Powell Failure
There is a break today in the news load so I can chat on politics. The Biden stimulus plan has lost part of its money and its link to the minimum wage to get through the narrowly Democrat-held US Senate. Having been worried about the size of the program I am now relieved. Meanwhile, there is a far more important measure to be made into law, stopping states with Republican majorities in state legislatures from disenfranchising minority voters by rules against Sunday or early voting. For the party of Lincoln to engage in this kind of gerrymandering is a shock.
Stock markets are negative despite the lower stimulus risk which should cut T-bond interest rates going forward. But so far the biggest prior year winner, Nasdaq, lost all its gains in 2021 today, after falling another 1%. While some experts question the linkage between higher bond yields and lower stock prices for high-flying tech companies, historically they do move inversely, although usually at much higher bond yield levels. Powell's testimony failed to boost markets.
The drops came despite last week's jobless claims level was down 5,000 from the estimate at 745,000
Today the market was a bit more mixed, with Q flat after falling 3.7% this week, the S&P 500 down 0.1%, and the large-cap dominated Dow Jones off 550 points—another triple-digit loss for this week and last. Europe and Asia markets fell before the unemployment numbers.
Analyst Adam Rozencwaijg (of Goehring & R) put out a paper discussing the excess valuation of carbon-emissions which he calls “fuzzy math”, both by companies and by the International Energy Agency, which overstates both energy growth and demand. He states that the BP analysis of the climate change forecast that 25% less energy will be consumed over the next 2 decades is flawed. There has never been such a steep drop in energy consumption since data began being collected in 1965. In fact, developed economies increased their share of global consumption from 40% then to 60% now. And developing economies in the current century upped their demand by 65%--but it is still 70% below that of the OECD group of rich countries. Even the most committed country for cutting emissions (Germany with its Engergiewende) only cut carbon emissions over the past 4 decades by 12% versus a target of 40%. Ignoring reality will not help the planet. More on energy below.
Reporting companies
*Trip.com, a new holding, TCOM, is holding its annual general shareholders' meeting on March 18 in Shanghai where there will be a vote about splitting its ADR shares 8 for one to the Hong Kong stock. The share is now at $39.68, up today but down on the news which went out yesterday. I think penny stocks lose credibility and voted nay. It reported on its FY 2020-1 Q4 today with good Q4 earnings despite revenue falling 40% y/y to $761 mn, in line with analyst forecasts. The biggest hits were to transportation ticketing revenues, down 51% to $260 mn and package tour ones down 67% to $40 mn. Accommodation revenues were $344 mn, down only 24% y/y while corporate travel revenues held up at only down 17% but from a low base, at $47 mn. The best news is that gross margin was 82% vs 79% in Q4 2019 while expenses for product development dropped by 20%; those for marketing by 50%; and those for administration by 53% vs prior Q4. However, operating margins were zero vs 7% in the prior Q4 and net income was nearly halved to $155 mn. GAAP earnings per share at 25 cents beat the consensus forecast of a loss of 10¢.
TCOM closed the year with $9.1 bn in cash and near cash, down from $9.7 bn at the end of Q3, a slow burn. CEO Jane Sun reiterated the 20-30% margin level but there was little else told us. TCOM has 400 mn users and lists 1.4 mn travel ads on its site. It partners with Etihad, Thai Air, China Air, and others but it also faces comeptition from google. Stick with Trip.com because it has managed to keep Beijing on its side, in contrast to TripAdvisor, TRIP, which we used to won, which was blocked for violating Chinese cyber laws. It could be a target for Q sanctions like the Chinese telcos, but it doesn't possess the ability to cause problems to customers from the West.
