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MongiIG

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  1. MongiIG
    Being one of the "Magnificent Seven" stocks which account for the bulk of the US indices’ gains year-to-date, its upcoming earnings may play a crucial role in determining the indices’ trend into year end.
    Source: Bloomberg   Shares Apple Inc. iPhone Revenue United States Artificial intelligence  
     Yeap Jun Rong | Market Strategist, Singapore | Publication date: Monday 30 October 2023 08:59 When does Apple Inc report earnings?
    Apple Inc is set to release its quarter four (Q4) financial results on 2 November 2023, after market closes.
    Apple’s earnings – what to expect
    Current market expectations are for Apple’s Q4 revenue to decline marginally by 1% year-on-year to US$89.3 billion versus US$90.1 billion a year ago.
    On the other hand, earnings per share (EPS) is expected to be at US$1.39, up 7.7% year-on-year and 10.3% from the previous quarter. Its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin is expected to improve to 32.2% as well, up slightly from the previous quarter’s 31.9%.
    Being one of the "Magnificent Seven" stocks which account for the bulk of the US indices’ gains year-to-date, its upcoming earnings may play a crucial role in determining the indices’ trend into year end.
    Apple generally has a strong record of outperformance, only failing to meet earnings estimates once over the past 20 quarters. That said, recent sell-off in big tech share prices despite delivering top and bottom beat reflects that market participants also have a high bar as to whether current earnings momentum can be maintained ahead.
     
    Source: Refinitiv  
    Apple’s hardware product sales may continue to struggle
    The Greater China market accounts for one-fifth of Apple’s revenue last year and thus far, there are not much conviction that demand on that front can hold up just yet. A report from Counterpoint Research suggests that iPhone 15 sales for the first 17 days of sales in China has underperformed last year’s iPhone 14 (an estimated 4.5% lower). Unit sales of the higher-end Pro Max and Pro are down 14% and 11% versus last year.
    Apart from attributing the weaker iPhone demand to cautious Chinese consumers, Huawei’s newly launched Mate 60 series has also proved to be strong competition. Reports suggest that Huawei’s smartphone sales growth has increased 37% year-on-year in Q3 2023 (versus Apple’s estimated 10% decline), as its new Kirin chips as a response to US tech sanctions seem to be well-received. If China’s recent efforts to restrict the use of iPhones for government officials and employees at state-owned enterprises were true, further US-China tech decoupling may remain a risk to China’s iPhone demand ahead.
    The bright side is that on the other end of the globe, reception for the iPhone 15 series in the US (Apple’s main market) may offer some cushion with estimated double-digit increases from a year ago. Current expectations are that the overall net effect may still drive a slightly lukewarm 2.4% year-on-year increase in iPhone revenue for the Q3 2023 results. On the other hand, other hardware products are expected to weigh for longer, with further contraction to be presented from a year ago (estimated iPad -14.6%, Mac -24.7%, other products -2.2%).
     
    Source: Refinitiv  
    Services business to remain the bright spot
    Perhaps not much of a surprise, in line with the prevailing trend, expectations are for the growth in Apple’s services business to continue accelerating to 11.4% year-on-year in Q3 2023, up from the previous quarter’s 8.2%. This segment has been the crown jewel for Apple in recent years, being its highest-growth and highest-margin business, along with a recurring revenue-generating model. It includes subscriptions, warranties, licensing fees and Apple Pay.
    Thus far, growth in its paid subscriptions continues to show strong momentum, rising by 150 million in the last year to surpass the one-billion mark and setting an all-time revenue record in the last reporting quarter.
    Guidance for growth catalysts on watch, but more for longer term
    Any guidance around Apple’s growth catalysts will also remain on watch to diversify the company’s revenue stream further away from iPhone sales (48.5% of total revenue) over the longer term. It has previously announced its Apple Vision Pro headset, which is expected to launch early next year.
    Apple is also tapping on its huge user base to include financial services as part of its ecosystem, offering a high-yield saving account program for Apple Card holders. Previous quarter’s guidance showed that customers were already making more than $10 billion in deposits.
    More notably, its work on generative Artificial Intelligence (AI) may be in greater focus. Given that the company is reportedly working on multiple AI models across several teams and investing millions of dollars per day, any fresh updates on any generative AI tools, models or services will be on close watch.
    Technical analysis – Trading below its 200-day MA for the first time since March 2023
    Apple’s share price has broken below its Ichimoku cloud support on the daily chart back in August this year and subsequent attempts to reclaim the cloud zone have been unsuccessful ever since. That seems to keep a downward bias intact for now, with its weekly Relative Strength Index (RSI) crossing below the key 50 level last week, while its closely-watched 200-day moving average (MA) has also given way.
    Buyers will now face the arduous task of having to reclaim the 200-day MA back in order to provide some conviction of near-term upside. Failing which, prices may potentially head lower to retest the US$161.04 level, where a near-term lower channel trendline may coincide with a key Fibonacci retracement level.
     
    Source: IG charts
       
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  2. MongiIG
    After last week’s market reaction, Anglo shares have now fallen by more than 40% over the past year. Is a buyout on the cards?
    Source: Bloomberg   Shares Commodities Anglo American plc United Kingdom Demand Glencore  
     Charles Archer | Financial Writer, London | Publication date: Monday 11 December 2023  Anglo American (LON: AAL) shares hit another 52-week low last Friday, falling to just 1,630p. Even having recovered to 1,825p today, the FTSE 100 miner has still lost more than 40% of its market value over the past year — leading to speculation that it could join the growing list of London-listed companies with a buyout target on its back.
    For context, Anglo shares were last changing hands at these levels in mid-2020 when it was recovering from the pandemic-mini-crash. And the miner hit 4,170p as recently as April 2022.
    Anglo American Performance Update
    Anglo American’s trading update — released late last week — saw the company announce that capital expenditure will be cut by a significant $1.8 billion to 2025 as part of what CEO Duncan Wanblad called ‘improving our resilience’ within the tighter macroeconomic environment.
    The FTSE 100 miner’s capex target for 2023 has been cut from $6 billion to $5.8 billion, with steeper cuts due in 2024. Despite the market reaction, it’s worth noting that Anglo is still investing in core projects, including the Woodsmith natural fertiliser mine in Yorkshire in addition to the Quellaveco copper mine in Peru.
    However, further funding for Woodsmith after next year will be contingent on board approval — expected to be decided in early 2025. And looking to 2025, Anglo is planning capex of just $5.7 billion, compared to the previous $5.8 billion to $6.3 billion expectation.
    While these cuts could see lower cash flow and perhaps smaller dividends in the future, arguably this cost discipline may stand the company in good stead through this higher rate environment. And it may be the first of many to cut back expenditure which was previously budgeted for in a lower rate, higher growth environment.
    More positively, Wanblad also notes that ‘looking ahead, the fundamental supply and demand picture for many metals and minerals is ever more attractive. Many of the world's major economies are focusing their resources on meeting global decarbonisation timelines and, as the global population grows, continues to urbanise and demands higher living standards, we expect unprecedented demand for responsibly produced raw materials.’
    In commodity terms, Anglo does have a more diversified asset base than its FTSE 100 compatriots. The company derives around a third of earnings from platinum group metals, and an additional 10% from diamonds. But both categories have been hit hard in 2023.
    And perhaps the bigger problem is the cut to copper production guidance — especially when the metal is expected to see demand rise through the 2020s. In August, Anglo said it was planning on generating at least 910,000 tonnes of copper next year — but this could now be as low as 730,000 tonnes. And predicted output in 2025 will now be even lower than 2024 at between 690,000 and 750,000 tonnes.
    FTSE 100 buyout target?
    While a buyout may be some time off, Anglo American has seen circa £30 billion wiped from its market capitalisation since Wanblad took the reins in April 2022.
    It’s underperformed other FTSE 100 miners for years and is set to face yet more problems this week as a South African court prepares to rule on whether a class action lawsuit concerning historical lead poisoning claims in Zambia can be brought against it.
    It’s worth noting that consolidation in the face of rising costs has been a significant theme of 2023 — Allkem and Livent, BHP and Oz Minerals, Newmont and Newcrest, Glencore and Teck — and Jefferies analysts consider that if Anglo’s share price ‘continues to lag’ it could become part of the ‘broader trend of industry consolidation.’
    The analysts note that Glencore-backed Xstrata (now fully part of Glencore) approached Anglo about a merger in the aftermath of the Global Financial Crisis, and argue that a merger today could be even more compelling than in the past due to ‘operating synergies, even greater marketing benefits, and a cost of capital arbitrage.’
    And with the share price in the doldrums, this leaves Anglo American as a potential buyout target in 2024.
    Past performance is not an indicator of future returns.

