Barrons : Eaton Looks Ready for an Electrifying Recharge. Its Stock Could Jump 3

Eaton Looks Ready for an Electrifying Recharge. Its Stock Could Jump 30%.

An environmentally friendly future of electric-powered transportation, factories, and home heating depends on a large and resilient power grid. In the U.S. and elsewhere, the grid simply isn’t ready for the job. Getting there will cost hundreds of billions of dollars.

Eaton (ticker: ETN), a Dublin-based manufacturer founded in the U.S., is one of the leading companies in the field, and it’s seeing demand ramp up well beyond its own expectations. The backlog in its electrical segment, which accounts for over two-thirds of its revenue, rose 76% in the latest quarter, more than ever before.

“It’s the fastest demand that I’ve seen in any business that I’ve been associated with in my professional lifetime,” Eaton CEO Craig Arnold, who has worked at industrial companies for nearly 40 years, tells Barron’s.

At a time when rising interest rates and weak consumer confidence are hurting most U.S. industries, Eaton has been propelled by a megatrend that is likely to persist, regardless of conditions in the near-term economy. To combat climate change, more services that were once powered by fossil fuels will have to be converted to electricity.

The market has already rewarded consumer-facing companies such as Tesla (TSLA) for their role in shifting the world toward that electric future. Eaton’s stock also has risen in the past five years, but not nearly as much, and the company gets a fraction of the credit as its flashier brethren.

This year, Eaton stock has fallen 19%, five percentage points more than the S&P 500SPX –1.63% , weighed down in part by supply-chain issues. Shares of the big manufacturer now trade at 17.5 times its expected earnings over the next year—in line with the broader market but a discount to rivals such as Quanta Services (PWR) and ABB (ABB).

Morgan Stanley analyst Joshua Pokrzywinski thinks the company, with a market value of $56 billion, deserves to trade at a premium to peers, given how well-positioned it is to benefit from the electrification trend. He values the shares at 20.75 times expected earnings, resulting in a price target of $180—nearly 30% above its recent price of $140. Eaton also offers a 2.3% dividend yield.

Some of the equipment that Eaton makes, like the circuit-breaker boxes in homes, is commonplace enough to seem rudimentary. But much electric gear has become so sophisticated—such as software that allows for remote control of complex electric operations—that the field’s top companies have major competitive advantages and high barriers to entry. “This is a consolidated industry with exceptional pricing power using proven technology required to connect and control all manner of electric sources, uses, and storage,” Pokrzywinski recently wrote.

Says Arnold: “We don’t really make standard items. Everything that we do is pretty technical, highly differentiated.”

It has been that way since Joseph Eaton co-founded the company in 1911 to sell a new kind of specialized truck axle. Eaton still makes equipment for vehicles, but that has become its smallest division, after electricity and aerospace, both of which are experiencing accelerating growth. The company is set to earn $7.53 per share this year, a 14% increase from last year’s figure, on $20.6 billion in revenue. Analysts’ earnings estimates for Eaton, unlike those for most big industrial companies, have climbed, rather than shrunk, since the start of the year.

That trajectory should last. Eaton sells equipment for almost every aspect of electricity generation, other than for high-voltage transmission from power plants themselves. Once the wires enter corporate office parks, military bases, or residential neighborhoods, the company’s products become ubiquitous. Its transformers distribute power, and systems it builds guide everything from electric-vehicle charging stations to data centers, power meters, lighting systems, and surge protectors.

It’s as crucial as ever that customers get the everyday benefits of electricity; the lights must go on when a switch is flicked. But now the systems need to be cyber-secure, backed-up, and sustainable. New forms of energy need special equipment to make them reliable and secure.

Demand for high-tech gear will help the company’s results, but their most powerful ally is simple math: Countries are accelerating investments today that will pay off over decades.

