A Down Day

The horrible thing about Sheikh Jarrah where Jews and Arabs are battling over housing is that both sides have a valid claim to ownership of the area now home to Muslims being attacked by right-wing Israelis. The area was bought from Turkey, then the sovereign over Palestine, by Jewish charities over a century ago. The Israelis lost the area on independence and it was used to house Arabs who had been removed from the now-Jewish areas of Israel proper. When Israel won back Jerusalem and the West Bank, Jordan, which had run the Arab resettlement, was put in charge of getting them moved out but they preferred staying put. Then the Jewish charities gave their real estate to right-wing Israeli zealots at the expense of more Orthodox peaceful Jews.

The real problem is that Temple Mount sites holy to Muslims and Jews and even Christians are cheek by jowl. It was here that Solomon's Temple stood, of which only the “Wailing Wall” remains. It was here that the Prophet Mohammed flew on a carpet from Mecca on his final journey. It was here that Jesus walked to the site of his death. This holiness brings out the warriors.

We have 4 reporters.

Businessman, Internet, Continents

Insurance

*Allianz SE (ALIZY) of Munich reported revenues down 2.6% in its Q1 from the prior year, but this was mostly because of currency changes. It got euros 41.4 bn in sales. Its Q1 net profit rose 44.8% from the prior year to euros 3.3 bn, or 6.23 euros/sh, up from 3.36 euros. Net income attributable to shareholders jumped 83.4% to euros 2.6 bn. Return on equity was up 16% and Allianz forecast it would generate full-year roe at 1 or minus euros 1 bn this full year. It told today's conference call that there has been a “rebound in property and casualty insurance” and also in life and health insurance. Its solvency ratio is up 3% to 210%, making it a very safe financial company indeed.

Its combined ratio improved by 4.7% to 93%, a key marker for insurance. Allianz owns Pimco along with Pimco staff and operates as a fund manager in the USA and pretty much worldwide as an advisor.

It doesn't break out earnings by country or by entity. More on finance below.

Tech

The tech wreck continues because inflation will hurt the costly stock sector more than others. The Dow-Jones is down hugely again, by 460 points at the close.

Wednesday saw Trefis analysts picking one of our stocks. It also saw a disastrous loss for another share.

We'll start with the good news. “Nokia finally appears to be turning the corner, as it posted better-than-expected first-quarter results late last month, with sales rising 3% year-over-year to 5.08 billion Euros ($6.2 billion) and gross margins expanding to 38.2% up from 36.4% last year. For a perspective, Nokia's sales declined consecutively over 2019 and 2020.

“Why? The gains were driven by improved sales of 5G equipment and network infrastructure products which include optical and fixed networks.

“So What? Last year, Nokia's new Chief Executive announced plans to streamline the company into four business groups, while committing to regain a lead in the fast-growing 5G space after it fell behind rivals such as Ericsson. The Q1 results could be an indicator that Nokia is headed in the right strategic direction. Moreover, Nokia might still have a lot of room for gains. The company says that 5G is likely to be a 10-year cycle, still in the very early stages.” (The queries are how Trefis writes, not me.)

The good news is that Ericsson agreed to pay NOK Euros 80 mn, about $97 mn today to end the Finnish company's lawsuit against ERIC for copyright violations. The Swedish firm said operating profit will be impacted by about 80 mn euros in the current quarter and cashflow down by euros 26 mn.

"The amount reflects uncertainty, risk, expense, and potential distraction from business focus associated with a potentially lengthy and complex litigation," it said in a statement. It will make further payments in 2022 and 2023 respectively, impacting cash-flow.” The current exchange rate may change.

Now for the bad news: Israeli-American Tower Semiconductor with chip plants in the US, Japan, and Israel, crashed 8.6% today after TSEM reported on its Q1. Earnings hit 26¢/sh vs 16¢ a year ago. However, it missed the consensus forecast of 27¢. Revenues were up 16% to $345.2 mn according to IBES-Refinitive.

In the conference call, it predicted current quarter sales will be 5% up or down from the $360 mn level reached last year and the profit rise at least 16%. Tower, formerly called Tower Jazz, earlier this year said it would invest $150 mn in new fab plants in its 3 major sites. It makes chips for autos, medical sensors, power management, and telcos. I think the share price drop is really about the battles in Jerusalem, Gaza, and Israeli cities.

