeans, the answer on regulatory action is “yes, but”. A whole host of new laws are already in the works and will trim the sails of the Sam Bankman-Frieds and Elon Musks of this world, as well as those of Sam Altman of OpenAI. First, markets in crypto assets will be regulated. A new EU law seeks greater transparency regarding risks to consumers, better financial disclosure and oversight of company reserves and environmental harms. We now have to wait for the new law to come in to force this year.

For platforms such as Twitter, business as usual is over in the EU. The two-pronged legislation, the Digital Services Act and the Digital Markets Act, spell out new responsibilities for companies on moderating content, and clarify antitrust rules for gatekeeper companies. That means Musk will not enjoy limitless personal power over what content to allow on Twitter. There will also be greater transparency on algorithms. And here’s a date to mark in your calendar: February 17, a deadline for platforms to report the number of their active users.

On top of these new constraints, the EU’s AI Act, to be finalised this year, will be a world-leading law that takes a risk-based approach. Some very risky applications such as social credit scoring will be banned while the use of AI in chatbots would be identified as low risk. For generative AI (the technology used to power ChatGPT) the question is whether that label does justice to risks of bias in the underlying data sets that large AI models are trained on. Or would the application be considered risky if it comes up with misguided health solutions?

The political agreement within the EU means important work has already been done. Yet the power of the new rules to have an impact on crypto assets, social media platforms and artificial intelligence also depends on successful enforcement. That is a space to watch with a critical eye.

Once EU rules prove their promise in practice, American internet users and lawmakers can observe from the other side of the Atlantic that US technology companies are perfectly capable of complying with laws that ensure a fairer economy, respect for civil rights and the protection of consumers and investors. And they can already see the challenges of unregulated technologies all around us. “No industry did more harm than tech,” the investor Roger McNamee said last week.

Last year offered plenty of reminders that the marketing and lobbying narratives of tech companies are not matched by the level of societal value they create. Yes, crypto assets, social media platforms and AI companies are all different, and the companies in those sectors face distinct challenges. But to wait for the next disaster resulting from a lack of regulation and oversight would be a mistake. Here’s to making 2023 a turning point.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-On 15th vote, McCarthy is elected House Speaker. Kevin McCarthy won over a bloc of right-wing holdouts and finally clinched the speakership after four days of voting. The result came after a dramatic, late-night roll call that hinged on a single vote, ending the longest speaker election since 1859.
-As the Republican leader Kevin McCarthy has made concessions to the far right, he has effectively agreed to give them carte blanche to disrupt the workings of the House — and to hold him hostage to their demands.
-After dramatic 14th vote, Trump calls holdouts who refused to back McCarthy. The former president made crucially timed calls to Representative Matt Gaetz and others who sunk McCarthy’s 14th effort to be elected House speaker.
-Biden honors ‘extraordinary Americans’ who defended democracy on Jan. 6. President Biden marked the second anniversary of the Jan. 6 attack by awarding the Presidential Citizens Medal to 14 people.
-Attacks continue in Ukraine despite Russia’s supposed ceasefire
Ukraine never accepted Russia’s unilateral Christmas truce, dismissing it as a ploy, and Russian shelling was as intense as ever in a hotly contested city.
-Ant group says its founder, Jack Ma, will relinquish control. Ant Group, the fintech sister company of the e-commerce behemoth Alibaba, is one of China’s most influential companies.
-A 6-year-old has shot a teacher at a Virginia elementary school. The teacher at Richneck Elementary School in Newport News has “life-threatening injuries” after being shot by one of her students, the authorities said.
-Widening highways doesn’t fix traffic. So why can’t we stop? With billions available to improve transportation infrastructure, states can try new ways to address congestion. But some habits are hard to break.
-Here are the people Iran sentenced to death in its protest crackdown.
An updated look at the Iranians marked for execution in the government’s attempt to curb a months-long uprising.
-A judge declined to dismiss the suit by Letitia James, New York’s attorney general, against former President Trump, calling his lawyers’ filing frivolous.
-After troops arrested a son of the notorious drug lord known as El Chapo, cartel gunmen tried to free him, resulting in a series of gun battles and thousands of troops called into the fight.