Neighborhoods served by one transformer and currently with only a handful of electric cars might need to upgrade sooner than they realize. “As soon as that neighborhood goes from three or four to 20 or 25, the electrical infrastructure—the transformers that support that enablement—have to be upgraded,” Arnold says. “There’s not enough power coming into that neighborhood to allow people to come home at night, plug their cars in, and charge.”

That’s likely to put a charge into Eaton’s stock, too.

Barrons : Stellantis: The Former Chrysler Is Now an Overlooked Star

Stellantis: The Former Chrysler Is Now an Overlooked Star

Automotive investors in the U.S. used to focus on the Detroit three: General Motors , Ford Motor , and Chrysler. Then, Chrysler morphed several times in various mergers and is now Stellantis , without any reference to Chrysler in its name.

That’s a shame. “The large base of brands might actually have resulted in greater visibility,” says Pedro Palandrani, director of research at Global X ETFs. “Clearly, the three American marques, Dodge, Ram, and Chrysler, could have helped with this.”

Stellantis (ticker: STLA) is a holding in the Global X Autonomous & Electric VehicleDRVE –2.17% (DRIV) exchange-traded fund. The three largest providers of ETFs in the U.S.—Vanguard, State Street (STT), and BlackRock BLK –1.45% (BLK)—own roughly 5% of Stellantis’ shares outstanding. Those three own almost 20% of both General Motors (GM) and Ford (F).

The U.S. just doesn’t pay much attention to Stellantis. That’s a shame, too, because investors are overlooking a star with strong global market position and a competitive plan to win in electric vehicles.

The lack of fund ownership might be one reason shares trade at a big discount to GM and Ford. Stellantis stock trades for just 3.2 times estimated 2023 earnings per share of about $4.86. Ford and GM stocks trade for about 6.4 times and 5.7 times estimated 2023 earnings, respectively.

Traditional automotive stocks never trade for big multiples. But Stellantis stock is trading at just 70% of its five-year average price/earnings ratio. Ford and GM stocks are trading closer to 80% of their five-year average.

What’s more, the trio is trading at a 70% discount to the S&P 500 index P/E ratio. Over the past few years, the average discount is 65%.

No matter what valuation stats investors look at, Stellantis seems incredibly cheap. But cheapness alone isn’t a reason to buy in. Investors have some concerns about the company.

There is the double whammy of inflation and rising interest rates. Inflation threatens profit margins because costs rise. And rising interest rates threaten new-car demand. Most cars are purchased with financing.

Investors are also concerned about EVs. “Investors continue to believe that Ford’s accelerated F-150 Lightning development and GM’s proposed electric Silverado launch will significantly hurt [Stellantis],” said Morgan Stanley analyst Harald Hendrikse in a recent report. He says those fears are overblown and that Stellantis won’t cede all of its North American truck share to GM and Ford. “We do not think [its] strategy is far behind its peers, as some investors believe.”

Stellantis plans to be all-electric in Europe, and 50% electric in the U.S., by 2030. The goal is to sell roughly five million EVs a year by then.

And the company is planning to build three battery factories to power EVs by 2025. One new location will be in Windsor, Ontario, just across a river from Detroit. Stellantis plans to spend more than 30 billion euros ($32 billion) developing its EVs from 2021 to 2025.

EV perception isn’t the only thing that can go right at Stellantis. Synergies between FCA, the company formed between Italian auto maker Fiat and Chrysler, and later, with Peugeot owner PSA, “are yet to be fully accomplished, which could be a positive tailwind,” Palandrani says.

If Stellantis could close the gap with GM and Ford, its shares could rise some 90%, putting the stock at about $28. That is about $2 north of the average analyst price target on Bloomberg. Even if the stock trades at historical valuation levels, shares would still rise about 50%.

It doesn’t seem like it will take a lot to send Stellantis stock to the moon.

Barrons : ‘Busted’ Convertible Bonds Look Good for a Ride Now. Here Are 10 to Co

‘Busted’ Convertible Bonds Look Good for a Ride Now. Here Are 10 to Consider.