       
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  3. MongiIG
    After former CEO Bernard Looney’s exit, BP shares could be ripe for a takeover. Here’s why.
    Source: Bloomberg   Indices Shares BP FTSE 100 Big Oil Takeover  
     Charles Archer | Financial Writer, London | Publication date: Friday 13 October 2023  BP (LON: BP) shares have fallen by 10.5% over the past five years and sunk from 568p in mid-February 2023 to 499p today. The FTSE 100 oil major is a significant component of the index but could now be a buyout target.
    As ever, there’s always a bigger fish.
    BP shares: Q2 results and Looney exit
    In Q2 earnings, BP’s profits fell sharply by 70% year-over-year to $2.6 billion — missing analyst estimates due to falling oil trading income and refining margins.
    However, this underperformance was widely mirrored by competitors faced with the same comparators (the immediate aftermath of the start of the Ukraine War). And BP was still able to boost its dividend by 10% to 7.27 cents per share — and it also promised to repurchase $1.5 billion of shares over Q3.
    But for context, in May the company slowed its quarterly buyback programme from $2.75 billion to $1.75 billion, sending BP’s share price down the most in one day since 2020.
    Former CEO Bernard Looney enthused that the company’s ‘underlying performance was resilient with good cash delivery - during a period of significant turnaround activity and weaker margins in our refining business.’
    But shortly after this mixed set of results, Looney was forced to admit that he had not been ‘fully transparent’ over intimate relationships with employees — and this was followed with allegations that he had promoted women who he had had a relationship with — leading to a shock resignation.
    January FTSE 100 speculation
    Earlier this year, Citigroup analysts speculated that Exxon Mobil or Chevron might consider a buyout offer for the FTSE 100 oil major — with a megamerger looking attractive on valuation terms. The analysts argued that the comparatively lower valuations suffered by European oil and gas sector stocks couldn’t be closed organically — that ‘markets are unlikely to close the gap themselves.’
    They added ‘we look at the strategic imperative, financial accretion and political headwinds of either of the two US IOCs (Exxon or Chevron) potentially looking to try and acquire one of their key European competitors (BP, Shell or TotalEnergies).’
    This was a view shared by M&G head of equities Michael Stiasny, who in January noted that he ‘would not be shocked to see a big name in the oil and gas or mining sectors subject to a bid, with companies like BP trading at a significant discount to their US peers.’
    Further to this, BP shares have underperformed during Looney’s tenure — even if this was due to the investment needed for the start of its green strategy.
    Indeed, Bloomberg data indicates that the FTSE 100 company’s shares rose by 15%, while Shell’s market capitalisation increased by 29% in this time. Much of this lower growth has been laid at BP’s increased focus on the green transition compared to peers — arguably solid long-term investments, but which have left the company trailing the competition.
    RBC Capital Markets analysts have previously argued that the former CEO sold oil and gas assets (including Alaskan operations) ‘at poor points in the cycle and at relatively low valuations’ in order to fund renewables projects.
    With Looney out and interim CEO Murray Auchincloss now needing to project calm — including a need to balance BP’s strategic pivot away from greener energy in February with some investor disquiet — Q4 could see the American titans consider a move. Auchincloss argued in Abu Dhabi a few days ago that ‘one person leaving does not change the strategy’ set out in February — but not everybody is convinced.
    While acquiring the £85 billion company would be difficult even for a supermajor, it’s worth noting that the entire industry is one built on gigantic mergers; BP itself bought Amoco for $48 billion in 1998.
    Of course, new 2021 takeover rules allow the government to block a buyout on national security grounds — and it’s hard to see the government keen to allow yet another important UK company to leave London without a fight.
    FTSE 100 oil major takeover?
    But the macroeconomic picture could make a BP takeover an attractive prospect for the American firms. OPEC+ members Russia and Saudi Arabia have cut production to the end of the year, and the cartel’s secretary general argues that demand could grow by ‘about 2.4 million barrels a day.’
    Al Ghais has called underinvestment in the sector ‘dangerous’ — arguing that the industry will need close to $14 trillion of investment by 2045 to support the energy transition. With Brent still trading at elevated levels of circa $84/barrel, BP shares could well be a top FTSE 100 takeover target.
    Past performance is not an indicator of future returns.
         
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  4. MongiIG
    BT shares hold attractive defensive qualities, after posting strong Q1 results amid the tightening economic environment.
    Source: Bloomberg   Indices Shares BT Group Openreach Revenue Dividend  Charles Archer | Financial Writer, London | Publication date: Friday 13 May 2022  BT (LON: BT) shares have fallen by 43% over the past five years as the FTSE 100 telecoms stock lost ground to nimbler rivals.
    But 2022 recession warning signs are flashing red. The economy contracted by 0.1% in March, and the Bank of England has predicted inflation will rise to 10.2% later this year. The financial trickle away from growth sectors and towards defensive stocks is becoming a flood.
    And BT is a key beneficiary of these changing financial winds. At 176p today, it’s up 2% year-to-date. And the UK’s largest provider of fixed-line broadband and mobile services is comfortably outperforming the FTSE 100’s 2% drop.
    BT share price: full-year results
    FY22 earnings reflect BT’s economic resilience. Revenue fell by 2% compared to fiscal 2021, ‘reflecting revenue decline in Enterprise and Global offset by growth in Openreach.’ However, BT noted that while consumer revenue was flat, it should return to growth in Q4.
    However, adjusted EDITBA increased by 2%, as revenue decline was offset by lower costs resulting from its modernisation programme, cost management, and lower indirect commissions. Accordingly, profit before tax rose by 9% to £1.96 billion.
    Capital expenditure increased by 25% to £5.9 billion due to continued investment in the Openreach network. Hence, free cash flow fell by 5% to £1.4 billion.
    But positively, after reinstating dividends in November, its FY22 final dividend of 5.39p per share has brought the year total to the promised 7.7p. This leaves BT with an expanded and more profitable network backed by a healthy dividend.
    And encouragingly, BT’s gross pension deficit has fallen from £5.1 billion to £1.1 billion.
    Source: Bloomberg Where next for BT shares?
    BT anticipates adjusted revenue to now grow year on year, with adjusted EDITBA of at least £7.9 billion in FY23. And it expects to drive profitability through gross annualised cost savings of £1.5 billion, increasing its savings target to £2.5 billion by the end of FY25.
    Strategically, BT’s fibre-to-the-premises (FTTP) superfast internet had an annualised Q4 build rate of over 3 million premises. 1.8 million customers signed up through its Equinox partnership with Sky, TalkTalk, and eight other communications providers. CEO Philip Jansen enthused ‘Openreach continues to build like fury…with a strong and growing take-up rate of 25%.
    Progress is also ongoing with BT’s 5G network, which now covers 50% of the UK population. With its customer base now over 7.2 million, RootMetrics has again named BT as having the best 5G and 4G networks.
    BT has also signed a longer-term reciprocal channel supply deal with Sky, and a memorandum of understanding for Sky engineers to complete most of their FTTP in-premises provisioning activities on Openreach’s FTTP network.
    But headline news is that BT and Warner Bros. Discovery (WBD) have agreed to create a new premium sports joint venture that folds together BT Sport and Eurosport UK. Under the 50:50 agreement, BT will receive £93 million over three years, and a performance-based award of up to £540 million within the first four years. WBD CEO JB Perrette has already indicated he intends to buy out BT’s share in the future.
    Jansen believes the deal will align BT with ‘a new global content powerhouse,’ which could make it a stronger bidder for highly competitive sports rights. Edison Group analyst Dan Ridsdale believes ‘this extended offering will server BT well as customers start looking for ways to cut down expenditure.’
    The CEO has accepted that ‘the economic outlook remains challenging…inflation is very worrying.’ BT is increasing prices for most customers by an above-inflation 9.3%, at a time when many are cutting back. However, Jansen points out that the average price increase is only £35 a year, and lauded BT’s ‘great value for money’ as key to its low Ofcom complaints and churn rates.
    A more worrying front might be its trade union problem, with the Communication and Workers Union threatening strike action unless BT increases wages by 10%. Meanwhile, takeover rumours concerning French tycoon Patrick Drahi, who increased his 12% stake to 18% in December, continue to swirl.
    The CEO also has an £18 billion net debt mountain to contend with. And in the long-term, with revenue falling from £24.1 billion in 2017 to £20.9 billion in 2021, BT remains under pressure to increase bottom-line cash flow. However, Jansen remains ‘confident that BT Group is on the right track.’
    And with its reinstated dividend and strong defensive qualities, BT shares could represent an excellent recession-proof stock pick.
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  5. MongiIG
    The Hang Seng Tech Index, which tracks the 30 largest tech-themed companies listed in Hong Kong, has delivered a drawdown of as much as 68% since its February’s peak last year.