THE FINANCIAL TIMES
-Kevin McCarthy has been elected as Speaker of the House of Representatives, ending a tortuous week of wheeling and dealing on Capitol Hill that exposed sharp divisions in the Republican Party and raised fresh questions about whether Congress can govern effectively in the years to come.
-Elon Musk’s Twitter takeover did not go down well on Wall Street, which feared the chaos and political polarization it unleashed would tarnish the automaker’s brand and distract him at a critical time. A Tesla stock price slide that began in the autumn turned into an avalanche; shares are now 73% below their peak of a little more than a year ago. Musk himself is $200B poorer.
-Chinese billionaire Jack Ma is to relinquish control of Ant Group, the fintech company revealed on Saturday, as its founder continues his withdrawal from his online businesses following Beijing’s tech crackdown.
Ma will see his voting rights shrink from above 50% to 6.2%, according to calculations based on a statement from the online payments and loans provider. The planned change of control, first reported last July, would help release the company from the limbo it has experienced since an intended IPO was pulled at the last minute in November 2020.
-Rising economic optimism buoyed stock markets on both sides of the Atlantic on Friday, after Eurozone inflation figures and US jobs data boosted hopes of a soft landing this year. But economists warned that while a recent big fall in energy prices has bolstered prospects for 2023, underlying inflation would maintain pressure on central banks to raise interest rates further to keep price rises under control.
-Russia is trying to block the reappointment of the Danish head of the UN’s leading environmental agency, following a highly critical report about the impact of the war on Ukraine, according to people familiar with the matter.
-Rival members of Qatar’s royal family are battling for control of the world’s largest cut blue diamond in London’s High Court, with one side trying to force a $10M sale of the opulent 70 carat “Idol’s Eye” gemstone. The storied Indian diamond, whose past owners include a Sultan of the Ottoman Empire, is at the centre of a lawsuit filed by Qipco, a conglomerate run by Qatar’s big-spending art collector Sheikh Hamad bin Abdullah al-Thani.
-Data show UK public support for leading members of the royal family holding firm in the face of criticism from Prince Harry and his wife, Meghan, Duchess of Sussex. The latter prince’s own personal popularity, however, has been on the slide since he embarked on a series of media appearances and interviews last year.
-Since early 2020, the Chinese, the world’s largest tourism population, have been cut off from the world by China’s apparatus of zero-Covid restrictions that included mass-testing, lockdowns and quarantine for arrivals.
Some countries are imposing border controls and compulsory testing on visitors from China. This weekend, as Beijing finally dismantles the last of those measures, that is set to change. Around the world, airlines, hotels and luxury businesses are bracing for the return of tens of millions of tourists and their hundreds of billions of dollars — though experts suggested the revival could take months to fully gather pace.
-Launches of hedge funds have dropped to their lowest level since the 2008 financial crisis, as some managers struggle to make money in falling markets and huge firms such as Millennium and Citadel hoover up traders who once might have branched out on their own.
-Rival teams leading FTX bankruptcy proceedings in the US and the Bahamas, which have clashed over the insolvency proceedings for the cryptocurrency exchange, struck a co-operation agreement on Friday following weeks of public feuding.
Under the agreement, “the parties commence work together to share information, secure and return property to their estates, co-ordinate litigation against third parties and explore strategic alternatives for maximizing stakeholder recoveries”, the two bankruptcy teams said in a statement on Friday.
-Mali has pardoned 49 Ivorian soldiers arrested in July and sentenced last week by a court to 20 years in prison, the military junta said on Friday. The gesture, amid diplomatic efforts to free the captives, ends a dispute that had raised tensions between the neighboring countries and sparked threats of sanctions being imposed on the Malian regime by the ECOWAS regional bloc.
-US jobs growth slowed for a fifth consecutive month in December after the Federal Reserve’s aggressive interest rate rises squeezed economic activity even as the US labor market remained historically tight. The world’s largest economy added 223,000 jobs in the final month of 2022, lower than the downwardly-revised 256,000 increase registered in November and well below last year’s peak of 714,000 in February. Most economists had expected a 200,000 increase.
-As commissioner of the US National Football League, Roger Goodell has presided over the expansion of the NFL, the world’s most valuable professional sports league. But his tenure has been marked by controversies from player protests to legal settlements over concussions.
On Monday, Goodell and the league were thrust into a new crisis after Buffalo Bills player Damar Hamlin suffered a cardiac arrest on the field, causing the suspension of a nationally televised primetime game with ramifications for the postseason games leading up to the Super Bowl next month.

NY POST
-Former President Donald Trump added to Friday night’s drama on the House floor by calling two Republican lawmakers who were refusing to back eventual House Speaker Rep. Kevin McCarthy during the 14th round of voting, according to reports. Trump phoned Reps. Matt Gaetz (R-Fla.) and Andy Biggs (R-Ariz.) — former supporters of the 45th president — to urge them to back McCarthy for the gavel after four days of grueling negotiations, Politico reported.
During the 14th ballot, Gaetz ultimately voted “present,” which, in part, derailed McCarthy’s speakership bid that round. Biggs voted for Rep. Jim Jordan in the 14th round. The former president also apparently called conservative firebrand Rep. Marjorie Taylor Green, (R-Ga.), who is supporting McCarthy.
-Amazon employees openly welcomed a potential comeback by Jeff Bezos to run the struggling e-retail giant after current CEO Andy Jassy announced a larger-than-expected wave of layoffs, according to a report Friday. Speculation that Bezos could seek to supplant Jassy as CEO has increased during a sustained downturn in Amazon’s stock price. In a recent blog post, Michael Batnick, a managing partner of Ritholtz Wealth Management, suggested Bezos could “pull a Bob Iger” this year and return to stabilize the company he founded.
-Burger chain McDonald’s said Friday that it will review corporate staffing levels and aim to build more restaurants as part of an updated business strategy. The new plan, announced in a letter from Chief Executive Officer Chris Kempczinski to global employees and seen by Reuters, calls for the Chicago-based company to cancel or “de-prioritize” some initiatives while also accelerating development. That could lead to layoffs in some areas and expansion in others, the company said. “We will look to our strategy and our values to guide how we reach those decisions and support every impacted member of the company,” the letter said, adding that McDonald’s will begin announcing key decisions by April 3.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: The tech-stock declines—the Nasdaq Composite just finished its worst year since 2008