Convertible securities are somewhat complex instruments that are unfamiliar to most investors. Now could be a good time to learn about them.

Converts are bond/stock hybrids that can offer the security of bonds and the upside of stocks. They’ve historically generated strong returns—gaining about 50% in 2020.

But the $280 billion market has been stung this year and is now worth a look. The selloff has pushed yields to 10% or more on the convertible debt of former highfliers like MicroStrategy MSTR –7.05% (ticker: MSTR), Beyond Meat BYND –8.54% (BYND), Peloton Interactive PTON –4.86% (PTON), Wayfair W –8.58% (W), and Redfin RDFN –2.92% (RDFN). These unloved securities seem like an appealing alternative to the issuing company’s depressed common shares.

Bitcoin owner MicroStrategy, for instance, has a zero-coupon convertible bond due in 2027 that trades around 55 cents on the dollar with a yield-to-maturity of 13%. It looks like an attractive Bitcoin play. Beyond Meat has a $1.15 billion, zero-coupon convertible due in 2027 trading for 41 cents on the dollar and yielding 19.5%. Peloton’s $1 billion zero-coupon convert due in 2026 trades around 69 cents on the dollar and yields more than 10%.

Investing in these “busted” converts can be difficult for retail, or individual, investors. Convertible-bond mutual funds and exchange-traded funds don’t offer much exposure to busted converts, which make up about 20% of the convertible market, because they tend to focus on lower-risk convertibles with more current income and equity sensitivity.

And it can be tough for retail investors to purchase individual convertibles. Most were originally sold as rule 144A private placements to institutions. The securities listed in the accompanying table have “unrestricted” Cusip numbers—the identifiers for bonds—that should allow broader ownership. It may be easier to buy them from full-service brokerage firms with big bond trading desks than from pure online brokers.

There’s risk in these bonds. Most have junk credit ratings or none at all and most of the companies are losing money. At Goldman Sachs, there are investor suitability protocols that govern the purchase of high yield and unrated securities.

Investors can get bond pricing history by inputting the Cusip numbers on Trace—the Trade Reporting and Compliance Engine—which was developed by the Financial Industry Regulatory Authority to provide visibility into the opaque over-the-counter trading in bonds.

The market’s losses this year reflect a big selloff in convertibles issued during the frothy convertible market of late 2020 and 2021, when investor demand allowed hot growth companies to get interest rates as low as zero. The allure was that investors got an option to convert the debt into the issuer’s stock if it continued to rally and win big—as Tesla (TSLA) convert holders did in 2020 when the stock rose eightfold.

But as the underlying stocks have cratered, the convertibles have been hit and many now trade anywhere from 40 to 80 cents on the dollar. They’re a rarity in financial markets because they now amount to low-interest or zero-coupon corporate bonds.

The chances of investors profiting from the equity conversion feature is remote since that would require huge gains in the stock. The Peloton convertible, for instance, is convertible into stock at more than $200 a share, versus the recent share price of $13.

“There is a limited appetite for zero-coupon with high conversion premiums from growth companies with little or no earnings,” says Michael Youngworth, head of convertibles strategy at BofA Securities. “There could be some defaults but also some great opportunities.” The conversion premium refers to the percentage gain in the stock needed for investors to realize value from the equity option in a convertible.

The good news for investors is that the convertible bond is often the only debt on company balance sheets and interest costs can be minimal. For investors to win, the companies simply need to survive and pay off debt. If that becomes an issue, companies often will reach deals with bondholders to extend maturities and boost interest rates, notes David King, a manager of the Columbia Convertible Securities fund (PACIX).

With the market selloff, convertible issuance has slowed sharply this year. Through May, there was $6.6 billion of new deals, down 87% from the same period of 2021. For all of last year, issuance was $84 billion, following $106 billion in 2020. The $4 billion SPDR Bloomberg Convertible Securities (CWB), the largest convertible ETF, is down 17%.

