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⚡ Big Dividend Energy

⚡ Big Dividend Energy

Plus, three European biopharma stocks to watch over the coming months.

January 28, 2024

Happy Sunday to everyone on The Street.

It's been quite the stretch for chip stocks due to the rapid development and release of new artificial intelligence products, and it looks like the subsector is about to get another boost, this time from President Biden.

Ahead of the upcoming election, the Biden administration is reportedly set to announce subsidies worth billions of dollars for major semiconductor companies. The aim would be to reshore advanced microchip production to the U.S., countering China’s growing chip industry, reported The Wall Street Journal.

The slow implementation of the bipartisan 2022 Chips Act, frustrated by permitting, negotiations, and worker shortages, has led to only two small grants being awarded out of 170 applications, the report read.

However, industry executives anticipate announcements for larger sums, in the billions, to jumpstart the production of advanced semiconductors powering smartphones, AI, and weapons systems.

The expected announcements, likely before Biden’s State of the Union address on March 7, aim to showcase economic achievements amid the upcoming election season.

Key beneficiaries may include Intel and TSMC, with projects underway in battleground states like Arizona, Ohio, and New Mexico. As we head deeper into an election year, the impact Washington has on Wall Street and vice-versa will only get stronger.

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Review

The US economy continues to exceed growth expectations, driven by strong spending, and as inflation eases, this creates a welcome scenario for stock investors.

It was a stellar week for Netflix Inc., with the streaming giant achieving its best weekly performance in over a year. On the flipside, it was a tumultuous week for Tesla Inc. as disappointing quarterly data led to a negative streak of six consecutive weeks in the red for the electric vehicle stock for the first time since 2016. Let's start with Netflix:

Netflix‘s fourth-quarter results exceeded revenue expectations but missed earnings per share estimates. The streaming service ended the year with 260.28 million global paid members. Analysts highlighted the transformative potential of Netflix’s 10-year deal with WWE to stream "Raw" live, starting in 2025, to boost audience and advertising revenue.

Following Tesla’s disappointing fourth-quarter results, analysts lowered their projections for the stock, citing concerns over vehicle delivery growth and margin pressures. Analysts called the stock “egregiously overvalued” this week and expressed difficulty in remaining optimistic about Tesla's short-term prospects.

Microsoft reached a $ 3 trillion market valuation, driven by artificial intelligence optimism and strong financial performance. This milestone challenges Apple’s position as the world’s most valuable company.

Alibaba's stock surged over 7% as co-founders Jack Ma and Joe Tsai heavily invested in shares, bolstering market confidence in the Chinese e-commerce giant. This move coincides with China’s plans to support capital markets, offering a positive outlook for the company.

Stocks linked to Donald Trump, including Phunware and Digital World Acquisition Corp., skyrocketed this week following his rising momentum in the 2024 White House race.

American Airlines Group saw increased attention from investors after reporting fourth-quarter financial results. The company beat analysts' estimates for revenue and earnings per share in the quarter. Guidance for the first quarter and full fiscal 2024 also came in ahead of estimates from analysts. The quarterly report resulted in several upgrades from analysts.

Increased attention could be centered on the airline industry after the recent safety concerns over planes made by Boeing Co. A rejected merger of JetBlue Airways Corporation and Spirit Airlines Inc. by the Justice Department also has the airline sector on watch as it could impact M&A activity going forward.

Preview

Economic Data

Monday: None scheduled
Tuesday: S&P Case-Shiller home price index (20 cities), job openings, Consumer confidence.
Wednesday: ADP employment, Fed rate decision
Thursday: Initial jobless claims, ISM manufacturing, U.S. productivity
Friday: US non-farm payrolls, U.S. unemployment rate, Average hourly earnings

Earnings

Monday: Alexandria Real Estate Equities Inc, First Republic Bank
Tuesday: Allstate Corp, Electronic Arts, Advanced Micro Devices Inc, Alphabet Inc, JetBlue Airways Corp
Wednesday: Rockwell Automation Inc, Aflac Inc, Apple Inc, Boeing Co.
Thursday: 1-800-Flowers.Com Inc, Becton Dickinson and Co, Amazon.com Inc, Stanley Black & Decker Inc, Pitney Bowes Inc
Friday: Abbvie Inc, Camden Property Trust, Chevron Corp, Exxon Mobil Corp

Fuel Up on Big Dividend Energy

Struggling Energy Stock Could Bounce Back

British Petroleum (BP) recently hit a 52-week low. For the past 3 years, the stock has significantly underperformed the Energy Select Sector SPDR Fund (XLE), which tracks the sector.