Cover Story:
-The tech-stock declines—the Nasdaq Composite just finished its worst year since 2008—are a continuing unwinding of rapid changes that took place early in the pandemic, when homebound consumers spent lavishly on technology products, digital services, and physical goods. Along the way, venture capitalists urged start-ups in their portfolios to boost spending in order to capture trends and increase growth. And they gave them the funds to get that done. All that spending was fueled by a flood of money from government stimulus and interest-rate cuts, making it easier to borrow. But extrapolating growth turned out to be a bad assumption. As economies reopened, spending shifted back to real-world experiences and away from technology.

Interview:
-Dave Bujnowski, who co-manages Baillie Gifford’s US equity growth portfolio. While Bujnowski says last year’s experience forced him to challenge his assumptions—the U.S. fund fell more than 50% last year, after returning an average of 43% annually in the prior three years—he is unflinching in his view that Baillie has the right approach in making long-term bets on the power of change. Bujnowski spoke with Barron’s about why he remains a true believer in the power of change-driven growth, why he still likes cloud stocks, and why he remains a bull on Tesla.

Tech Trader:
-This year, organizers at the Consumers Electronics Show (CES) were targeting 100,000 attendees. It felt busier. The halls were bustling, taxi lines were long, and restaurants were packed. At last year’s show, almost everyone was masked; this year, almost no one was. Abbott Labs was handing out free two-packs of Binax Now Covid test kits, but there was no testing requirement, and no one asked for my vax card. The show felt giddy, a throwback to the days before most people had heard of the coronavirus. The talk from the stage was optimistic about the future, particularly around the power of artificial intelligence. But it became clear that the industry faces tough months ahead. In 2022, tech stocks cratered in the face of soaring interest rates, rising inflation, and a potential recession. In 2023, things seem likely to get worse before they get better.

The Trader:
-The Fourth Quarter reporting season is about to begin. Some major companies— JPMorgan Chase, Bank of America, UnitedHealth Group and Delta Air Lines will be among those kicking off the festivities. The vast majority of the S&P 500 will report over the following month and a half. Few are expecting a good fourth quarter. In aggregate, S&P 500 companies are expected to report their first losing quarter since 2020. Earnings per share are forecast to decline by 2.2% year over year, to $53.87, after roughly 4.4% growth in the third quarter and 8.4% in the second quarter, per IBES data from Refinitiv. The consensus fourth-quarter outlook became much gloomier as 2022 proceeded—at the start of last year, analysts had penciled in 14.1% year-over-year earnings growth for the period.
-Schwab finished last year off 1%. But there was a lot more action than that minuscule loss implies. The stock tumbled 29% through June 17, as investors fretted about higher rates pushing money out of Schwab’s deposit accounts and into higher-yielding money-market funds, before bouncing 38% over the rest of the year to finish roughly flat. This year has gotten off to a better start, with Schwab gaining 1.5%, to $84.54, during the first week of trading—and there’s a good chance those gains continue. Goldman Sachs analyst Alexander Blostein upgraded the stock to Buy from Neutral this past week. In all, Schwab should be able to grow earnings at 15% in 2023 and by 32% in 2024. Blostein has a 12-month price target of $98 on Schwab, up 16% from Friday’s close.

Features:
-Michael Kops, a vice president and partner at Heartland Advisors, recommends value investing, He says that for today’s investors wondering if it’s too late to embrace value, that experience should offer an important clue. Growth and value tend to take turns leading the market, but the cycles often last years, not days. More importantly: Value investing and “buying on the dips” are not the same thing. Just because popular growth stocks that were once the market’s darlings are down considerably from their peak doesn’t mean they’re cheap. Or cheap enough to make them worth buying. They may well have more room to fall. Looking back at 2000, investors who bought beaten-down growth stocks on the dips were not thinking like true bargain hunters. As Graham noted, the intelligent investor focuses on the fundamentals and is always conscious of building in a margin of safety to their strategy.
-Airlines enjoyed a strong second half of 2022 as robust demand and industrywide capacity constraints led to higher airfares and bumper revenue. For US carriers, the year ended on a bit of a sour note as a brutal winter storm left passengers stranded at airports across the country. Aside from Southwest Airlines, the worst affected carrier by some distance, the disruption is unlikely to have a major impact on US airlines’ fourth quarter earnings. The large carriers are better placed than their low-cost counterparts to weather those cost pressures. The bigger airlines are also more likely to benefit from three trends–and potential positive catalysts–emerging in 2023. Raymond James analysts expect United Airlines to have the greatest upside from the reopening of the Pacific region to travel. In Europe, Ryanair, with its robust balance sheet and ultralow cost base, could be one to watch. But, the European long-haul sector isn’t the same as it was prepandemic. Two major players, Norwegian Air and Thomas Cook have exited that market and British Airways owner International Consolidated Airlines is likely to benefit from their market shift.