Here’s a look at some converts:

The MicroStrategy issue now trading around 55 cents on the dollar amounts to a lower-risk Bitcoin play. The company owned over 129,000 Bitcoins on March 31 that are now worth about $3.9 billion, with Bitcoin around $30,000. It also has a software business that could be worth $1 billion.

The convertibles look like a good bet since MicroStrategy’s debt is $2.4 billion, half its estimated asset value. Bitcoin likely would have to fall below $15,000 to impair the debt, and that assumes a low $500 million value for the software business, which has about $500 million in annual revenue.

The Beyond Meat convertible looks like a good alternative to the company’s common shares. The $1.15 billion issue is the only debt on the company’s balance sheet, and there was over $500 million in cash and equivalents on March 31. The bonds trade for just 40 cents on the dollar.

Beyond Meat’s stock is down 80% in the past year to $27 and its losses have widened with eroding pricing. But it is a category leader in meatless alternatives with the Beyond Burger, and it could have strategic value. At the current convert price, investors essentially are buying the company for less than $500 million (0.4 times $1.15 billion), or around one times annual sales.

Peloton’s convertible also amounts to a lower-risk alternative to its common stock, which is down nearly 90% in the past year to $13. The bonds, at around 70, yield over 10%. The $1 billion convertible is its only debt outstanding. The company is losing money but has nearly three million subscribers, $4 billion of annualized revenue, and could become a takeover target.

King is partial to a convertible from 2U (TWOU), the education company that owns edX, which offers online courses from universities like Harvard and MIT. The 2U 2.25% converts due in 2025 trade around 77 for a yield of 11%. King also likes converts from 1Life Healthcare (ONEM), which operates the One Medical primary-care practices. Its 3% issue due in 2025 trades at 83 for a 9.5% yield.

“Both of these are growth companies that have generally been hitting their milestones but the stocks have declined sharply anyway,” King says. “Each company has a valuable franchise—cost-efficient medical care delivery and remote learning—with meaningful growth potential. Both companies are burning cash now but could become cash generative, in our view, merely by dialing back growth initiatives.”

Paul Latronica, a managing director at Advent Capital Management, likes lower-yielding convertibles from Snap (SNAP) and Block (SQ), formerly Square.

The Snap zero-coupon issue due in 2027 is more of a bond proxy with the equity component out of the money. It trades around 74 for a 6.2% yield. The Block zero-coupon issue due in 2026 trades at 85 for a 4.2% yield. This issue has more equity sensitivity, with the conversion premium at about 200%.

Converts historically haven’t been mainstream investments, but the downdraft this year has created unusual opportunities.

(ZH) When Will This Bear Market End?

When Will This Bear Market End?