Barron’s thinks BP will get out of the dog house soon.

The publication points to the stock’s valuation and the fact that it’s trading at multiples below its US counterparts, Chevron (CVX) and Exxon (XOM).

BP trades about seven times 2024 earnings, while Chevron and Exxon trade close to eleven times earnings.

Back to the Basics

Barron’s highlights BP’s re-focus on its core oil and gas business as a reason for optimism.

In 2020, executives told shareholders they would be dedicating more resources to cleaner energy solutions, such as biofuels.

But BP has recently changed its tune. The company is committing more resources back to oil and gas, especially at locations in the United States.

The energy producer wants to boost US oil and gas production by more than 50% by 2030.

Big Dividend Energy

BP boasts the highest dividend yield of major energy firms at 5%.

The company’s executives have made this dividend a big part of their future plans, seeking to increase the dividend by 4% annually.

Investors have been burned by BP several times over the last two decades, but Barron’s says the hearty dividend and low valuation give hope for the company’s future.

Which energy company will perform best over the next three years?

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D-Fence

Biopharma Sector Might Provide Protection

With major US market indexes at record highs, the Street sees reasons for investors to pad their portfolios with some safety. Morgan Stanley argues that European biopharma stocks can serve as a security blanket.

The bank believes the sector is poised for near-term success while other sectors run into problems during this European earnings season.

Morgan Stanley says pharma companies are trading at lower valuations and have a defensive setup heading into 2024.

A Trio To Watch

There are three names investors should watch in the biopharma sector.

Indivior (INDV) produces addiction treatment products. Bullish analysts point to its healthy cash flow as a tailwind to boost the stock price.

AstraZeneca (AZN) has been named Morgan Stanley’s top large-cap pick. The bank likes what it sees from the company’s cancer treatments and sees long-term growth ahead.

The final name is Novo Nordisk (NVO). The stock is up 55% in the last year thanks to its anti-obesity products. Wall Street has confidence that the obesity drug market will continue to see momentum.

What’s the Catch

While there’s optimism that the biopharma sector will hold up, Morgan Stanley acknowledges that the United States is a risk. The US could change drug pricing rules, which could hinder the sector.

The Street is also pessimistic about European equities heading into earnings. Barclays, a European bank, has said it’s “hard to get excited” about earnings on the continent.

Despite this wariness, Morgan Stanley urges that the defensive nature of the pharma sector will keep investors above water, even if other European stocks sink.

Which stock will have the best performance in 2024?

A New List for a New Year

Happy New Year From UBS

UBS is ringing in the new year with a list of stocks it has high hopes for in 2024.

The investment bank sifted, sorted, and named undervalued stocks built to withstand a turbulent macroeconomic environment.

Retail and Manufacturing

Target (TGT) is a retail stock included on the list. According to UBS, Target’s stock stands to benefit from increased sales, increased margins, and share buybacks coming in at a higher clip than expected.

On the manufacturing side, General Motors (GM) caught the investment bank’s eye. It admits that the company has had issues convincing customers that its current strategy will work, but the bank believes that increased margin on EVs will help the stock in 2024.

Teck Resources (TECK), a Canadian metals company, made the list due to its growing copper business and low geopolitical risk. UBS also feels the company's balance sheet is built for capital returns.

Technology

UBS also highlighted a few tech stocks, including Dell (DELL) and CrowdStrike (CRWD).

The main draw for Dell is cheap shares, despite share prices doubling over the last year. UBS is confident that the stock price has plenty more room to grow, fueled by market opportunities and stock buybacks.

The bank is also bullish on cybersecurity company CrowdStrike and expects a 5% growth rate in PC shipments. UBS feels CrowdStrike could be one of the best-positioned stocks in the cyber sector.

Investors can peruse recommendations from UBS and take notes for their portfolios.