European Trader:
-Investors hoping to play defense might look for companies that use inflation to their advantage. That’s where a stock like Bunzl can be attractive. The British company is a worldwide distributor of equipment for food-service providers and other companies. Its logo can be found on disposable cutlery in fast-food restaurants and on the sides of trucks delivering cleaning and safety products. Bunzl operates in 31 countries (in the Americas, Europe, and Asia Pacific) and enjoyed a decent 2022. It benefited from the pickup in activity as most of the world emerged from the pandemic—and was able to raise prices along the way. Bunzl had a “strong 2022, benefiting from the highest levels of product inflation in decades, plus continued post-lockdown rebounds,” says Karl Green, an analyst at RBC Capital Markets, who rates the stock a Hold.

Emerging Markets:
-Investors brimmed with optimism when Luiz Inácio Lula da Silva was elected Brazil’s president on Oct. 30, returning to power after two prior terms in 2003 to 2011. It didn’t last. The iShares MSCI Brazil exchange-traded fund dropped 17% since then. Brazilian bonds could be more attractive than equities nonetheless, says Thierry Larose, portfolio manager for emerging markets local debt at Vontobel Asset Management. Yields on 10-year sovereign Brazilian bonds have risen 1.5 percentage points since Lula’s election, to more than 13%, while inflation keeps declining, to less than 6% annually. “Brazil’s real rates are the highest in the world,” Larose says. “My long-term opinion is cautiously optimistic. Some Brazilian stocks could become attractive depending on how the early dust settles. Continued decline in the real could boost exporters like meat giant JBS or aircraft giant Embraer, says Steven Schoenfeld, CEO of MarketVector Indexes. A Lula tilt to pragmatism, and a stable environment to follow, would boost the leading private banks, Itaú Unibanco Holding and Banco Bradesco.

Commodities:
-Last year, global oil companies boomed. BP and Shell, both based in London, saw share prices rise some 40% in 2022 and trade at five times forward earnings. US-based Exxon Mobil soared nearly 80% and trades at almost 10 times earnings, while Chevron rose 50% and trades at 11 times. Why that gap? Many blame windfall-profit taxes. All of the oil giants feasted on rising oil prices after Russia invaded Ukraine. While prices have fallen, they’re still at levels that produce sizable profits. However, European governments are clawing back some of those gains by taxing oil producers to subsidize high energy costs for consumers.

Streetwise:
-Jack Hough likes biotech. He says that he just needs to figure out what the stocks will do. Last year, Respira Technologies became Qnovia. It’s run by a former tobacco executive with vape experience, and it’s developing an inhaled nicotine platform for quitting smoking. On one hand, Hough says he found years ago that a pretty good platform for that is just to not inhale any more nicotine. But on the other hand, going from Q straight to N in a company name sounds clinically promising. A biotech once called CytRx fell from over $4 a share in 2021 to 10 cents last September, before changing its name to LadRx. Still 10 cents. Bone Therapeutics is now BioSenic and still into bone therapeutics. The industry blog FiercePharma calls this and many other examples a “biopharma name-changing craze.” The biotech industry could use a fresh look. The SPDR S&P Biotech XBI exchange-traded fund gained 32% in 2019, and then 48% in 2020, before sliding 20% in 2021, and another 26% last year. Now it’s back to a price it hit in 2015. There was a rush of companies going public when shares were riding high. Many weren’t only prerevenue, but also not yet testing in humans. With interest rates rising, investors have favored pharma stalwarts instead. Geoff Meacham, who covers drugs for BofA Securities, says to favor quality companies with good growth prospects. This past week, he downgraded Pfizer PFE to Neutral from Buy, and did just the opposite with Merck, raising it to Buy.

Barrons : Philip Morris Stock Is About to Get Smoking Hot

Philip Morris Stock Is About to Get Smoking Hot

Philip Morris International PM +2.65% ’s main cigarette business is slowly dying, but the tobacco giant isn’t going gently into the night. The company just announced two deals that will keep it healthy in the years to come.

The past decade hasn’t been kind to the tobacco business. The number of traditional cigarettes smoked globally dropped from 5.23 billion at the start of 2018 to an estimated 4.69 billion five years later, even as companies raised prices to compensate for fewer packs sold.

Even without the burden of a U.S. cigarette business—that’s been Altria Group MO +2.38% ’s (ticker: MO) problem—Philip Morris stock (PM) has suffered.

Philip Morris, though, is a different company than it was just a few months ago. Its November acquisition of Swedish Match further cements its global leadership in oral nicotine and adds to its portfolio of what it calls reduced-risk products, which don’t require users to burn tobacco. That deal closed a month after it paid Altria $2.7 billion for the rights to sell Philip Morris’ flagship IQOS product in the U.S., marking PM’s first return to the domestic market since the two companies split in 2008.

Together, the deals mean Philip Morris could have a longer, brighter future than many investors had feared.

“They are further proof that Philip Morris is on a path to be a durable, profitable, and growing business for a very long time to come,” says Bryan Engler, a portfolio manager at Kovitz Investment Group Partners.