When will the bear market end? That is the question to which everyone wants an answer. While there is no specific answer to that question, there are indicators and technical measures that provide some guidance. From the portfolio management perspective, those are the parameters we must operate from to minimize capital destruction and limit emotionally driven mistakes.
2022 has been a year unlike many investors have seen in their investing lifetimes. While there are some that went through the 2008 bear market, there are fewer still who lived through the “Dot.com” crash. Such is the nature of “real” bear markets that tend to destroy investors and drive them from investing in the financial markets permanently.
While there are many “buy and hold” practitioners suggesting investors just dollar-cost-average their way through a downturn, reality tends to be far different. When markets decline enough, there is a point where every investor changes from “Buy The F***ing Dip” to “Get Me F***ing Out.”
When it comes to investing, most armchair portfolio management systems work great as long as markets rise. However, when the eventual correction comes, the psychology of “loss aversion” disrupts the best-laid plans.
It is also important to understand that “bear markets” are just the natural completion of a “full market cycle.” During bull markets, excesses are built which are reflected in valuations as investors overpay for assets on expectations for infinite growth. Obviously, since the business cycle is not infinite, the ensuing bear market is the reversal of those excesses. While “bear markets” often surprise investors, they are the logical conclusion of the preceding advance.
So, with a potential bear market at hand as the Fed hikes rates, inflation remains high, and the economy continues to slow, let’s get to the question at hand:
“When will this bear market end?”
Evidence Of The Bear
There is considerable technical evidence that U.S. financial markets are in a “bear market.” The NYSE Composite (US stocks + ADRs + bond ETFs) has broken below its 100-week moving average. In the past 25-years, every recession and/or crisis has coincided with a break of that long-term moving mean.
As noted above, bear markets are not uncommon and follow preceding bull market excesses. Over the last 120-years, there have been 14-bear markets that averaged roughly a 33% decline from peak to trough.
As I discussed recently,the price action of the market in 2022, has a lot of similarities to what we witnessed in 2008 prior to the collapse of Lehman Brothers.
“The head and shoulders topping pattern is quite evident. The break of the rising neckline was the first warning of a recessionary bear market. The subsequent rally to, and failure at, the neckline confirmed the topping process was complete.”
We see the same market action in 2022.
Again, we see the topping process, the clear break of the neckline, and a failed test of the neckline, turning it into resistance. While the market sits on critical support, any failure will confirm a recession, and a bear market is underway.
The technical data is only confirming what we are already seeing economically as well. The EOCI (economic composite output index) is contracting quickly as the Leading Economic Index (LEI) confirms the data trend. While the negative Q1-GDP may reverse slightly in Q2, such will not change the eventually recessionary outcome.
The Bear Market Will End…Eventually
There are certainly many technical and economic supporting negative market views, however, it is crucial to remember that bear markets end, eventually. Yes, while such seems to be tautological, investors tend to extrapolate current market trends indefinitely into the future.
The question is how will we know when the current bear market cycle is over? Given that financial markets lead economic cycles, the market can provide several clues as to when things may be turning more positive from an investment view.
The first is the most obvious; asset prices stop going down. Using our 2008 analogy, coming out of a bear market stock prices begin to establish a series of higher highs and lows. More importantly, begin to see momentum measures establish a more positive trend as well and moving averages slope upward.
Notably, the economy did not exit the recession until June of 2009, but financial markets began to rally in anticipation.
Furthermore, during the last four recessions, and subsequent bear markets, the typical revision to consensus EPS estimates prior to the onset of a recession ranged from -6% to -18% with a median of 10%. Coming out the recession, analysts start to increase estimates markedly. Currently, we are only just starting the negative revision phase, but the reversal of that trend will be key in identifying the bear market end.
While there are many other indicators worthy of watching to denote an end to the bear market phase, the most critical aspect of investment outcomes is remaining disciplined in your process.
Stick To Your Process
There is a sizable contingent of investors, and advisors, who have never been through a real bear market. After a decade-long bull-market cycle, fueled by Central Bank liquidity, it is understandable why mainstream analysis believed the markets could only go higher. What was always a concern to us was the rather cavalier attitude they took about the risk.
“Sure, a correction will eventually come, but that is just part of the deal.”
What gets lost during bull cycles, and is always found in the most brutal of fashions, is the devastation caused to financial wealth during the inevitable decline.
Therefore, it remains important to follow your investment discipline. If you don’t have one, here is the process that we follow during tough markets.
7-Rules To Follow
  1. Move slowly. There is no rush in making dramatic changes. Doing anything in a moment of “panic” tends to be the wrong thing.
  2. If you are overweight equities, DO NOT try and fully adjust your portfolio to your target allocation in one move. Again, after big declines, individuals feel like they “must” do something. Think logically above where you want to be and use the rally to adjust to that level.
  3. Begin by selling laggards and losers. These positions were dragging on performance as the market rose and they led on the way down.
  4. Add to sectors, or positions, that are performing with, or outperforming the broader market if you need risk exposure.
  5. Move “stop-loss” levels up to recent lows for each position. Managing a portfolio without “stop-loss” levels is like driving with your eyes closed.
  6. Be prepared to sell into the rally and reduce overall portfolio risk. There are a lot of positions you are going to sell at a loss simply because you overpaid for them to begin with. Selling at a loss DOES NOT make you a loser. It just means you made a mistake. Sell it, and move on with managing your portfolio. Not every trade will always be a winner. But keeping a loser will make you a loser of both capital and opportunity.
  7. If none of this makes any sense to you – please consider hiring someone to manage your portfolio for you. It will be worth the additional expense over the long term.
I hope this helps.