*Irish CRH plc beat and boosted its divvie 25% to 115 cents with a final divvie of 93 cents, and rose 0.55% to $47.47. There is little like it today. The stock is now recommended by Citi. It also forecast a strong finish to 2020 thanks to resilient demand and cost cuts despite challenges. It cut its debt to cash flow to 1.3%, the lowest in over a decade, and is hunting for more acquisitions. It plans a $300 mn new buybacks of shares. Revenues in 2020 did fall but only by 2% to $27.6 bn, while cash flow (earnings before taxes, interest, depreciation, and amortization) was up 5% to $4.6 bn, and the EBITDA margin hit 16.8% or 120 bps. Cash flow from operations was up 1% to $39 bn. Pre-tax profits from continuing operations came in at $1.66 bn, down from $2.18 bn in 2019. Unfortunately, the full release was unreachable from the USA despite the fact that CRH has a full ADR because of a British ban on insider info. Hence I used the Citi summary. My broker, Schwab-TD Ameritrade was useless. CRH is only 4.25% below its US high of the last year. It did not announce its earnings call which took place at 9 am before issuing its data which was not made public. It is unclear if the data in dollars above was correctly converted from euros. This is the last time CRH will report in London. I hope we can get data in the next quarter from Amsterdam.
Drug dealers
*Five Korean men died within two days after they received the Oxford Covid-19 jab from Astra-Zeneca and Seoul is going to fund an investigation. This is the first time hard evidence has come on the risks of the AZN jab which is already under a cloud in many countries. Italy meanwhile blocked a shipment of 250,000 doses of the AZN inoculation to Australia to keep them in the EU where many are refusing to accept the AZ jab. Meanwhile, Germany has okayed the use of the AZ vaccine in over 65s. AZN shares are down 7% and they are the subject of a US fraud class action lawsuit covering May 21 to Nov. 20, 2020, over the mishandled COVID-19 trials in Britain and Brazil.
*Teva fell 2.8% today after the European Union began an investigation of its blocking access to generics of its Copaxone (glatiramer acetate) drug to treat multiple sclerosis. If the investigation finds evidence, TEVA may have to pay as much as 10% of its Copaxone turnover in fines. The Israeli firm violated competition laws by dissing rival makers of MS drugs in meetings with medicos under former management. But this may have merely been free speech.
*Roche Holdings is partnering with two small caps, with Tempest Therapeutics for a small molecule against liver cancer when combined with one of RHHBY's two drugs, Tecentriq and Avastin, and the 2nd with Dicerna Pharma for Phase II trials of its RG6346 with the Swiss group's hepatitis B virus treatments. It is paying DRNA a $25 mn milestone. Big pharma can win by investing in small pharma.
*German CureVac got Novartis accord to help make Covid-19 jabs at its plant in Austria, now in phase III trials in 35,000 volunteers. It is under an EU “rolling review” which may lead to approval. Deliveries will start this summer. Curevac earlier signed a deal with Germany's Bayer to make the vaccine starting in 2022. Last summer the German govt took a 23% stake in Curevac for euros 300 mn and also provided at euros 252 mn grant for covid research. NVS is down 1.24% on the news.
*Dr. Reddy's (RDY) in India gained 2.75% today.
Energy
*Cosan gained 6.05% today after others agreed that it would not suffer from Pres. Jair Bolsonaro's move cutting gas prices at state sector Petrobras. It is back at $19.53-4 on Wall St. It is at 5x earnings. CZZ.
*Earthstone Energy Inc, ESTE, rose 8.6% today to $8.23, I know not why.
*Schlumberger Ltd of the Dutch Antilles will partner with Chevron CVX and Microsoft MSFT in a Mendoza, California carbon capture program with privately-held Clean Energy Systems. It will recycle agricultural biomass waste was into a renewable gas to be mixed with oxygen to make green electricity. It will remove 300,000 tons of CO2 per year. They are working on engineering and will make a final decision on the carbon capture system next year. SLB is up 2.5% on the news, at just over $29/sh, also a reaction to higher oil prices.
*Eduardo Garcia writes in sentidocomun.mx.co about Cemex. CX has risen steadily. It is now using drones to validate orders by checking reserves in the US using contactless Kespry software at 10 plants, 54 distribution centers, and 269 concrete making plants.
*Cenovus Energy Inc. (CVE) rose 4.54% today on the Big Board despite reporting lower sales and earnings in Q4 last year last month, helped by a $278,000 new investment by Cambridge Investment Research Advisors. It is also calling its series 1 and 2 convertible preferred shares. Yesterday Canadian energy stocks were standouts with jumps by Vermilion Energy, and Tourmaline. CVE has been boosted by its deal to merge with Husky Energy to create the largest Canadian producer of oil and gas firm and by OPEC cuts in output. It also boosted operations in oil sands where it has the 3rd largest reserves of any listed firm getting icky heavy oil. (BP has only a third as much in oil sands as CVE.) It is now unable to cover more than a quarter of its refining costs for sands oil as a standalone company. It will make more profits upstream and in refining post-merger it says.