    Source: Bloomberg   Indices Shares China Risk Severe acute respiratory syndrome coronavirus 2 Hang Seng Index  Yeap Jun Rong | Market Strategist, Singapore | Publication date: Thursday 02 June 2022  Brief overview
    The Hong Kong Tech Index, which tracks the 30 largest tech-themed companies listed in Hong Kong, has delivered a drawdown of as much as 68% since its February’s peak last year. Although there were some attempts to stabilise in recent weeks with further policy support from authorities and easing Covid-19 restrictions, previous rounds of dip-buying were met with relatively short-lived relief rallies. This bodes the key question of when we can actually see an eventual bottom.
    From a valuation standpoint, the price-to-book ratio for the index currently stands at 0.96, which may seem to be at an attractive level on a longer-term timeframe, trailing way below the Nasdaq 100 index valuation of 6.7. That said, to provide a longer-term confidence boost for the sector, several uncertainties may be on watch.
    Some risks to watch
    1. Covid-19 risks
    While there has been some relief following China’s upcoming shift towards normalcy, its zero-Covid-19 stance remains in place, which points towards on-and-off economic restriction measures in the event of any virus outbreaks. Its low elderly vaccination rate and lopsided distribution of healthcare resources suggests that its strict position may not see a shift anytime soon. One may have to watch for a prolonged period of low virus cases, which may revive market confidence in the authorities to keep virus spreads under control and potentially put Covid-19 risks on the backseat. Additionally, we may have to see markets gradually adjusting their expectations around intermittent virus outbreaks, with any resilience in market performance to rising virus cases potentially a positive sign.
    2. Regulatory risks
    Just as dip-buyers carry some belief that regulatory reforms from authorities may be nearing its end, there have always been overnight surprises thrown in their way. While the hot-and-cool tone around the regulatory landscape continues to play out, one may have to watch for signs of a shift in tone from the authorities to potentially display some form of compromise. This will remain a black box, with the latest hurdle revolving around the potential delisting of Chinese tech firms from US stock exchanges. Previous talks have not seemed to lead to any concrete results, reinforcing the fact that it is a tricky issue to resolve.
    3. Global risk sentiments
    Global risk sentiments remain largely fragile in light of further tightening from central banks and the impending trade-off for economic growth. While China’s policies are deviating towards the accommodative end, any global risk-off mood may have a knock-on impact on performance in the region as well. With policy support and economic reopening, a stronger recovery in economic indicators over the coming months will be on watch ahead to gauge the impact of easing policy success and pent-up demand. That said, the huge drawdown for the Chinese tech sector since February last year has brought its valuation to near record low level, which may aid to limit the extent of losses from the global scale. The 20-day correlation between the Hang Seng Tech Index and the Nasdaq 100 Index has been negative since mid-May this year, and any divergence in performance ahead may be a positive sign of breaking away its influence from external factors.
    What can we expect in the near-term
    The KraneShares CSI China Internet ETF (KWEB) offers exposure to Chinese software and information technology, with its top few holdings comprising of Tencent Holdings (10.6%), Alibaba Group Holding (9.0%), Meituan (7.8%), JD.com (7.4%), Baidu Inc (6.9%) et cetera. From a technical perspective, equity bulls may be seeking to defend a key support line at the $26.00 level, which marked its bottom back in 2013 and 2015. While a previous symmetrical triangle pattern may denote some market indecision, a recent break out of the triangle this week may seem to suggest that buyers are seeking to regain greater control. That said, should the $26.00 fail to hold, it may point to the strong bearish pressure in place, opening the doors for further downside.
     
    Source: TradingView  
    On the monthly chart, a hammer candlestick seems to be in place, coming after three consecutive months of negative performance. That may potentially increase the chances of a near-term rebound, with one to watch for any confirmation close in the coming month.
     
    Source: TradingView  
    Technical analysis – Hong Kong Tech Index
    While the higher highs and higher lows for the Hong Kong Tech Index in recent weeks suggests an attempt for a near-term upward trend, a key resistance at the 4,500 level may need to be overcome in order to provide further upside. This is where a downward trendline since November last year stands in place with a horizontal resistance level, which weighed on the index on two previous occasions since April. In the event of a retracement, the 4,067 level may seem to be on watch for any formation of a higher low, where the lower trendline of an ascending channel pattern may serve as support.
     
    Source: IG charts
  6. MongiIG
    easyJet’s share price could be forced down further in Q4, after cutting flights amid an intense staffing crisis.
    Source: Bloomberg  Charles Archer | Financial Writer, London | Publication date: Wednesday 29 June 2022  easyJet (LON: EZJ) may market itself as a low-cost airline, but the FTSE 250 airline’s shares have been anything but cheap, regardless of when investors hopped in.
    The easyJet share price is down 27% over the past month, 48% in a year, and 66% over the past five years to 393p today.
    easyJet share price: summer update
    easyJet’s summer update made for grim reading. The airline warned that ongoing operational challenges, including ‘air traffic control delays and staff shortages in ground handling and at airports,’ and the ‘very tight labour market…compounded by increased ID check times’ is increasing ‘aircraft turnaround times and delayed departures which have a knock-on effect resulting in flight cancellations.’
    Attempting to put on a positive spin, it noted that it will operate 140,000 flights carrying 22 million passengers in Q3, a passenger capacity 550% higher than in Q3 2021. And the company enthuses that ‘demand for travel has returned with April and May passengers seven times the same months last year.’
    But in reality, easyJet cut 4,000 flights this quarter, reducing capacity to around 87% of pre-pandemic levels. Last month, it even began removing seats to reduce cabin crew staffing requirements.
    And it’s reduced Q4 capacity to 90% of pre-pandemic levels, a seven-percentage point fall from previous estimates. In other words, it’s cutting 11,000 flights affecting 1.5 million customers at the height of the most important season of the year.
    CEO Johan Lundgren has warned investors of a ‘challenging operating environment’ this summer and apologised for having ‘not been able to deliver the service (customers) have come to expect from us.’
    However, the airline noted that travel demand remains strong, with Q4 tickets already 48% sold with a 14% price premium. Accordingly, it argues that the ‘medium-term outlook for easyJet remains attractive.’
    Source: Bloomberg easyJet shares: staffing crisis
    easyJet’s staffing crisis is rapidly developing into a war on two fronts: recruitment and retention.
    On the recruitment front, easyJet is not the only airline complaining over government delays to the ID checking scheme that is a pre-requisite to begin training new employees.
    But the airline’s problems go deeper than this. Lundgren, careful to say he was ‘not blaming’ Brexit, has protested that the political separation means he had to reject the applications of 8,000 EU nationals.
    Aviation minister Robert Courts argues that Brexit had ‘little if anything to do with’ the current airline crisis. But easyJet’s CEO posits that ‘the pool of people is smaller, it’s just maths…pre-pandemic we would have turned down 2-2.5 per cent because of nationality issues. Now it’s 35-40 per cent.’
    On the retention side, easyJet’s UK operations could soon be hit with UK strikes as the summer of discontent begins to infect inflation-hit employees. But problems are already manifesting abroad.
    A critical internal letter from the easyJet branch of the French SNPL pilots’ union has accused the airline of ‘unprecedented chaos’ caused by widespread ‘operational meltdowns.’ The union is ‘convinced that our disruption hasn’t even peaked yet and frankly this is a frightening prospect,’ and further pilot ‘mental health is at stake.’
    Devastatingly, it’s even claimed ‘we have seen some cancellations which were avoidable: crew ready to go, serviceable aircraft, passengers ready, but ICC (easyJet’s integrated control centre in Luton) lacks the local picture.’
    In a blistering attack that will doubtless chime with many investors, they asked Lundgren: ‘How many pennies did we save with all these loyal employees, flight attendants and crewing/rostering/flight planning staff being made redundant? How many hundreds of millions will this cost?’
    Concurrently, members of the Spanish USO union are demanding a 40% basic salary increase for cabin crew, and are planning three 72-hour strikes beginning 1 July. The union claims that the Spanish cabin crew team’s basic monthly income is around €850 lower than in other European countries.
    But despite the issues, the airline has a strong long-term investment case. Staff shortages are not unique to easyJet, and Berenberg analysts argue it will benefit from increased pricing power as its rivals are also forced to cancel flights.
    And with easyJet sitting on £4.4 billion of capital, it retains sufficient financial firepower to outlast the current problems. It could even grow market share if smaller competitors collapse.
    Moreover, Morgan Stanley thinks easyJet could benefit from the cost-of-living crisis, with consumers downgrading their flight options rather than sacrificing their annual holiday abroad. And HSBC analyst Andrew Lobbenberg notes that easyJet has ‘decent fuel and US dollar hedging’ compared to some rivals.