WSJ : Bristol-Myers to Buy Turning Point Therapeutics for $4.1 Billion

Bristol-Myers to Buy Turning Point Therapeutics for $4.1 Billion
Deal builds out Bristol-Myers’ position in lung-cancer treatments

Bristol-Myers Squibb Co. said it agreed to buy clinical-stage precision-oncology company Turning Point Therapeutics Inc. TPTX 2.21% for $4.1 billion, deepening the biopharmaceutical giant’s position in lung-cancer treatments.

The purchase price of $76 a share in cash is more than double Thursday’s closing price of $34.16 for San Diego-based Turning Point.

New York-based Bristol-Myers said Friday the deal bolsters its oncology pipeline with the addition of Turning Point’s lead asset, repotrectinib, a next-generation, potential best-in-class tyrosine kinase inhibitor targeting the ROS1 and NTRK oncogenic drivers of non-small cell lung cancer and other advanced solid tumors.

Bristol-Myers said it expects repotrectinib to win U.S. Food and Drug Administration approval in the second half of 2023 and to become a new standard of care for patients with ROS1-positive non-small cell lung cancer in the first-line setting.

Bristol-Myers said it would use cash on hand to fund the acquisition, which it expects to complete in the third quarter.

Turning Point shares more than doubled in premarket trading to $73.57.

Write to Colin Kellaher at colin.kellaher@wsj.com

FT : DWS raid is a crunch moment for ESG

DWS raid is a crunch moment for ESG
Plus, readers pitch in on that HSBC speech

It’s really starting to feel like a critical moment for the sustainable investing space. Soaring fossil fuel prices have shone a harsh spotlight on the mediocre performance of many environmental, social and governance-focused funds. Explosive remarks from HSBC’s head of responsible investing have driven a heated public argument about the financial sector’s true willingness to tackle climate change. And this week, German authorities raided the asset manager DWS and said they were considering pressing fraud charges over its sustainability statements.

As I argue below, the DWS raid — which has triggered the resignation of chief executive Asoka Wörhmann — is a powerful warning to peers who continue to use ESG as a fluffy marketing tool. Also today, we dig into a bulging Moral Money mailbag to share the best reader insights on the debate triggered by the speech from HSBC’s Stuart Kirk at our recent summit. Have a good weekend. (Simon Mundy)

The cautionary ESG tale from Wöhrmann’s DWS
Asoka Wöhrmann took the helm of DWS in 2018 with a mandate to pursue growth for the newly listed asset manager as it sought to build a brand beyond that of its parent Deutsche Bank. He soon hit on a powerful means to that end: ESG.

“ESG is no longer just a ‘nice to have’ feature,” the Sri Lanka-born economist told the Financial Times the following year. “It has become part of an asset manager’s licence to operate.”

Under Wöhrmann, Frankfurt-based DWS rolled out a new “ESG integration” framework through which fund managers would seriously consider sustainability issues in investment decisions — a system that it soon said was being applied to about three-quarters of its managed assets. This focus on ESG was a core part of DWS’s pitch to investors. Its 2020 annual report mentioned the acronym no fewer than 720 times.

The strategy appeared to be working, with strong growth in assets under management. But a dramatic setback came last year, when former sustainability head Desiree Fixler — who was fired after just months in her role — alleged that DWS had serious flaws in its ESG strategy. She claimed that the company had badly overstated its strength on sustainable investing, with up-to-date data often unavailable to its fund managers — many of whom ignored ESG factors in any case. (You can read our recent interview with Fixler here.)