That future begins with those euphemistically termed reduced-risk products, or RRPs. These include IQOS, which heats tobacco instead of burning it, along with vaping and nasal and oral products, such as snuff and chewing tobacco.

With global cigarette sales falling steadily over the past decade, Philip Morris isn’t the only company branching out: E-cigarette sales alone ballooned nearly sevenfold, to $2.1 billion, from 2015 to 2018, the year that Altria made a $12.8 billion investment in vaping company Juul.

Critics charge that smoke-free tobaccos are still carcinogenic and that vaping might pose health risks. Yet even the Food and Drug Administration acknowledges that some tobacco products, including IQOS, reduce the production of harmful chemicals, compared with combustible cigarettes.

Philip Morris is betting on being the lesser evil. By 2025, the company wants over half of its sales to come from smoke-free products, and the string of recent moves makes that goal more reachable. Philip Morris’ RRP business grew 33.5% in 2021, to more than $9 billion, or 29% of sales, up from just over 13% in 2017. IQOS’ expected 2024 U.S. relaunch should offer some stabilizing dollar-denominated sales to offset foreign-exchange risk, while giving it access to one of the most profitable nicotine markets in the world.

No other cigarette maker is close. Altria still gets more than 84% of its revenue from combustible cigarettes, while British American Tobacco BATS +0.22% (BTI) gets nearly 86%. All told, Philip Morris has 28% of the global cigarette market, but 59% of the global smokeless tobacco market, according to Cowen analyst Vivien Azer. “Philip Morris’ advantaged competitive position will prove defensible, at least for the midterm,” she says.

And profitable, too. Steady increases over the years have proven tobacco’s pricing power—a crucial advantage in an inflationary environment. While the eventual exit from Russia, plus currency headwinds, and IQOS research and development costs are expected to cause earnings per share to edge lower this year and next—to $5.71 and $5.69, respectively—that’s coming off an all-time high of $6.08 in 2021.

Wall Street expects Philip Morris to return to record per-share profits of $6.68 in 2025. Profit margins should widen, too, given that the most intensive spending on development and marketing is largely in the past. Gross margins already jumped to 68.8% in 2021, above the company’s five-year average of 65.5%.

“A cigarette is by far the most profitable consumer product in existence, with very fat margins,” says Dan Ahrens, portfolio manager of the AdvisorShares ViceVICE +1.77% exchange-traded fund (VICE).

Some of these advantages are already reflected in Philip Morris stock. At 17.8 times 2023 earnings, it’s trading above its own five-year average of 15.4 times, and higher than Altria, British American Tobacco, and Japan Tobacco (2914. Japan), which fetch 9, 8.4, and 10.4 times, respectively.

Still, the Philip Morris is cheap, compared with other consumer-staples stocks, including Procter & Gamble (PG), Coca-Cola KO +1.93% (KO), and PepsiCo (PEP), which fetch around 25 times, even as Philip Morris boasts higher gross margins.

“Philip Morris is getting the world to use fewer cigarettes,” Kovitz’s Engler says. “If you believe it will be around for a long time, why shouldn’t it trade at levels like the rest of the best-in-class consumer packaged goods companies?”

The answer is clear. Philip Morris is still a company that sells a legal, addictive substance that could eventually kill customers. But ESG—short for environmental, social, and governance—investing is changing, and some investors are focusing less on exclusion and more on change.

“ESG is very complicated, and it’s often in the eye of the beholder,” says Ahrens, who notes that so-called sin stocks can also do good. “Philip Morris is doing a great job with RRPs, and that’s a socially responsible thing to do.”

Philip Morris might only be cleaning up its own mess, but it’s doing so profitably, something many other companies have not. At a recent $101, its stock looks like a buy.

Barrons : It’s Pharma Time: Why Merck and Lilly Are Buys, but Not Pfizer.

It’s Pharma Time: Why Merck and Lilly Are Buys, but Not Pfizer.

My 2023 biotech outlook calls for continued momentum in name changes. I just need to figure out what the stocks will do.

Last year, Respira Technologies became Qnovia. It’s run by a former tobacco executive with vape experience, and it’s developing an inhaled nicotine platform for quitting smoking. On one hand, I found years ago that a pretty good platform for that is just to not inhale any more nicotine. But on the other hand, going from Q straight to N in a company name sounds clinically promising.

A biotech once called CytRx fell from over $4 a share in 2021 to 10 cents last September, before changing its name to LadRx LADX +32.29% (ticker: LADX). Still 10 cents. Bone Therapeutics is now BioSenic BIOS +7.91% (BIOS.Belgium) and still into bone therapeutics. The industry blog FiercePharma calls this and many other examples a “biopharma name-changing craze.”

The biotech industry could use a fresh look. The SPDR S&P Biotech XBI +0.78% exchange-traded fund (XBI) gained 32% in 2019, and then 48% in 2020, before sliding 20% in 2021, and another 26% last year. Now it’s back to a price it hit in 2015. There was a rush of companies going public when shares were riding high. Many weren’t only prerevenue, but also not yet testing in humans. With interest rates rising, investors have favored pharma stalwarts instead.