    But with the wings of the summer recovery clipped, easyJet shares may fly lower near term.
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  7. MongiIG

    Are FAANG stocks worth watching in 2022?

    By MongiIG,


    Market News
    Facebook, Amazon, Apple, Netflix, and Google are five of the largest companies in the world. Could they grow even further as the global economy reopens?
    Source: Bloomberg   Shares Big Tech Google Revenue Investment Cloud computing  Charles Archer | Financial Writer, London | Publication date: 26 December 2021  The term ‘FAANG’ was first coined in 2013 by the CNBC network host Jim Cramer, who described the companies as ‘totally dominant in their markets.’ The abbreviation refers to Facebook (now Meta), Amazon, Netflix, Google (now Alphabet), and latecomer Apple, which was added to the acronym in 2017.
    Together they make up five of the top 10 largest companies in the world by market cap. Apple alone is worth a staggering $2.9 trillion, and together the five are worth around a fifth of the US’s benchmark S&P 500 index.
    With all five listed on the NASDAQ, there are two competing theories over the long-term future for FAANG stocks. Some investors consider them prime targets for an eventual tech bubble pop. Others believe that their overwhelming market dominance could see them rise significantly higher.
    However, what is universally acknowledged is that the FAANG stocks aren’t going anywhere anytime soon. And this makes them excellent candidates for long-term investing. Of course, no investment is entirely risk-free. From the Tulip mania of 1637 to the pandemic-induced mini-crash of March 2020, market corrections are weaved into the fabric of investing. But over the long term, share prices have risen exponentially. In fact, the S&P 500 is up 3,756% since its inception in 1981.
    And while UK FTSE 100 stocks are also prime candidates for ultra-long-term investment, it’s worth bearing in mind that of the original 100 companies that made it onto the index in 1984, less than a third are still there. Of course, some argue that index investing is a better choice than investing in individual companies. However, others think it’s better to sacrifice some stability for better returns. A middle ground could be to invest in one of the many Exchange Traded Funds (ETF) available on IG which invests heavily in the FAANG stocks.
    2022 stocks: advertising giants
    With a $1.95 trillion market cap, Google (Alphabet) has become a colloquial verb. To ‘google it’ is synonymous with internet search, and Q3 results demonstrate this internet giant’s advertising power. The YouTube owner’s revenue rose to $65.1 billion, up from $46.1 billion in the same quarter last year, while net income rose from $11.2 billion to $18.9 billion. And the lion’s share of this revenue ($53.1 billion) came from advertising, compared to $37.1 billion in the same quarter last year.
    Moreover, CEO Sundar Pichai highlighted that as the ‘digital transformation and shift to hybrid work continue, our Cloud services are helping organizations collaborate and stay secure.’ Cloud revenue rose to $5 billion, up from $3.4 billion a year earlier. And as few other operators have the financial capacity to compete in the cloud computing space, it has a massive opportunity to grow further. However, anti-trust lawsuits could be its biggest future problem, having recently lost an anti-trust appeal against an EU-imposed fine for prioritising its own price comparison shopping service over its rivals.
    The second FAANG stock at $335 per share, and with a near trillion-dollar market cap, is Facebook (Meta) (NASDAQ: FB). It’s is the largest social media company in the world— in Q3 results, its revenue rocketed by 35% to $29 billion, and its unique daily active users increased 11% to 2.81 billion people. That’s nearly half the population of the planet. Moreover, revenue guidance for Q4 is between $31.5 billion and $34 billion. The company has maintained has a cash balance of more than $58 billion, which it’s likely going to use to transform itself into the centre of the ‘metaverse,’ a third-generation virtual reality internet. And with recent acquisitions of Instagram and WhatsApp, its pole position is unlikely to be challenged in the medium term.
    Source: Bloomberg FAANG stocks: selling and streaming
    Apple (NASDAQ: AAPL) can be bought for $176 a share. The world’s most valuable company is best known for its iPhone and MacBook brands, high-end luxury products bought by legions of consumers with ‘unmatched customer loyalty.’ In Q4 results, it reported revenue of $83.4 billion, up 29% compared to the same quarter last year. CEO Tim Cook spoke of its ‘most powerful products ever…setting a new standard for performance,’ while CFO Luca Maestri emphasised that the company set ‘new revenue records in all of our geographic segments and product categories.’
    The company returned $24 billion to shareholders over the quarter, with a cash dividend of 22 cents per share. Moreover, Morgan Stanley analyst Katy Huberty has set a target of $200 on the stock, arguing that innovative products such as its virtual reality headset and self-driving car could see it soar further in 2022.
    With a $1.75 trillion market cap, Amazon (NASDAQ: AMZN) shares are up 8% over the past year. But at $3,421 right now, they’re 7% down on their November peak. In common with Google, the largest e-commerce company in the world is also used as a verb. In Q3 results, it boasted a net sales increase of 15% year-over-year to $110.8 billion. And since the pandemic began, the e-retailer has doubled the size of its fulfilment centres, as global lockdowns gave it an unprecedented chance to gain market share while its physical rivals were closed by law. Like Google, it’s also a major player in cloud computing services, with its AWS division growing 39% year-over-year. Of course, retail is fiercely competitive, and competitors eBay, Alibaba and Wal-Mart are always vying for market share.
    Finally, at $614, the Netflix (NASDAQ: NFLX) share price is up 400% over the past five years. The company is famous not only as the pioneer of streaming services but also for its unique original content, such as Stranger Things, Bridgerton and The Witcher. Its most-watched show, Squid Game, has become a global phenomenon, with ‘142 million viewers in the first few weeks.’ Competition from Disney+ and Amazon Prime remains a threat to its market share, but in Q3 results, the streamer grew revenue 16% year-over-year to $7.5 billion, while operating income rose 33% to $1.8 billion. And expecting its ‘strongest Q4 content offering yet,’ it added 4.4 million subscribers in the quarter, bringing the total to 214 million. And it's projecting a further 8.5 million in Q4.
    The FAANG stocks may be in a bubble. Or they could have much further to grow. But with such unbeatable market dominance, they’re stocks to watch in 2022.
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  8. MongiIG
    FTSE 100 fledgeling Haleon could become an attractive option for defensive portfolios if it can resolve the liability problems it faces over Zantac.
    Source: Bloomberg   Indices Shares GlaxoSmithKline Ranitidine FTSE 100 Pfizer  Charles Archer | Financial Writer, London | Publication date: Wednesday 21 September 2022  Haleon's (LON: HLN) Initial Public Offering only launched on 18 July. The spin-off, comprising assets once owned by GSK and Pfizer, is now the world’s largest standalone consumer healthcare business, controlling global brands including Sensodyne, Panadol, and Centrum.
    Debuting at 330p per share, the FTSE 100 company has now fallen to 269p, leaving it with a market cap of just under £25 billion. Carrying £10.7 billion of net debt, Unilever’s rejected £50 billion offer earlier this year may now look a mistake to many long-term investors.
    However, CEO Brian McNamara believes the step only the first of an ‘incredibly exciting journey,’ arguing Haleon is ‘strongly positioned’ having generated £9.5 billion of sales in 2021.
    Haleon share price: H1 2022 results
    Haleon delivered solid numbers in half-year earnings. Revenue increased by 13.4% to £5.12 billion, with Panadol, Theraflu, Otrivin, Advil and Centrum sales ‘particularly strong.’ And two-thirds of its business sectors gained or maintained market share in the half.
    Encouragingly, e-commerce sales saw growth ‘in the high teens’ to 9% of total sales. And adjusted operating profit rose by a significant 21.2% to £1.19 billion, while adjusted operating margin rose by 150 basis points to 23%.
    McNamara was ‘incredibly proud’ of the FTSE 100 company’s performance, noting that ‘Haleon performed strongly in the first half of the year with double digit revenue growth, importantly with a healthy balance of price and volume/mix reflecting brand strength across our portfolio.’
    Looking forward, the company argues that the ‘positive momentum seen in the first half of the year has continued into the third quarter, albeit at a slower rate as expected, underpinning our guidance for FY2022 organic growth of 6-8%.’
    And it thinks ‘the business is well positioned to navigate the current macro-economic challenges including rising inflation and the potential impact this may have on consumer behaviour in the future.’
    Haleon’s pole position in the consumer healthcare sector could help it weather the wider recessionary environment and associated cost-of-living squeeze.
    According to PAGB, the UK trade association for OTC medications and supplements, consumers turned to brands during the pandemic as despite ‘early signs of recessionary behaviours...trust remains an important factor...in the uncertainty of 2020, trusted brands performed better than private label self-care products.’
    On financial results, outlook, and its brand portfolio alone, Haleon could be a decent defensive portfolio constituent, especially given its share price correction.