DWS has denied Fixler’s claims. But regulators in both Germany and the US have taken them seriously enough to launch formal investigations. This week the German probe began to look very serious indeed, when about 50 police officers raided DWS’s and Deutsche’s Frankfurt headquarters. The prosecutor’s office said it was exploring possible “prospectus fraud”, explaining: “Sufficient factual evidence has emerged that, contrary to the statements made in the sales prospectuses of DWS funds, ESG factors . . . were not taken into account at all in a large number of investments.”

That statement will send shivers up spines far beyond Frankfurt. Even after regulators launched their probes into DWS, some had questioned whether prosecutions could be brought around something as seemingly woolly and hard to define as ESG. “We struggle to see how regulators can hold DWS to account, because sustainability requirements are subjective, making it hard to enforce, even if there was wrongdoing,” analysts at Citigroup wrote last year.

German authorities have now made clear that they see very real scope to pursue fraud prosecutions over ESG claims. And while it remains to be seen whether they will do so at DWS — and what course the US probe will take — this week’s news should serve as an explosive wake-up call to any asset managers still using sustainability as a low-effort branding exercise.

Wörhmann — once seen as a rising star of European finance — will be out of a job next week, having tendered his resignation immediately after the raid. DWS had already dropped its vaunted “ESG integration” model and started using much stricter criteria for its ESG labelling, linked with European regulatory guidance. In March it reported €115bn in “ESG assets” for 2021, having claimed €459bn in “ESG integrated” assets a year earlier.

It may be too late for DWS to avoid the damaging fallout from its now-defunct ESG strategy. But it has been far from alone in making allegedly overheated claims about its sustainability credentials. Others should take note of this cautionary tale — and tighten standards before they have a whistleblower of their own. (Simon Mundy)

Your views on the Stuart Kirk furore
We are consistently impressed by the calibre of responses we get from the growing community of Moral Money readers, who play an important role in shaping our coverage. But your input on the explosive recent remarks by HSBC’s Stuart Kirk has been especially interesting. We thought we would publish some highlights, which give a useful perspective on some of the hottest points of contention in the sustainable investing debate.

Some readers saw the outcry against Kirk — who argued that investors need not worry about climate risks — as evidence of dangerous groupthink in the ESG space. “It is absurd that he was suspended for providing an analytical base to his thoughts and pushing people to really look at their assumptions,” wrote Margit Pearson from New York, warning of a “disappointing, and indeed frightening” herd mentality in this sector.

Others took issue with what they saw as a clumsy, irresponsible approach to a deadly serious subject. “It was an old man’s speech,” wrote Piers Gibson, arguing that such attitudes were looking increasingly absurd as concern about climate change grow among younger generations.

Several responses took issue with specific details of Kirk’s argument. Joel Moreland, a social and environmental finance consultant, noted Kirk’s reliance on models projecting strong long-term economic growth in the face of climate impacts — a widely held assumption that could prove dangerously imprudent, he warned.

Brisbane-based corporate adviser Alberto Melgoza observed the stark limitations of viewing climate threats through a financial risk prism. The worst impacts, he noted, would be felt in developing countries — often with little effect on global markets, but with a terrible human toll.

That ties into an argument made by several readers on the futility of relying on financial companies to play the lead role in tackling climate change. Peter Cosmetatos, chief executive of Commercial Real Estate Finance Council Europe, the trade association for the European property finance sector, put the point particularly forcefully:

It is true that for virtually any financial investment, risks that arise meaningfully (even if we discount the uncertainty) decades hence are essentially irrelevant . . . That isn’t to say that longer-term risks don’t matter; only that markets alone, working to the time horizons that they do, will reasonably ignore them.

Markets would properly price the physical risks of climate change only when it was too late, Cosmetatos said. That meant governments and supranational organisations needed “to act like the custodians of our longer-term interests they should be, and regulate”.