*Kinder Morgan saw Sargent Investment Group double its stake in Q4 but other institutions and insiders sold. It divested its minority stake in Natural Gas Pipeline of America. KMI shares rose 3.2%.
*NIO of China fell another 7.38% which Barron's Daily says is 42% off its high and while expensive, is less so than Tesla. Chinese car firm all reported lower sales in Feb. but that is because of the Chinese New Year gap. The weekly thinks the Chinese electric vehicle firms will beat Tesla in recovery.
Tech
*Piper Jaffrey issued a positive note on Qualcomm, QCOM. We own it not for its chips but for its unlisted Israeli startups. Analyst Haren Kumar has a target price of $160 while it is now at $132.11.
*Mercado Libre fell a half percent in part because its “presentation” of results was incomprehensible and incomplete. MELI.
*Nokia is down another 5.3% to $3.77 as the only ADR hit by the Reddit phenomenon. It is also off because US interest rates are up, and because it was dropped from the Eurostoxx 50 index in favor of Infineon as of Mar. 22. It has set a target of halving emissions from 2019 by 2030 and in that period will probably grow like topsy, as long as chips are available. NOK.
*Damien Roberts on Talkmarkets is upbeat on NIO, the Chinese electric vehicle company. He even signed his name.
*Game maker Fanuc of Japan fell 2.5% today. We sold most of our FANUY in Jan. despite Abhimanyu Sisodia loving the stock.
*Takeover candidate Renishaw, RNSHF, lost another 5.91% today presumably because it will be sold too cheaply. It makes precision cutting machines.
*Computer Modelling of Canada which designs drilling systems for oil and gas fields, fell 3.92%. CMDXF.
Finance
*CBOE rose 3.2% after Piper analyst Richard Repetto upgraded it to overweight from neutral because of rising revenue per contract. He predicts that eps will hit $1.46/sh this year, up a dime on sales of $5.38 mn, vs earlier forecast of $5.17 mn. In 2022 sales are expected to hit $5.45 mn vs an earlier level of $5.32 mn. CBOE is a favorite stock for institutions using its services on markets for options, equities, and fixed income, The precision of Mr. Repetto's forecasts is impressive. He says the multiples on CBOE are the lowest of all exchanges covering US issues and it is still at 2018 price levels despite higher income and sales last year.
*Sweden's Investor AB, IVSBF, a proxy for a Scandinavian fund, fell 8.8% today.
*Hong Kong's AIA Group, AAIGF is up 1.82% more still on the Nomura tip yesterday.
dear William K, I think that your theory about wage levels assumes that the workers have the ability to get what they deserve from their bosses. But in my lifetime as theie unions were enfeebled, this is no longer true most of the time. Only teachers still can get the pay and conditions they demand, not factory workers, Amazon pickers, drivers, etc.
As for vaccine reactions by Japanese men, it may be a coincidence but it probably was not. The fault may not have been in the AZ jab but in something else about the administration of the vaccine. When we got ours (me and my husband) we had to stay at the hospital for a half hour after the injection to make sure everything was ok. I may not have been the same procedure in Japan. We got the Moderna not the AZ jab but they all do have risks. A vaccine is potent.
There is an intrinsic flaw in the whole concept of a minimum wage, which is that the amount is linked to the recipients needs. The pay amount is normally linked to the value delivered, just like purchasing products at a store, at least, at some stores. Employment is not a charity operation, usually. Folks are mostly paid based on the value they can provide to the employer. The exception is primarily CEOs and boards of directors, who seem to be paid based on their ability to "speak sunshine" to investors, both current and potential.
The A-Z vaccine scare is unusual because ao much is unknown about the details. Consider how many folks have had the stuff and not had any problems at all is my point. If a million used the vaccine with no problems and then two did have problems, the evidence points far more at the two, as I see it.