    Source: Bloomberg FTSE 100 stock: The Zantac question
    However, there is one large question mark hanging over the FTSE 100 company — namely, its legal liability over the Zantac heartburn drug.
    Over 2,000 legal cases have been filed in the US over Zantac, with accusations that it acts as a carcinogen. And it has been sold by a plethora of healthcare groups, including GSK and Pfizer. However, Haleon does not believe itself liable for any of the legal claims, having never marketed Zantac in the US either as Haleon or as GSK.
    In Haleon’s results, it told investors it ‘has notified GSK and Pfizer that it rejects their requests for indemnification on the basis that the scope of the indemnities set out in the joint venture agreement only covers their consumer healthcare businesses as conducted when the JV was formed in 2018.’
    And in an interview with Reuters, McNamara insisted that even if any lawsuit were successful, Haleon had never agreed to accept a share in the liabilities, emphasising ‘it was important that all our shareholders were aware of that stance.’
    The uncertainty over this potential liability has been central to Haleon’s share price fall since its IPO. Similar cases have ended with billion-dollar settlements. At a minimum, Credit Suisse has estimated pre-tax Zantac loss liabilities for Haleon would be around $200 million to $400 million.
    For its part, GSK argues ‘we do not agree with Haleon’s position... there are grounds for it to bring indemnification claims in respect of certain potential liabilities, including against Haleon.’
    As the battle for liability will revolve across multiple legal grounds, and potentially in two jurisdictions, the outcome for the FTSE 100 stock is far from clear.
    But a resolution in its favour could see a sharp recovery.
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  9. MongiIG
    After mixed Q1 results, Lloyds' overexposure to the UK housing market remains a key risk for the FTSE 100 bank.
    Source: Bloomberg   Shares Lloyds Banking Group Bank Mortgage loan Interest Interest rates  Charles Archer | Financial Writer, London | Publication date: Thursday 28 April 2022  Prior to the covid-19 pandemic crash, Lloyds (LON: LLOY) shares were changing hands for 64p, before falling by 61% to 25p by September 2020.
    But as the Bank of England raised interest rates in December amid the waning pandemic, Lloyds’ share price rose to 55p by 17 January. But by 7 March, it had again fallen to 41p, as confidence fell due to the Russia-Ukraine war.
    And at 46p today, the FTSE 100 bank remains below its pre-pandemic price point, despite comparatively strong financial results, an attractive price-to-earnings ratio of 6, and an above-average dividend yield.
    Lloyds share price: Q1 results
    Lloyds declared Q1 2022 a ‘solid financial performance.’ Statutory profit after tax fell by 14% or £200 million year-over-year to £1.2 billion, ‘reflecting higher net income and a limited underlying impairment charge versus a net credit in the prior year.’ However, underlying profit before the impairment rose by 26% to £1.96 billion.
    Meanwhile, net income rose by 12% to £4.1 billion, primarily driven by net interest income, which rose by 10% to £2.95 billion. The bank apportioned ‘stronger banking net interest margin of 2.68%’ to base rate increases, structural hedge earnings from the rising rate environment, deposit growth, and continued capital base optimisation.
    Accordingly, loans and advances rose by £3.2 billion to £451.8 billion, including mortgage book growth of £1.7 billion to £295 billion. And customer deposits rose by £4.8 billion to £481.1 billion.
    Boasting a robust loan to deposit ratio of 94%, Lloyds now expects its net margin to increase slightly to 270 basis points and tangible equity to hit 11%, one percentage point higher than its previous target. However, its CET1 ratio fell from 16.3% in 2021 to 14.2%, which Lloyds blamed on regulatory changes.
    CEO Charlie Nunn believes the bank ‘delivered solid financial performance, with strong income growth and capital build. These results demonstrate the consistent strength of our business model.’
    Source: Bloomberg Where next for Lloyds shares?
    Despite another solid set of results, Nunn warned that ‘the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation.’
    Moreover, he added that Lloyds is ‘proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support.’ While standard practice, it’s striking that the CEO felt the need to call attention to financially fragile customers in earnings results.
    And worryingly, CFO William Chalmers believes debt arrears could soon rise, saying ‘we’re likely to enter into a tougher environment and expect impairments to tick up a little bit.’ Accordingly, Lloyds has booked an impairment charge of £177 million.
    More optimistically, Lloyds is continuing with plans to create a $4 billion portfolio of 50,000 rental homes over the next decade to become the UK’s largest landlord. But the bank is already the largest mortgage lender in the UK. And this increased investment in the housing market could become a problem.
    According to Rightmove, the average asking price has risen by £19,082 in the past three months alone to £360,101. Meanwhile, selling times have halved in the past three years to just 33 days.
    But Capital Economics Chairman Roger Bootle has warned that ‘people in general are getting over-stretched in the valuations they’re placing on housing as an asset and the obligations they’re taking on with mortgages.’ The consultancy believes house prices will rise by a further 9% in 2022, before falling 3% in 2023 and 1.8% in 2024.
    Moreover, Chancellor Rishi Sunak predicts that the average annual mortgage payment will rise by £1,000 and that the base rate will increase to 2.5% in 2022. Affordability is already at an all-time low and house prices at an all-time high on virtually all metrics.
    To diversify its business, Lloyds is investing £4 billion into its investment banking and wealth management divisions over the next five years, with a view to generate more income from fees that are not UK-dependent. Of course, it’s up against established competitors like Barclays and HSBC for market share. This is not a risk-free venture.
    The bank does have a strong balance sheet and can afford this expansionary effort. However, the last time the housing market corrected was during the financial crash in 2008. Lloyds was eventually forced to issue over 50 billion shares, diluting shareholders by a factor of 10.
    And as the pandemic and Ukraine war continue to drive inflation, a third economic shock event could send house prices falling, and the Lloyds share price with them.
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  10. MongiIG
    Nvidia shares have rocketed in 2023 as investors seek the capital growth of the AI revolution. Is this just another bubble?
    Source: Bloomberg   Indices Shares Nvidia Artificial intelligence S&P 500 Cloud computing  Charles Archer | Financial Writer, London | Publication date: Tuesday 30 May 2023  In April 2007, Microsoft CEO Steve Ballmer famously argued that ‘there’s no chance that the iPhone is going to get any significant market share. No chance.’ Of course, he wasn’t the first tech leader to make a spectacularly wrong prediction, and he certainly won’t be the last.
    But considering the recent trajectory of Nvidia (NASDAQ: NVDA) shares, it may well be that the NASDAQ tech company is now operating within a bubble.
    It’s up 172% year-to-date, more than tripled since a low of $112 in early October 2022, and has risen by 500% in five years. It’s also worth noting that it participated in the tech stock crash between November 2021 and October 2022, falling from $330 to $112 in the space of a year.
    A similar fall isn’t impossible in the near future.
    Nvidia Q1 results
    If you take a macro look at S&P 500 returns in 2023, Société Générale SA strategist Manish Kabra recently noted that ‘the AI boom and hype is strong...so strong that without the AI-popular stocks, S&P 500 would be down 2% this year.’ Indeed, the index is up 10% year-to-date, but entirety of this return is comprised of just seven tech-focused companies.
    Last week, Nvidia’s Q1 results saw it add $200 billion to its market cap in a single day of trading. For context, the proposed US debt ceiling deal involves just $50 billion in spending cuts. The company has broken through the $1 trillion market capitalisation barrier, and trades on a sky-high price-to-earnings ratio of 213.
    It’s worth putting this valuation in context. Full-year fiscal 2023 saw NVDA generate $26.97 billion, essentially flat on fiscal 2022. GAAP earnings per diluted share were $1.74, down 55% from a year ago.
    And in this most recent quarter, the AI stock delivered $7.2 billion in revenue, much higher than its previous guidance for $6.5 billion. But revenue was still 13% lower than in the same quarter last year. However, adjusted earnings rose by 28% to $0.82 per share.
    Much of the improved performance came from the data centre business, which saw revenue surge by 14% year-over-year to a record $4.28 billion. CFO Colette Kress enthuses that ‘Multiple CSPs announced the availability of H100 on their platforms, including private previews at Microsoft Azure, Google Cloud, and Oracle Cloud Infrastructure, upcoming offerings at AWS.’
    Further, CEO Jensen Huang noted that ‘our entire data centre family of products — H100, Grace CPU, Grace Hopper Superchip, NV Link, Quantum 400 InfiniBand and BlueField-3 DPU — is in production. We are significantly increasing our supply to meet surging demand for them.’
    Where next for Nvidia shares?
    Nvidia is issuing forward guidance of $11 billion in this current quarter, a huge increase on recent analyst estimates of circa $7.2 billion and the $6.7 billion revenue of Q2 FY23. Encouragingly, it’s also anticipating a non-GAAP gross margin of 70%, a huge improvement on the 46% margin achieved in the same quarter last year.