Geoff Meacham, who covers drugs for BofA Securities, wonders if Big Pharma will sell off when the economy strengthens, but that doesn’t seem likely during the first half of this year, he says. Favor quality companies with good growth prospects, he says. This past week, he downgraded Pfizer PFE +2.54% (PFE) to Neutral from Buy, and did just the opposite with Merck MRK +1.06% (MRK), raising it to Buy.

Pfizer faces a double whammy. It got a revenue lift for the ages during the pandemic, but this year it could see a massive decline in sales of Paxlovid, its Covid-19 treatment, and Comirnaty, better known as the Pfizer vaccine. The brand name, just in case you’re wondering, is a mashup of Covid, community, immunity, and mRNA, a genetics acronym. Meacham puts Pfizer’s Covid comedown at $32 billion. The Street says $24 billion. The company did an estimated $100 billion in total revenue last year.

“We’ve always been skeptical that people are going to regularly get boosters every year, especially if the new strains of Covid or new variants aren’t that worrisome, and people are already vaccinated,” Meacham says. Whammy No. 2 for Pfizer is that it faces an estimated $17 billion in revenue declines from the loss of patent exclusivity on key drugs from 2025 to 2030.

Merck faces an even bigger patent cliff. Its Keytruda for cancer, one of the top-selling drugs in history, could do $24 billion this year, or 40% of company revenue. And it’s expected to peak around $30 billion a year. But it will lose exclusivity beginning in 2028. Management’s strategy has been to promote using the drug as the backbone of a long list of combination therapies. Those could sell well long after sales of the stand-alone drug decline.

Merck goes for 15 times this year’s projected earnings, and Pfizer 10 times. Eli Lilly (LLY) goes for more than 40 times, and is up more than 300% over five years, but remains one of Meacham’s favorites. Its drug for diabetes, which could win approval for obesity this year, delivered up to 22.5% weight loss in trials, making it more effective than Novo Nordisk’ s (NVO) drug, which is already approved for weight loss. The Lilly drug is also being tested for obesity-related diseases of the heart, liver, kidneys and more.

“To put it in perspective, a patient on this drug that is nondiabetic, just, you know, a straight obese patient, their blood pressure, their heart rate goes down more than if they’re on a heart rate med,” says Meacham. “Their lipids crash almost more than if they’re on a statin. Their blood sugar goes down as if they’re on a diabetes medicine. So, it isn’t just about the weight.”

The breadth of these trials could both increase the drug’s potential patient population and make insurance companies more likely to pay. Meacham says that making only moderate assumptions about the drug’s success, it could eventually bring in $100 billion a year in revenue, making it by far the best-selling drug ever. Total sales for Eli Lilly this year are pegged at just over $30 billion.

A year ago in this space, I mentioned Devon Energy (DVN), a leading U.S. shale driller, whose stock was up 181% over the preceding year. Its CEO had vowed to hold the line on production despite high crude oil prices. The stock since then has returned another 43%, versus a 12% decline for the S&P 500 index. But surely energy stocks, after two consecutive years of shining, can’t three-peat in 2023. Can they?

Raymond James is mighty bullish. U.S. crude production will increase just 0.8% this year, it reckons. But OPEC+ cuts will offset that. Non-OPEC producers will grow output by 0.9%, but that won’t be enough to keep up with a 1.4% rise in global demand. Put it all together and Raymond James expects Texas crude to rise from a recent $74 a barrel to a year-end price of $110, averaging $100 along the way. The firm’s analysts call Devon a Strong Buy and say it will hit $87, for a further gain of 42%.

Too bullish an outlook after such a wild rally? Definitely. Unless of course it pays off, in which case I had a feeling it would. It’s my highest-conviction noncommittal.

Barrons : This Company Is an Inflation Winner. Its Stock Looks Like a Buy.

This Company Is an Inflation Winner. Its Stock Looks Like a Buy.

Accelerating inflation, rising interest rates, and worries about a coming economic slump have made it difficult for companies to thrive.

With more of the same likely this year, investors hoping to play defense might look for companies that use inflation to their advantage. That’s where a stock like Bunzl (ticker: BNZL.UK) can be attractive. The British company is a worldwide distributor of equipment for food-service providers and other companies. Its logo can be found on disposable cutlery in fast-food restaurants and on the sides of trucks delivering cleaning and safety products.

The company, which operates in 31 countries in the Americas, Europe, and Asia Pacific, had a decent 2022. It benefited from the pickup in activity as most of the world emerged from the pandemic—and was able to raise prices along the way.

The stock fell about 4% last year, compared with a 0.9% gain in the U.K.’s FTSE 100 index of blue-chip companies. It offers a 2.1% dividend yield.

While that may sound better than stocks in the S&P 500, which fell almost 20% last year, it’s important to note that the British pound depreciated more than 10% against the dollar in 2022, making returns for dollar-based investors that much weaker. By the same token, any recovery in the pound in 2023 would boost returns.

Bunzl had a “strong 2022, benefiting from the highest levels of product inflation in decades, plus continued post-lockdown rebounds,” says Karl Green, an analyst at RBC Capital Markets, who rates the stock a Hold.