And yet by highlighting the contradictions and limitations of today’s flawed ESG sector, and fanning the flames of a badly needed debate, Kirk’s speech may well end up having a positive impact, several readers argued.

“These are the throes of a movement-turned-industry-turned-money-making machine growing up,” wrote Marcela Pinilla, director of sustainable investing at Zevin Asset Management. “The ESG/climate bubble has to burst, and here we are now, hopefully continuing to separate the wheat from the chaff.” (Simon Mundy)

>>> US Research Calls

Research Calls

  • Upgrades:
    • Ciena (CIEN) upgraded to Buy from Neutral at B. Riley Securities; tgt raised to $67
    • Ecolab (ECL) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $195
    • Hersha Hospitality Trust (HT) upgraded to Buy from Hold at Jefferies; tgt raised to $13
    • Martin Marietta (MLM) upgraded to Overweight from Neutral at JP Morgan; tgt lowered to $410
    • Portland Gen Elec (POR) upgraded to Buy from Neutral at Goldman; tgt raised to $52
    • Regions Fincl (RF) upgraded to Mkt Perform from Underperform at Keefe Bruyette; tgt raised to $26
    • South State (SSB) upgraded to Outperform from Mkt Perform at Keefe Bruyette; tgt raised to $100
    • Voya Financial (VOYA) upgraded to Buy from Neutral at Goldman; tgt lowered to $80
  • Downgrades:
    • Aon (AON) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt lowered to $250
    • BankUnited (BKU) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt $51
    • First Guaranty Bancshares (FGBI) downgraded to Neutral from Buy at Janney
    • Flagstar Bancorp (FBC) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $44
    • Huntington Banc (HBAN) downgraded to Underperform from Mkt Perform at Keefe Bruyette; tgt lowered to $15
    • JOANN Inc. (JOAN) downgraded to Neutral from Buy at BofA Securities; tgt lowered to $8
    • Marsh McLennan (MMC) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt lowered to $145
    • Micron (MU) downgraded to Underweight from Neutral at Piper Sandler; tgt lowered to $70
    • Moody's (MCO) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $285
    • OP Bancorp (OPBK) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $15
    • Travelers (TRV) downgraded to Sell from Neutral at Goldman; tgt lowered to $170
    • Westlake Corporation (WLK) downgraded to Neutral from Overweight at JP Morgan; tgt raised to $135
  • Others:
    • Adaptive Biotechnologies (ADPT) initiated with a Neutral at Piper Sandler; tgt $7.50
    • Allogene (ALLO) initiated with a Neutral at Robert W. Baird; tgt $11
    • CCC Intelligent Solutions (CCCS) initiated with a Buy at BofA Securities; tgt $13
    • Euronet (EEFT) placed on Positive Catalyst Watch at Citigroup; target raised to $170
    • Exact Sciences (EXAS) initiated with a Neutral at Piper Sandler; tgt $50
    • Fate Therapeutics (FATE) initiated with a Neutral at Robert W. Baird; tgt $28
    • Guardant Health (GH) initiated with a Overweight at Piper Sandler; tgt $65
    • Invitae (NVTA) initiated with an Underweight at Piper Sandler; tgt $2.50
    • Loyalty Ventures (LYLT) initiated with a Buy at Needham; tgt $16
    • NeoGenomics (NEO) initiated with an Overweight at Piper Sandler; tgt $13
    • ObsEva (OBSV) initiated with an Overweight at Cantor Fitzgerald; tgt $6
    • Otonomo Technologies (OTMO) initiated with a Neutral at Citigroup; tgt $1.50
    • Snowflake (SNOW) initiated with an Outperform at Raymond James; tgt $184
    • Starry (STRY) initiated with a Perform at Oppenheimer; tgt $10
    • Third Coast Bancshares (TCBX) initiated with an Outperform at Raymond James; tgt $29