    Nvidia’s market position as the ‘picks and shovels’ AI share can look attractive. Polaris analysis estimates that generative AI could see annual growth of 34% over the next ten years and rise to $200 billion in annual revenue by 2032. McKinsey thinks that AI could add $13 trillion to the global economy by 2030, while Ark Investment thinks this could be as high as $200 trillion.
    FactSet research shows that management teams on 110 different S&P 500 companies discussed AI in their latest earnings calls. Many of these companies are non-tech sector, suggesting there could be about to be a huge shift in computing.
    Nvidia has also just announced a slew of new technologies; the Spectrum-X designed to ‘improve the performance of Ethernet-based AI clouds,’ a content engine designed to make high quality commercials at low cost, and the NVIDIA DGX supercomputer for advanced generative AI language applications.
    While ChatGPT and the associated buzz does appear to be a real breakthrough, I am developing a creeping sense of Déjà vu. Tech stocks love their buzzwords; in 2022, it seemed as if start-ups simply needed to mention blockchain, crypto, the Metaverse, disruptive tech, Web3, or DeFi, and investors would open up their wallets.
    This didn’t always end well.
    It was only a few short weeks ago that Silicon Valley Bank and Credit Suisse collapsed. Inflation is still uncomfortably high, and interest rates are still rising. Tech stock growth is usually restricted when monetary policy tightens, and Crunchbase data shows that 146,192 tech employees have been laid off so far this year. Many analysts are still expecting that the US will shortly enter into recession.
    Nvidia may be a game-changing opportunity. But it might also be in the eye of the storm.
  11. MongiIG
    Is NVIDIA's share price in the process of bottoming out?
    Source: Bloomberg   Shares Nvidia Graphics processing unit Price Price–earnings ratio Recession  Axel Rudolph | Market Analyst, London | Publication date: Monday 27 June 2022  NVIDIA's share price showing first signs of bottoming out
    With NVIDIA Corp (All Sessions) shares trading over 50% lower compared to last year’s peak but in one-week highs and having for the first time risen above their three-month downtrend line at $167.40, is now the right time to invest in the chipmaker’s shares?
    The semiconductor company’s late May first quarter (Q1) results showed record data centre and gaming revenues alongside solid guided fiscal 2023 second quarter performance, anticipating $8.1 billion in revenues, a near 25% year-on-year increase. With this in mind, it may be of interest to buy the company’s shares at current levels.
    Sales for the first quarter of 2022 at the US’s largest chip maker rose 46% to $8.29 billion, up 8% on the previous quarter and its data centre business ended fiscal 2022 on revenue of $13 billion, compared to just $5 billion two years previously.
    With a price-to-earnings ratio (P/E) close to 40, compared to over 100 at its peak in 2021, the share remains expensive compared to the broader market – the US 500 historically trades at a P/E of around 15 – but there is still huge potential revenue growth for the world’s market leader in “dedicated” Graphics Processing Units (GPUs) (as opposed to the ones being built into computer processors).
    According to the research firm, McKinsey the global market for semiconductors could grow $600 billion to $1 trillion by 2030 as Artificial Intelligence (AI), self-driving vehicles, blockchain, cryptocurrencies and the Metaverse require processing power.
    NVIDIA's share price withstands downside pressure despite recession fears
    The fact that the NVIDIA share price slipped back to but held marginally above its $152.36 May low despite increased global recession fears which would negatively impact its growth prospects, is a positive for the bulls.
    Source: ProRealTime  
    In May the company’s founder and CEO, Jensen Huang, said despite “the backdrop of a challenging macro environment…the effectiveness of deep learning to automate intelligence is driving companies across industries to adopt NVIDIA for AI computing.”
    He added that NVIDIA is gearing up for “the largest wave of new products in [its] history with new GPU, CPU, DPU and robotics processors ramping in the second half.” He believes his company’s new chips and systems will “greatly advance AI, graphics, Omniverse, self-driving cars and robotics, as well as the many industries these technologies impact.”
    Embryonic signs of a bullish technical reversal
    It is early days yet but the fact that the NVIDIA share price is trading in one-week highs and, more importantly, has for the first time risen above its three-month downtrend line, is encouraging for those wanting to buy the company’s shares.
    This comes after the NVIDIA share price, for the second time in as many months, managed to bounce off the major long-term $153.19 to $147.07 support zone which consists of the August, November 2020 and February 2021 highs.
    It is thus still possible that an Elliott Wave A, B, C correction lower to the downside ended in May. If this were to indeed be the case, an eventual rise above the November peak at $345.92 should ensue.
    Immediate upside targets are seen at the April low, mid-May high and along the 55-day simple moving average (SMA) at $181.65 to $183.57, a rise above which would lead to the early June high at $197.63 being targeted.
    Source: ProRealTime  
    A medium-term bottoming formation would be confirmed by a daily and weekly chart close above the slightly higher January-to-March lows and the early May high at $203.80 to $208.84 being exceeded.
    If so, the 200-day SMA at $238.22 would be back in the firing line.
    The $203.80 to $208.84 resistance area is key for the medium-term trend as failure around it and a subsequent drop through the $153.19 to $147.07 support zone would mean that the current advance has simply been another corrective countertrend move with the downtrend, which began in November, in this scenario expected to continue over the coming months, targeting the 200-week SMA at $120.97.
  12. MongiIG
    Rolls-Royce shares are still hailed the FTSE 100 ‘jewel in the crown’ of British engineering. But the short-term focus will be on cash flow and civil aerospace.
    Source: Bloomberg   Indices Shares FTSE 100 Roll-Royce Debt Interest    Charles Archer | Financial Writer, London | Publication date: Monday 07 November 2022 Six months ago, Morgan Stanley judged Rolls-Royce (LON: RR) shares as ‘woefully mispriced,’ with the FTSE 100 company’s earnings recovery ‘much closer than the market has priced in, while earnings and cash flow are directly geared to the next leg of a global aviation recovery.’
    At the time, this could have been a sound judgement. Rolls has made exceptional strides forward in technological development, including its world record-breaking all-electric plane, ultra-efficient power gearbox, and politically supported plans to develop small modular nuclear reactors.
    But Rolls-Royce’s share price fell from 94p in mid-July to just 66p by 12 October. And this isn’t the first time the FTSE 100 stock has disappointed investors, having fallen by 74% over the past five years and 34% year-to-date.
    But it's also up by 17% over the past month to 83.5p. This begs the question: can Rolls-Royce shares still make a claim for the buying opportunity of the FTSE 100?
    Rolls-Royce share price: trading update
    Last week’s trading update provided investors with some needed good news. The FTSE 100 company lauded its ‘continued recovery,’ with ‘record order intake in Power Systems, large engine flying hours at 65% of 2019 levels in the four months to the end of October and up 36% year to date.’
    Perhaps in response to increased geopolitical threats, and specifically to the Ukraine war and Taiwan tensions, Rolls also saw two five-year defence contracts renewed, securing $1.8 billion of continued aftermarket services.
    And encouragingly, it has finally completed its €1.6 billion disposal of ITP aero, using the proceeds to repay a £2 billion 2025 UK Finance-backed floating rate loan, that could have become rapidly more expensive as rates rise. Outgoing CEO Warren East enthuses that the reduction of £2 billion of its debt marks a ‘milestone recovery in the strength of our balance sheet, and a clear step on our path back to investment grade in the medium term.’
    While Rolls-Royce’s drawn debt has now reduced to £4 billion, the majority matures between 2026 and 2028, and none before 2024. Importantly, the FTSE 100 company has made clear that ‘all drawn debt is on fixed interest rate terms and hedged into GBP executed in 2019 and 2020 during the low interest rate environment. We do not anticipate raising drawn debt for near term loan refinancing.’
    East argues that ‘the continued recovery in large engine flying hours, record order intake in Power Systems and a resilience in the Defence business give us confidence in the future.’
    Source: Bloomberg FTSE 100: where next for Rolls-Royce shares?
    First off, Rolls-Royce has left FY22 guidance unchanged despite rising inflation and the wider cost-of-living crisis. And the CEO thinks the ‘more agile operations and sustainably lower cost base position us well for the uncertain pace of the recovery from the pandemic, market volatility and changes in economic conditions.’
    Beyond this, the investment case could be looking promising. The pandemic saw the FTSE 100 company lose billions. Now Rolls is on the verge of breaking even, and could even be cash flow positive by the end of the year.
    Further, global defence spending is accelerating, and the FTSE 100 company should stand to benefit both from the high barriers to entry, and government favour by dint of its golden share.
