Barrons weekend summary: Cautious feature on retailers amid fierce competition with Amazon; Positive select oil & gas names
* Cover story: Forty years after Congress passed the Revenue Act of 1978 and created the 401(k), 55 million people have plans totaling more than $5 trillion; The 401(k) rule “has hastened or improved retirement for a large segment of the population, namely people with full-time jobs and matching benefits, but it’s far from perfect,” and needs to be available to more people.
* Features: 1) Cautious on KSS, TGT, TIF, HD, WMT, BBY, TJX: Retailers have managed to counter AMZN by ramping up their e-commerce fulfillment sides, improving supply chains, and taking other offensive steps, but even with a strong holiday outlook not all will ring up gains; 2) Oil’s descent during the past six weeks has shaken traders and sown doubt among investors, and the sector’s volatility could be a red flag for the rest of the economy; 3) Positive on BP, CVX, XOM, Royal Dutch Shell, EOG, COG, EQT: Energy companies have shown financial discipline by reining in capital spending and returning more cash to shareholders, and many shares look attractive despite a recent 15% retreat in the sector; 4) Just 13% of people working in corporate America have a defined-benefit pension plan—and few people work at one company long enough to get a pension that could support them in retirement.
* Tech Trader: Cracks in AAPL’s narrative began to form after its recent earnings report, with some analysts saying its reduced transparency could be a sign iPhone sales have peaked, while two key suppliers singled out Apple for a shortfall in component orders.
* Trader: The U.S. and China could reach a trade deal at the G20 and the Fed could pause on rate hikes, but even those actions might not be enough to fix the market; Positive on AMGN: Biotech generates more than $10B in free cash flow annually, is a good steward of its money, and has more cash than debt on its balance sheet; Positive on THS: Shares of the private-label food maker are down on negative headlines, but its strengths are obfuscated by restructuring-related charges and one-time items as it closes facilities and streamlines production.
* Interview: David Pearl, co-founder of Epoch Investments, believes that looking at growing free cash flow is the way to pick stocks, and says “We are in one of the best economic periods since World War II” (picks: MS, CVS, HXL, AAPL).
* Profile: David Sand and Andy Kaufman of Community Capital Management manage the Community Reinvestment Act Qualified Investment fund, which focuses on investments that are “sustainable, responsible, and impactful.”
* Follow-Up: “The SEC must take the lead in proposing—if not compelling—cooperation and new approaches to improve the accuracy and reliability of the U.S.’s outdated and expensive proxy voting system.”
* European Trader: Positive on British Land, Land Securities: The U.K.-based REITs have taken a hit over Brexit turmoil, but have reached price levels that merit consideration by income-oriented investors who think a Brexit deal will be reached by March 29.
* Emerging Markets: A Chinese yuan weaker than seven to the dollar has acquired symbolic significance, and if it breaches seven, it’s hard to tell where the next line will be; Beijing watchers think a currency defense might be in the offing.
* Commodities: Further natural gas price hikes may follow just as winter gets under way; prices will go up and down with the weather, with upside moves greater than downside moves.
* Streetwise: Economic growth tends to be higher in emerging markets, attracting bankers but putting them in place that are “less well governed, more corrupt, and increasingly polluted,” according to Renaissance Capital.
Takeda dissident investors make last push to block Shire deal
Former chair and member of founding family of Japanese drugmaker opposes acquisition
A dissident group of shareholders is making a final push to block Takeda’s £46bn acquisition of Shire by bringing in the most influential member of the Japanese pharmaceutical group’s founding family to support its campaign.
Kunio Takeda, the group’s former chairman and the last member of the Takeda family to run the 237-year-old drugmaker, opposes the takeover of the Irish rare diseases specialist, according to two people close to Mr Takeda.
Mr Takeda, who is based in Singapore, declined a request for comment made via the Takeda Science Foundation, a charitable organisation that funds research, where he is chairman.
Takeda has set December 5 as the date for an extraordinary general meeting to vote on the deal, which would require approval from two-thirds of shareholders to issue new shares to finance the acquisition.
The founding family members together own an estimated 10 per cent of Takeda.
The dissident investors are unlikely to be able to rally enough support from other investors to overturn the acquisition with just three weeks until the meeting.