Drugs

*Japanese Eisai reported on its Q4 today and 2020-21 today. It kept up production worldwide to pretty near 100% from its plants despite Covid-19 despite some infected employees in India and Indonesia. But sales were off 7% from the prior year at 645.9 bn Yen and gross profits dropped a similar amount to ¥484.6 bn, while both R&D and SG&A expenses rose by 7%, leaving operating profit down 41% from the prior FY at ¥51.8 bn. Profit attributable to shareholders fell to ¥42.1 bn from prior year's ¥121.8 bn. Return on equity cratered to ¥6.1 bn from the prior-year level of ¥18.6 bn. It aims to get approvals for the next-gen AD drug, Aducanumab in the US (expected in June), the EU, and Japan. Coming next is Lecanemab which is in phase III trials despite the virus, which cuts and clears brain amyloids being tested in people who are cognitively normal but who have high amyloid levels. Further down is the Anti-MTBR Tau antibody in phase I trials and another drug, E2511, which may regenerate oral synapse in the cholinergic neuron.

It also is developing cancer treatments for renal, endometrial, and hepatocellular cancers which don't respond to Lenvima and Keytruda, the drugs it currently makes, using binding kinase inhibitors and protein-protein interaction inhibitors. For women's cancers with low tumor mutation which resist existing treatments it is working on eribulin concentrated into the tumor.

Its Alzheimer's disease drug Aricept is still a best seller and ESALY plans to research into new AD and brain health treatments based on biomarkers and pathophysiological markets for better diagnosis. Japan has among the largest population of very old people in major markets.

Its forecasts for the current FY are for sales of ¥681 bn, gross profits of ¥523 bn, R&D expenses of ¥160 bn, and profit up 6.6% to ¥44.5 bn or ¥158/sh. These estimates may not pan out. While the US is its 2nd market after Japan, profits here are over 45% of sales while in Japan they are 36.2%. China, its 3rd market is even more profitable, at 47.5% of sales. We aren't getting younger, why I own ESALY.

*Teva held up 1.66% despite the Israeli-Palestinian mayhem at $10.42, after opening even higher at $10.65. Teva recently announced that it would operate solo rather than trying to license a partner patent for covid-19 drugs. This was in reaction to Pres. Biden's plan to suspend patents. But had TEVA found a partner it would have taken about 6 months to move into vaccine production, it told The Economist.

*Compugen reports tomorrow before the market opens. CGEN.

*Bavarian Nordic insiders have been ditching their BVNRY shares. We exited the Danish firm because I mistrusted management. It makes vaccines base on smallpox jabs.

*Glaxo rose 0.45%. GSK.

*Astra-Zeneca rose 1.36% after its shareholders voted heavily against its CEO's pay giveaway, but did not have a majority. AZN.

Finance

*UK Atlantica Sustainable Infrastructure helps make clear what a mess markets are in. It opened up 0.9% to $35.5 but by lunchtime had fallen to $34.22, down 1.62% because its price target was raised to 35¢ from 19¢ as analysts digested its report from last week. AY was rated a multi-bagger by Simply Wall St. and a buy by Motley Fool.) We own it directly thanks to Harry Geisel, and indirectly via Algonquin, AQN, a ute. The latter is down 1.34% on no news either.

(Harry recently has talked up Mr. Price Group in Jo'burg which I am terrified of. It lost 2.24% today falling to 19,130

*CBOE, now recommended by Value Line as well as me, is up 3.34% mainly because intends to start a bitcoin ETF, but also because its charts help Wall St. keep track of market moves. It trades at a p/e ratio of nearly 27 itself. It hit a 2-mo high at $23.73.

*Mexican REIT Fibra Uno lost 2.52% in Mexico, falling to 23.6 MXN. FBASF.

*Berlin internet bank N26 which sells US digital accounts as FDIC regulated Axos Bank, was hit by a BaFin official investigation of its links to criminals and money launderng. It mostly works in euroland, but not exclusively, and offers Apple Pay.