    The Power Systems division is seeing ‘continued high levels of demand …driving an exceptionally strong order book, with a record order intake year to date in 2022 and good revenue cover for 2023 and beyond.’ This includes an order for more than 500 mtu engines for the UK's Boxer armoured vehicle and 16 gensets for four new frigates for the German Navy.
    And its New Markets sector — including electric projects and small nuclear reactors — has significant future potential, which could one day supercharge revenue.
    But civil aerospace — which builds and maintains aircraft engines — is the division responsible for the bulk of Rolls-Royce’s profit. And as the global economy spirals into recession, the FTSE 100 company still needs this sector to recover from the pandemic.
    Happily, despite squeezed consumer finances, large engine flying hours have already recovered to 65% of pre-pandemic levels in the four months to October and are up by 36% year-to-date.
    As evidenced by IAG’s Q3 results, US and European aviation have largely recovered, while demand in China and Asia remains suppressed due to ongoing coronavirus measures. With whispers circling that Beijing could abandon its ‘zero-covid’ strategy, increased flying hours in the region could translate to a revenue boost in Rolls’ biggest segment.
    But there are no dividends on offer until 2023, a condition of its loan terms, and of its negative equity position. This means Rolls-Royce investors are depending on capital appreciation.
    A challenge for incoming CEO Tufan Erginbilgic, who hopes to see Rolls-Royce shares restored to their former glory.
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  13. MongiIG
    Rolls-Royce shares could be undervalued at 91p given its technological breakthroughs, new defence contracts, and the recovering civil aviation sector.
    Source: Bloomberg   Indices Shares Roll-Royce FTSE 100 Engine Aviation
     Charles Archer | Financial Writer, London | Publication date: Thursday 08 December 2022  Rolls-Royce (LON: RR) shares have not been a strong long-term investment. Down by 68% over the past five years, it remains one of the few FTSE 100 companies unable to return close to its pre-pandemic price point.
    For context, the FTSE 100 is currently trading at 7,489 points, above the 7,467 points of February 2020 before the pandemic began. However, Rolls-Royce’s share price has been rising over the past few weeks, having recovered from a low of 66p in mid-October to 91p today.
    And with momentum on its side, a further sustained rise to the 230p it commanded before the pandemic crash could now be on the cards for 2023.
    FTSE 100: Rolls-Royce 2023 tailwinds
    The most important near-term catalyst for Rolls is a recovery in its civil aviation sector, which generates circa 44% of the FTSE 100 company’s revenue. In November’s encouraging trading update, it announced both a record intake in Power Systems, and that large engine flying hours, the critical metric for civil aviation, are at 65% of pre-pandemic levels and up 36% year-to-date.
    Its second most important division has also seen good news recently. Two 5-year contracts in its defence division secured $1.8 billion of continued aftermarket services earlier this year. And it’s also set to benefit from a recent US army contract to supply the engines within Textron’s Bell V-280 Valor helicopter. Jefferies analysts believe the contract could be worth ‘up to $5bn to $6bn in production and $6bn to $7bn in services assuming 5,000 installed engines are delivered.’
    Given the increased global tensions caused by the Ukraine War, defence spending has increased significantly this year, and is likely to continue to do so through 2023.
    And outgoing CEO Warren East believes that ‘the continued recovery in large engine flying hours, record order intake in Power Systems and a resilience in the Defence business give us confidence in the future.’
    However, this day-to-day revenue is unlikely to send Rolls-Royce shares soaring. But the FTSE 100 company is at the forefront of UK technological engineering which could. Over the course of 2022, it’s seen multiple breakthroughs that could have the potential to supercharge the company in the medium term.
    To start with, there’s its UltraFan power gearbox program, which has been designed to save up to 25% more jet fuel when compared to the current industry standard.
    And there’s been some development with its proposed small modular nuclear reactors: according to the Sunday Telegraph, Rolls is in talks with INEOS to build a SMR at the chemical giant’s Scottish refinery. The engineer has also called for formal government funding talks, arguing that the long lead time from planning to energy generation leaves no time to waste.
    Then there’s its advances in planes powered by renewable electricity. 2022 saw Rolls develop the ‘Spirit of Innovation,’ an all-electric plane which has shattered previous world records for speed and ascent. And last month, its partnership with easyJet saw it break yet another aviation milestone, running the world’s first modern aero engine on hydrogen. Test flights could be seen in the near future.
    Source: Bloomberg Rolls-Royce headwinds
    Of course, there’s a reason RR shares are changing hands for under £1. A key issue is its £4 billion drawn debt pile, and the £1.6 billion loss it suffered in H1 2022.
    However, this isn’t an immediate issue, as the majority of this debt matures between 2026 and 2028, and none before 2024. And the FTSE 100 company has told investors that ‘all drawn debt is on fixed interest rate terms and hedged into GBP executed in 2019 and 2020 during the low interest rate environment.’
    This gives it some time to turn around its fortunes. Indeed, East notes that ‘the completion of our disposal programme with the sale of ITP Aero has enabled us to repay £2bn of debt. This marks a milestone recovery in the strength of our balance sheet, and a clear step on our path back to investment grade in the medium term.’
    It’s worth noting that recent losses have fallen fast, and the company expects the all-important civil aviation to continue to recover through 2023. While EU and US flights have almost completely recaptured pandemic-era lost ground, Chinese aviation has fallen behind due to the country’s ‘zero-covid’ policy. And with the policy starting to relax, there’s reason to be positive for further recovery.
    Naturally, it’s worth noting that long-term Rolls-Royce investors have been waiting for a breakout for years. And with its CEO on the verge of departure, and a long recession imminent, it could take time for the stock to regain its strength.
    But increasing contracts and developing tech could make it one of the best FTSE 100 stocks to watch in 2023.
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  14. MongiIG
    Rolls’ shares rocketed in 2023, buoyed by improved financial fortunes as it reaped the fruits of CEO Tufan Erginbilgic’s turnaround strategy. Where next?
    Source: Bloomberg   Indices Shares FTSE 100 Roll-Royce Stock Investment
     Charles Archer | Financial Writer, London | Publication date: Monday 15 January 2024 18:30 Rolls-Royce shares soared by circa 220% in 2023, buoyed by recovering civil aviation, increased state defence spending, and a newly appointed energetic CEO with a clear turnaround strategy. Indeed, Rolls was the top performing large cap stock in Europe last year as measured by the Stoxx Europe 600 index.
    For context, Marks & Spencer — which re-entered the FTSE 100 last year — returned ‘just’ 120%. However, while Rolls shares are now changing hands just above the 300p mark, multiple brokers consider that the company has further to run in 2024.
    But remember, past performance is not an indicator of future returns.
    Rolls-Royce share price: results and targets
    In August’s half-year results, underlying operating profit came in at £673 million with free cash flow of £356 million reflecting ‘continued end-market growth and focus on commercial optimisation and cost efficiencies across the Group.’
    Further, the FTSE 100 operator raised its 2023 guidance for underlying operating profit to between £1.2 billion and £1.4 billion, and free cash flow to £900 million to £1 billion — due to transformation efforts accelerating its ‘financial delivery.’
    Then at its Capital Markets Day on 28 November, the company announced a plan to develop a ‘high performing, competitive, resilient and growing business.’ Among other things, this included a mid-term target to deliver operating profit of between £2.5 billion and £2.8 billion, on an operating margin of between 13% and 15% — with free cashflow of £2.8 billion to £3.1 billion and a return on capital of between 16% and 18%.
    This is all intended to create an ‘investment grade’ profile for the stock, as part of a strategy to support at least £1 billion of gross disposals over the next five years.
    CEO Tufan Erginbilgic enthused that ‘Rolls-Royce is at a pivotal point in its history. After a strong start to our transformation programme, we are today laying out a clear vision for the journey we need to take and the areas where we must focus. We are creating a high performing, competitive, resilient and growing Rolls-Royce.’
    Where next for Rolls Royce shares?
    Setting financial targets is one thing — achieving them is another. However, city brokers seem impressed. Citi has a price target of 431p, while JP Morgan has set theirs at 400p and Barclays has gone down the middle at 409p. And all three price targets are set with the expectation of being achieved within the next 12 months.
    Barclays analysts are particularly positive about the increased expected cash flow — which should boost the net cash position over the next year, allowing Rolls to recover its investment grade credit rating — and also help the FTSE 100 company pay down its debt pile.
    Looking beyond civil aviation recovery, increased defence spending, and the promising UltraFan gearbox programme, the next catalyst may be Rolls’ small modular nuclear reactors. Prime Minister Rishi Sunak plans to relax planning ruleS restricting the plants, noting that ‘nuclear is the perfect antidote to the energy challenges facing Britain.’
