Containment Plan

Today the US decided to cut China risks. TV pundit Jim Cramer took the lead in calling for an exit because of Chinese interference with free markets after it decided today that tutoring companies would have to stop aiming to earn profits. The education sector's shares collectively fell 60% on this demand, according to the Financial Times

Pres. Biden then called for a US containment plan to cut dependence on China for digital or defense-related products. However, some of the reaction sales of Chinese stocks was grossly overdone, in my opinion. To avoid the risks of no fortunes in my cookies today I had Kosher sushi for lunch. In cosmopolitan Midtown my challah bakery also sells sushi.

China decided that its companies using offshore havens to hold ADRs would have to inform the authorities of these arrangements in advance of listing on foreign markets, including data on costs and facilitating brokerages. This will not only slow down the listing process. It will also scare ADR buyers with details they didn't know before. The Dow Jones is closing at a new high and it is not Chinese.

Business newspaper article

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And we have three reporting companies to catch up with today.

*Swiss ABB IVSBF had a conference call at the crack of dawn yesterday but we only got word of the results today. The big news was not the results but the fact that it bought ASTI Mobile Robotics, an autonomous robotics firm but refused to tell how much it had paid. I assume the number was very high. It justified the deal by indicating that this will become a $14 bn market by 2025, which is only 4 years from now. The Lidar system Asti uses will give ABB an edge in this market as many smaller firms will not be able to keep up.

For Q2 both earnings and revenues beat the consensus, with operating earnings at 37¢ beating by a penny/sh, but up 68% from prior Q2. Sales hit $7,449 bn, up 21% thanks to 68.2% on a year-over-year basis, and also beat the consensus forecast of $7.203 bn. It closed the quarter with a backlog of $15.424 bn, 11% up on prior Q2. By business line, the largest sector it operates in, electrictrifcation also was the big winner, up 23% from prior Q2 from heavy demand from data centers, buildings, rail, and e-mobility lines. Process automation sales topped $1.540 bn, up 11% over the prior year, for various users of power and water like mining, paper, water-waste water, and chemicals, Motion sales gained 17% to $1.85 bn while robotics and automation sales were up 32% (and backorders up 52%) but sill accounting for $832 mn in sales and $968 mn in backorders.

While gross margins were up cost of sales at 66.3% was below the prior year while SG&A rose 11% to $1.314 mn. Ebitda cash flow rose 71% to $1,113 bn and the Ebitda margin hit 15%. It is up 1.9% but was higher in European trading.

*Schlumberger Ltd of Curaçao reported on its Q2 earnings. Oilfield services giant SLB issued a bullish forecast for 2021 on Friday as Q2 profit topped estimates thanks to margins rising with the rebound in oil prices, up 18% in the quarter boosting demand for its software and equipment for the energy service firm. However activity is still well under normal levels and recovery depends on cutting covid-19 risks, hardly a slam dunk

SLB brass were pretty upbeat on sales and profit margins for the rest of the year. CEO Olivier Le Peuch said US business may “surprise to the upside” after it fell about 1% y/y if there is “wider vaccine-enabled recovery and economic stimulus programs Le Peuch said, but US output may not hit pre-covid levels until 2023. This is higher than earlier projections that the oilpatch will get back to 2019 levels next year. SLB was rated overweight by Morgan Stanley. buildings, not found all over. It has become a focus of emerging markets shares after being written up in Barron's.

*Vodafone (VOD) Q1 FY'22 total revenue reported growth of 5.7% Y/Y to €11.10B. Service revenue organic growth, a non-GAAP measure, of 3.3% to €9.39B Y/Y.

Group CEO Nick Read said "I am pleased to report that we are back to service revenue growth in Europe, as well as Africa. This growth was broad-based within both Consumer and Business segments, with the vast majority of our markets contributing."

Read further noted that in Europe, the operating and retail environment has not yet returned to normal conditions but the company was delivering a good service revenue performance. VOD kept it guidance flat

*NIO yesterday began shipping a first batch of ES8 7-seat electric sports utility vehicles from Shanghai to Norway. They will be for sale starting in Sept. The EU approved the European Whole Vehicle for mass production and license plate registration last month. Today NIO fell 6.88% at the opening because it is a Chinese company, despite the GM Bolt electric car having a second recall because of fire risks. If you own a Bolt you should park it on the street and not in a garage as it may go up in flames. Several small shareholders in NIO are selling 1.68 mn shares, which led to the stock falling nearly 7% at the open. The sellers are Quasar Energy Partners LLC, Philipps Brothers Fertilizer LLC, and Little B LLC which collectively sold 0.4% of the shares out at a price of $46.07 overnight, according to an SEC filing. We cut our NIO risk by selling 2/3 of our shares earlier but this is no longer a rational response. NIO is relatively less risky than other Chinese stocks because it is not under control from Beijing but from a provincial city partner which gives it some leverage against pressures. It saw insider selling last month, as did other Chinese auto-makers but the level is in low single digits, not a panic. Nio was also hit because the UK is investigating the cross-selling of electric charging stations between oil companies as potentially anti-competitive. China likes to force its companies to compete against each other. NIO is now down only 4.7%. It has performed much better than Tesla this year. TSLA is down 8%.

*Soquimich of Chile has suffered a fire at its iodine plant which will reduce production by 150-200 tons and cost $600,000 to repair. Separately Morgan Stanley cut the SQM share to underweight with a price target of $45 over political risks.

*Israeli-American Tower Semiconductors is up. TSEM.

*Veoneer, which we sold a couple of years ago, rose 55.3% after agreeing to be bought by Magna International of Canada. VNE.

*Citigroup put a buy on Plug Power today as a play on hydrogen. PLUG rose.

Drugs

*Israeli Compugen, doing make or break trials, is now up from its low point today, down 2.23%. CGEN picks products to study based on computer data and has two trials in the early stages. Israelis, particularly institutional picks, move a lot when Tel Aviv is shut on Fridays.

*Fellow Israeli Enlivex also fell today by 3.25%. ENLV holders are taking profits.

*Novacure also crashed at the opening but the maker of Tumor Treating Fields now is down a mere 0.56% having opened down over 3%. NVCR.

*Bouyant Novo Nordisk gained another 2.66% and is back over $90. The Danish drug firm makes insulin for Walmart and weight-loss products. NVO.

*Novozyme of British Columbia is down over 2%. It is headed by an Arab and may be a takeover candidate. NVZMY.

*Both Eisai and Takeda are up today. ESALY and TAK are Japanese drug majors.

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William K. 2 years ago Member's comment

It does seem a puzzle as to what the China government is thinking. Will they ever explain the reasons? No telling.