On Dec. 21, Bunzl updated the market to say that it expects revenue for 2022 to increase 17% at actual exchange rates and 10% at constant exchange rates. It expects an increase in revenue in 2023 and operating margin to be higher than historical levels.

“Our teams have successfully navigated the inflationary environment and supply-chain disruption experienced this year to ensure customers have reliably received the essential products they need,” said Chief Executive Officer Frank van Zanten.

The firm traces its origins to the Austrian Empire. Moritz Bunzl opened a haberdashery shop selling clothing and textiles in the city now known as Bratislava in 1854. It moved to Vienna in 1883 and started manufacturing paper products, and relocated to London in 1938. It has been listed on the London Stock Exchange since 1957. The company expanded into distribution of paper in the 1980s. In 2002, it sold its fine-paper distribution business.

Bunzl thrives on acquisitions—historically they have driven three-quarters of the firm’s growth. Depressed share prices after the recent increase in interest rates might spur more purchases. The firm announced four in December, with CEO van Zanten emphasizing that they all offer double-digit margins.

Bunzl, based in London, employs 21,000 people and has a market value of 9.3 billion pounds sterling ($11 billion). Its distribution services are used by industries including groceries, cleaning, and healthcare. It trades at 15 times expected earnings for the coming year and is valued at a 100% premium to its peers. Its shares traded at £27.78 at the start of 2023. Dominic Edridge at Deutsche Bank thinks they could go to £33 and rates them a Buy.

Overall, analysts are divided on the valuation. Of the 12 ratings collected by FactSet, four are a Buy, six are a Hold, and two are a Sell. “Bunzl has a reputation for guiding conservatively and raising expectations through the course of the year,” says Deutsche Bank’s Edridge. “Guidance does not appear to include future acquisitions and is likely to err on the cautious side, if history is any guide.”

Barrons : Tesla’s Battered Stock Looks Like a Buy Again

Tesla’s Battered Stock Looks Like a Buy Again

Times are tough for Tesla TSLA +2.47% . Demand is slowing. Costs are rising. Elon Musk is distracted and a distraction.

It’s time to buy the stock.

Yes, Tesla (ticker: TSLA) is a mess right now, and signs point to difficult times ahead. The wait time for U.S. buyers of its cars has shrunk from more than three months to, well, nothing. Delivery growth has slowed below the company’s own goal, while production has exceeded deliveries by an increasing amount in recent quarters and prices are getting cut, all signs of waning demand. Musk’s behavior since taking over Twitter has also raised questions about whether shoppers will buy other electric vehicles now that they are available. And the U.S. could face a recession by the end of the year.

Ignore all that. Instead, focus on what Tesla is—the leading EV manufacturer in the world and one that has a decade-plus head start on other auto makers, as well. Tesla is able to produce cars at a much lower cost than its competitors, giving it room to cut prices to stoke demand in a way others can’t. Tesla stock is a risky bet, to be sure, but with shares off 72% from their all-time high, to $113.06, and near 21 times 12-month forward earnings, down from 201 times two years ago, the opportunity is too good to pass up.

Friday’s news that Tesla would be cutting prices in China underscores the current dilemma. Tesla has been focused on growing production—it plans on making 2 million cars in 2023, up from 1.4 million in 2022—triggering concerns it will make too many cars and then be forced to cut prices to sell them all. That seems to be what’s happening in the world’s second-largest economy, where Tesla cut prices for its Model 3 by 14% and the Model Y by 10%. Those price cuts, which may be coming to the U.S. in the future, will hurt its profit margins, and Wall Street’s per-share earnings estimates for 2023 have already slipped 10% since the end of September. That dynamic puts Tesla in a bind.

“Tesla will need to either reduce its growth targets, and run its factories below capacity, or sustain and potentially increase recent price cuts globally, pressuring margins,” writes Bernstein analyst Toni Sacconaghi, who rates the stock Underperform.

For Tesla, the choice is obvious: It will cut prices to juice sales. That will hit its margins, but Tesla has margin to spare. It is expected to post operating margins of 18% in 2023, while the rest of the industry’s should be closer to 8%. Tesla could sacrifice some 10 percentage points of margin and still be as profitable as, say, BMW (BMW.Germany). Ultimately, Tesla has the ability to sacrifice profitability if it means undercutting competitors on price.

“Arguably, if [Tesla] cuts price, it’s a worse situation for their competitors, given many struggle to make any profit,” explains RBC Capital Markets analyst Joseph Spak.

What’s more, Tesla is one of only two auto makers that makes a profit off EVs; the other is BYD 1211 –2.60% (1211.Hong Kong). Everyone else is losing money, even General Motors GM +2.60% (GM), which sells a $110,000 Hummer and has targeted EV profitability by 2025. Others, like Toyota Motor 7203 +0.97% (TM), appear to be getting cold feet in the rush to meet EV demand that may not materialize.

Most EV start-ups, including Rivian Automotive (RIVN) and Lucid Group LCID +1.76% (LCID), are far from profitable and don’t have the scale to compete. It’s a precarious position to be in at a time when investors are demanding profitable growth, and not just growth.