*We owned Virgin Money when it was run by a lady banker on behalf of Sir Richard Branson before it was bought by Clydesdale & Yorkshire banking group (now renamed Clydesdale and Australian-owned). The ADR then got a new ticker symbol CBBYF for US owners. However when the name was changed back to Virgin Money in November 2019 management refused to back the ADR or give us the ability to track or trade VMUK, the new entity, as “an economy measure”. We were disenfranchised without recourse. The bank has suffered mobile and internet outages in part because of its cheesy systems and security. It is now trading at 1.76 pence per share, down by a full pound YTD. We were cheated but ultimately so was everyone else, including its clients. The bank plans to convert branches into “flexible work spaces” according to the Financial Times, so clients will be even more dependent on the insecure mobile and internet links.

Materials

*Cosan, CSAN of Brazil, is down 0.7%. It is my stock for 2021 but things are not working out well in health along the Amazon river.

*Cemex and CRH, of Mexico, down 6%, and Ireland, down 1.6%, are both down from highs because the Biden spending plan is now under pressure. They both hit new highs earlier this week.

*Royal Dutch Shell gained 1.85% because it discovered a new deepwater oilfield in US Gulf of Mexico waters, called Leopard with 600 ft of net oil pay at various levels quite near the Perdido corridor and only 245 miles from Houston. Shell said it was going to extract the oil with low carbon methods. RDS-B.

*BP plc discovered no new oil wells but gained because its shareholders voted down a climate change target the board opposed. Both also gained because of shortages in the US linked to the Russian cyberattack against a key pipeline.

*Schlumberger Ltd rose 2.53%. SLB is Dutch Antillean.

*Kirkland Lake, KL, a gold miner, had its average target price raised but still fell nearly 1%.

*Energy Fuels, UUUU, fell 5.74%, our worst performer, I think.

*Fellow Canadian small-cap Cameco, CCJ, fell 2%.

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Comments

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William K. 1 year ago Member's comment

Sorry about the reality of the bad news. It was pointed out in another article,yesterday, that the fighting is promoted by the really rotten bad ones who would lose power if there were peace prevailing. So evil is very much active now.

The financials are quite interesting, especially the part about that "Virgin Money" group. Shortsighted management plus poor quality hardware systems is certainly a recipe for big problems. So it will only recover if the management becomes wise, (probably when the management is replaced with wise.)

Ayelet Wolf 1 year ago Member's comment

Hamas is simply using Sheikh Jarrah as an excuse to attack Israel. That place has been in litigation for over 40 years and is still in court - their fate has yet to be determined.

Here is my theory on what is really happening:

1. Hamas likes to flex their muscles once in a while, to show they are still relevant. In fact, if you look at the last several years, every May and November, they have launched similar attacks. It's probably something to do with how often their missile stockpile is resupplied by Iran.

2. They are probably testing Biden to see how supportive he is of Israel. Trump was very anti-Palestinians and pro-Israel, but Biden has expressed a greater willingness to support the Palestinians.

3. Most importantly, for the first time in history, an Arab Israeli party was going to join the Israeli government - they've always stayed in the opposition. This would have really changed Israel for the better. Real unity, and in exchange for this, Israel was going to spend millions in making sure Arab cities were modernized, with better infrastructure, etc. Creating thousands of jobs there, and making them all very prosperous. But just as it looked like they would sign the agreement, the rockets started falling. They can't possibly join a Jewish government while the Jewish state is at war with it's fellow Arabs.

Hamas just eliminated a real chance for peace and reconciliation within Israel.

Carl Schwartz 1 year ago Member's comment

I agree that Sheikh Jarrah is probably a red herring. But they are squatters. The rightful Jewish owners were chased from their homes and taken over by Arabs. For decades they've lived their rent free, even though the courts ordered them to pay rent, or to move out, the families refused and are still there. They have appealed and the court case is still pending.

For those who feel that's okay, how about I kick you out of your home, and move in and refuse to leave?

Israeli Arabs appreciate all the benefits of being citizens of Israel, but when they need to follow the actual rules and laws that they find inconvenient, many will just ignore them. Worse, if they really cared about the 4 families being evicted from Sheikh Jarrah, then why wouldn't they wait until the court case is over. Those families might win. Instead they've run rampant, burning down entire cities. It's like a pogrom, or another Kristallnacht. There is no excuse for this.