But the activities of the members of the Takeda family have gathered investor attention in a country where founding family voices can hold an emotional sway over the votes of individual retail investors, who account for a quarter of Takeda’s shareholders.
Christophe Weber, chief executive of Takeda, has expressed confidence in winning the shareholder vote, saying the deal would accelerate the group’s transition into a global pharmaceuticals player.
Mr Takeda has not been involved in the group’s management since stepping down as chairman in 2009 after choosing the first president from outside of the Takeda family. He has not commented publicly on the Shire acquisition.
“But he never imagined that the company would pursue such a radical form of globalisation,” said one person close to Mr Takeda. “He has recently expressed his views that he is against this deal.”
Mr Weber, Takeda’s first non-Japanese chief executive, has spent hours meeting with members of the Takeda family to allay their concerns about the $48bn in net debt the company will shoulder after the deal closes.
But he has also expressed frustration about the dissident campaign involving 130 Takeda shareholders and former employees, saying their position does not reflect the views of other shareholders.
The group, which holds just over 1 per cent of Takeda’s stock, believes it can win support from about 25 per cent of Takeda shareholders.
But analysts say the target is too optimistic, considering their lack of success in winning support from retail investors.
Some Japanese institutional investors, which account for 31 per cent of the group’s shareholders, have sympathised with their argument that the company has not disclosed enough information on Takeda’s financial prospects after the acquisition.
“In the current environment where scale does not necessarily lead to the success of a global pharmaceutical company, there needs to be more explanation on where Takeda is heading,” said one. “Longer term, will Takeda need to continue finding the second and third Shire?”
But people close to some of Japan’s biggest institutional investors added that many are expected to back the deal as they see few other immediate alternatives to strengthen Takeda’s thinning pipeline of drugs.
Kazu Takeda, a key member of the dissident group and also part of the founding family, admitted the outlook for overturning the deal was “very grim”.
“We will continue to gather support until the last day,” Mr Takeda said. “If Takeda does succeed in acquiring Shire, it will no longer be a Japanese company.”
Telecom Italia BoD likely to appoint Luigi Gubitosi as CEO - report (translated)
17 NOV 2018
The board of directors of Telecom Italia [BIT:TIT] (TIM) is likely to appoint Luigi Gubitosi as its CEO, Italian language daily Il Sole 24 Ore reported. The unsourced report said that TIM board member now has the advantage over the other frontrunner Alfredo Altavilla, who has been asked not to stand for the post in order not to split the majority faction on the board headed by investment fund Elliott.
The report noted that most of the Elliott slate prefers Gubitosi.
The report also noted that deputy Prime Minister Luigi di Maio has said that the Italian government has no preference over who will be TIM's CEO.
The TIM board will discuss the appoint of the new CEO tomorrow 18 November.
Early premarket gappersGapping up:
- PCG +38.3%, SONO +21.1%, SCVL +12.9%, EIX +10%, CRMT +6.9%, VIAB +5.9%, VIAB +5.9%, BB +4%, BGCP +2.8%, FRO +2.4%, GLOB +1.2%
Gapping down:
- NVDA -17.7%, HCM -14.4%, WSM -13.1%, MCF -12.9%, GOGO -11%, JWN -10.2%, AMAT -8.6%, AMD -5.8%, MU -3.8%, AZN -3.6%, LRCX -3.5%, SMH -3.4%, SOXX -3.2%, SWKS -2.1%, HTHT -2.1%, EQH -1.9%, XLNX -1.9%, CY -1.9%, SQ -1.8%, ADI -1.6%, AGIO -1.5%, AVGO -1.2%, INTC -1.1%, M -0.8%, HCLP -0.8%, TXN -0.8%, NXPI -0.7%
Morgan Stanley analyst: Believe the USD has reached its peak at around current levels
- Recent inflows into the US are primarily short term,and thus prone to reversal
- Risk markets predicted thecurrent USD rally... We are closely attuned to the information content of risky asset holdings, which are often indicators of future trends. For example, the USD weakened throughout 2017 as investors were focused on a narrative of synchronized global growth. However, risk (equity and credit markets) outperformance suggested instead that global growth was actually becoming desynchronized. The USD started to rally in February,and hasn't looked back since. The Fed's broad USD indexhas reached its December 2016 highs. By contrast, the G10- focused DXY has only retraced two thirds of its 2017 decline.