Numbers like that demonstrate why Tesla, with a market cap around $350 billion, is the world’s most valuable car company, even after dropping 69% over the past 12 months.

It helps that Tesla is expected to generate the most free cash flow among auto makers in 2023, some $12.2 billion, up from $9 billion in 2022. Toyota, the second-most-valuable auto company, is expected to generate free cash flow of about $10 billion this year and next. But even price cuts shouldn’t hit Tesla too hard, says New Street Research analyst Pierre Ferragu, who projects almost $11 billion in Tesla’s 2023 free cash flow while assuming its vehicle prices drop 8% over 2022.

Tesla isn’t stopping there. It plans to launch its much-delayed Cybertruck in 2023, and could also announce a badly needed lower-cost car at its investor day scheduled for March 1.

And like it or not, Tesla is more than just a car company. Its “self-driving” software, though still far from living up to its name, continues to improve, and drivers have shown a willingness to pay $15,000 for its top driver-assistance software. That’s a product—and revenue line—no other auto maker has.

It also has a $12 billion nonautomotive business based on renewable-power generation and battery-storage technologies, which is only getting bigger. Tesla quietly opened a “megapack” facility in Lathrop, Calif., in 2022. It’s designed to produce up to 40 gigawatt hours of utility-scale battery storage a year, something Future Fund Active exchange-traded fund co-founder Gary Black sees generating up to $3 billion in incremental operating profit a year.

Nor is the EV business as bad as it seems. In China, EV sales grew about 90% in 2022, accounting for 25% to 30% of all new car sales. In the U.S., battery-powered EV sales increased 70% through the first three quarters of last year, and Canaccord analyst George Gianarikas expects tax credits to help spur sales growth in 2023.

Tesla, of course, still has many issues. Since Musk’s acquisition of Twitter in late October, the company has taken a reputational hit, with more people now having an unfavorable view of Tesla’s brand than a positive one, according to a December YouGov poll. It appears to have taken an operational hit as well, with two-thirds of respondents in a Morgan Stanley poll saying they believe that Musk’s behavior at Twitter is hurting Tesla’s fundamentals.

Nowhere was that more clear than in Tesla’s fourth-quarter deliveries, released on Jan. 2. It delivered 405,278 vehicles, well below analyst projections for about 420,000. Tesla’s stock dropped 12% on Jan. 3, its worst start to a year ever, and Musk got most of the blame, though there were a lot of headwinds, from lockdowns in China and inflation pressuring potential car buyers. “He is viewed right now, fairly or unfairly, as asleep at the wheel,” says Wedbush analyst Dan Ives. “It’s not a good look from the Street’s view.”

Musk has also been selling stock in a haphazard manner far from the organized 10b5-1 trading plans most CEOs use. The selling doesn’t need to stop, but even longtime shareholders are losing patience with Musk’s do-it-yourself approach. “I am confused why [the board] allowed Elon to crash Tesla stock price,” says Leo Koguan, chairman of SHI International and Tesla’s third-largest individual shareholder. “Why not use block sales?” Tesla’s board didn’t respond to a request for comment.

Worse still, a recession has become the base case for many economists heading into 2023. Recessions typically mean new-car sales drop by around a third, though sales in the U.S. are already 20% below prepandemic levels due to persistent parts shortages. A slowdown, though, would also give Tesla time to develop a badly needed lower-cost model, especially if other auto makers decided to spend less aggressively on EVs. “A recession could slow Tesla in 2023, but the company is by far best positioned to fly through tough times,” Ferragu writes. “Recent concerns are overblown.”

Even if they aren’t, Tesla stock appears cheaper than it has ever been. Shares trade for just 21 times 12-month forward earnings, making it less expensive than PepsiCo (PEP), Visa (V), and Walmart (WMT). Other methodologies also point to Tesla trading at what looks like a reasonable valuation. Sacconaghi, who is a bear, has a discounted cash-flow-based valuation of $120 a share, and admits he is “torn” on the stock at current levels. Spak’s multiple-based valuation puts Tesla’s value at $186, up 65% from Friday’s close, while Ferragu, who has a Buy rating on Tesla stock, has a $320 price target, up 183%. “We see room for the stock to nearly triple if 2023 plays out our way,” Ferragu says.

Nothing would do more to help Tesla stock find a bottom than for Musk to swat away his Twitter distraction, a process that seems to have already started. The social-media company is making a concerted effort to woo advertisers that had been abandoning the platform. It planned to have its representatives meet with clients and ad agencies at this year’s CES tech show. Now Twitter needs to find someone who can run the company on a daily basis and let Musk focus on other things.

“Elon needs to hire a new CEO at Twitter to get the Twitter noise out of Tesla’s stock price,” says Future Fund’s Black. “It will show investors he is 100% focused on Tesla, with all its opportunities and risks, on its path to a $3 trillion valuation.”

That valuation might seem far-fetched, but it doesn’t need to reach those levels to make it a good investment. Tesla is a volatile stock, and it could even fall from here in the short term. But looking out a year or two, Tesla is unlikely to be trading below or even near $100.

Get it while it’s cold.