    The long-term plan is to get 25% of the UK’s energy needs from nuclear by 2050, representing some 24GW of capacity, and almost double the 14% of today. The government retains a golden share in Rolls-Royce and has already granted the company some funding to get started. However, the FTSE 100 business still needs to compete for government contracts alongside five other hopefuls, with a winner set to be announced within months.
    Erginbilgic came in at the start of 2023 to fix, in his own words, a ‘burning platform.’ The share price performance and near universal ‘buy’ targets suggest more growth may be imminent. But the FTSE 100 company cut 9,000 staff during the pandemic and even more throughout last year. This loss of institutional knowledge could be a problem as demand for services return.
    However, given the success thus far, Rolls-Royce remains one of the best FTSE 100 stocks to watch in 2024.
    Financial results are due in February.

       
    This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  15. MongiIG
    Rolls-Royce shares could be an undervalued FTSE 100 opportunity after Morgan Stanley judges them ‘woefully mispriced.’
    Source: Bloomberg   Indices Shares Roll-Royce Revenue Investment FTSE 100  Charles Archer | Financial Writer, London | Publication date: Monday 20 June 2022  Rolls-Royce (LON: RR) shares have long been the ‘jewel in the crown’ of the FTSE 100, with the company name a hallmark of quality.
    Of course, it’s been a less inspiring investment choice, down 92% from its record 1,159p in December 2013, 73% in the past five years, and 30% year-to-date to 89p today.
    However, Morgan Stanley thinks Rolls-Royce shares are ‘woefully mispriced.’ And encouragingly, the investment manager believes an earnings recovery ‘is much closer than the market has priced in, while earnings and cash flow are directly geared to the next leg of a global aviation recovery.’
    Rolls-Royce share price: revenue recovery
    Rolls-Royce’s revenue fell from £11.49 billion to £11.22 billion in 2021, with £4.5 billion derived from its civil aerospace division, £3.3 billion from defence, and £2.8 billion from power systems.
    But the FTSE 100 company turned a 2020 £3 billion loss into a £124 million profit last year, as lockdowns ended and demand for travel surged. And it completed its £1.3 billion cost-cutting programme a year early, axed 9,000 jobs, and sold off ancillary businesses in a disposals programme that generated £2 billion.
    However, net debt now stands at over £5 billion, driven by last year’s £1.2 billion spending on research and design, as well as the superlong investment cycles necessitated by the aerospace sector. This could become a problem as interest rates rise.
    But CEO Warren East, who is stepping down at the end of the year, believes the company has ‘made significant progress on the path to recovery from the impact of COVID-19.’
    Further, he expects Rolls-Royce will ‘achieve positive profit and cash this year, driven by the benefits of our cost reductions and increased engine flying hours in Civil Aerospace together with a strong performance in Defence and Power Systems, and balanced by our commitment to invest in technology and systems.’
    Source: Bloomberg Where next for Rolls-Royce shares?
    Rolls-Royce is a multi-faceted company with diverse revenue streams. The FTSE 100 stalwart enthuses it has ‘confidence on revenue, profit and cash conversion against the headwinds of inflation and supply chain risk.’
    But as Chair Anita Frew knows, civil aerospace is the company’s golden goose, with long-term service agreements (LTSAs) on jet engines generating the lion’s share of the revenue.
    And as revenue from this division has halved since the pandemic began, the Chair accepts ‘we have to improve the performance of civil…it’s the big beast within the business and it’s the one that really moves the needle.’
    Encouragingly, LTSA flying hours increased by 42% year-over-year in the first four months of 2022, on the back of pent-up passenger demand across Europe and the Americas.
    And as demonstrated by the chaos at airports across Europe, and various optimistic tones from management at airlines ranging from easyJet to IAG, flying hours could hit pre-pandemic levels by this time next year. Of course, with CPI inflation set to hit 11% in October amid a worsening cost-of-living crisis, future travel demand remains unpredictable.
    Moreover, it’s possible that the Ukraine war will help increase revenue at its defence division. However, while it acquiesces that ‘governments are increasing their long-term budget allocations towards defence activities,’ it warns that it’s also ‘not immediately exposed to individual geopolitical events.’ But as the ghost of the Cold War apparates, the longer-term potential is difficult to ignore.
    Then there’s the new markets business, which Rolls hopes will generate £5 billion of annual revenue by the 2030s. It’s made great strides: an all-electric plane breaking world records, the new ultra-efficient power gearbox, and good progress on small modular nuclear reactors.
    In addition, it also benefits from strong political support due to its heritage status and government-owned golden share. PM Johnson and Business Secretary Kwarteng both appear particularly fervent supporters. And given the expensive nature of its business areas, the company is surrounded by a strong protective moat.
    Of course, there’s the long-term problem with decarbonising air travel. And Frew could soon be at odds with investors over the appointment of the next CEO, with disagreements over whether he or she should have aerospace industry experience.
    But with Morgan Stanley onside, civil aviation and defence demand increasing, and promising R&D investments, Rolls-Royce shares could now be a FTSE 100 buying opportunity.
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  16. MongiIG
    Snowflake shares may be forming a bottom after strong Q1 results and positive words from JP Morgan and Jefferies analysts.
    Source: Bloomberg  Charles Archer | Financial Writer, London | Publication date: Thursday 30 June 2022  When Snowflake (NYSE: SNOW) launched its Initial Public Offering in September 2020, investor reception could have gone two ways, with many still reeling from the covid-19 pandemic crash.
    However, with the backing of Warren Buffett’s Berkshire Hathaway, the cloud data warehousing firm saw its $120 IPO price shoot up to above $300 within only a few hours of trading. This success made Snowflake the largest US software IPO ever, raising $3.4 billion on a $70 billion valuation, and firmly demonstrated high demand for the unique tech stock.
    And after striking a record $405 last November, Snowflake shares collapsed to $113 earlier this month as it was swept along by the wider market rout.
    But they’ve now recovered to $140. And further increases seem likely given its optimistic outlook.
    Snowflake share price: revenue gains
    Recent Q1 results made for excellent reading. Revenue increased by 85% year-over-year to $422.4 million, of which product revenue rose by 84% to $394.4 million. Encouragingly, remaining performance obligations are also up, by a whopping 82% to $2.6 billion.
    Snowflake has also grown its customer base to 6,332, with 206 generating trailing 12-month product revenue worth more than $1 million. And demonstrating resilience in a challenging market, it boasts a net revenue retention rate of 174%.
    Chairman and CEO Frank Slootman warmly enthused that Snowflake ‘closed the quarter with a record $181 million of non-GAAP adjusted free cash flow, pairing high growth with improving unit economics and operational efficiency. Snowflake's strategic focus is to enable every single workload type that needs access to data.’
    And looking forwards, Snowflake predicts GAAP product revenue to increase by between 71% and 73% to between $435 million and $440 million year-over-year in Q2.
    Source: Bloomberg Where next for Snowflake shares?
    With stock markets crashing around the globe, and with particular virulence within the tech sector, it’s inevitable that some quality growth stocks with excellent prospects are being swept up in the general malaise.
    And Snowflake could be one of these stocks.
    JP Morgan analyst Mark Murphy has placed a $165 price target on Snowflake stock, upgraded it from Neutral to Overweight, and argues it has ‘surged to elite territory.’
    The analyst cited JP Morgan’s annual survey of 142 CIOs who together control a combined $100 billion of IT spending. The report found that Snowflake ranks first in installed base spending intentions, with two-thirds of current customers expecting to increase their spending on the platform this year. And it also came first among emerging companies whose vision most impressed the respondents.
    Murphy enthused that ‘Snowflake enjoys excellent standing among customers as evident in our customer interviews,’ and that ‘pent-up demand for its solutions has allowed Snowflake to exhibit a very rare level of growth at scale with best-in-class growth-plus-margin profile. We expect Snowflake to continue to grow revenue at a rapid scale.’
    However, symbolising the complexity of Snowflake’s investment case, Murphy had previously lowered his price target from $200, arguing that it was hard to see it outperforming soon. But now, he thinks it has ‘laid out a clear long-term vision at its Investor Day in Las Vegas toward cementing its position as a critical emerging platform layer of the enterprise software stack.’
    And Murphy’s not alone in his positivity.
    Jefferies analyst Brent Thill has upgraded Snowflake from Hold to Buy and hiked his price target from $125 to $200 due to the ‘continued execution on the platform expansion story.’ The analyst was enthused by ‘a significant compression on its multiple in the last 6-8 months, in part driven by a broader sector drawdown and by continued execution and strength in top-line growth.’
    Moreover, Thill thinks Snowflake stock has ‘plenty of room to double its value while growing into a reasonable multiple,’ and is encouraged by its ‘back to reality’ valuation offering an ‘attractive entry point.’
    Of course, context is important. Gartner data shows global cloud spending is to grow by 20.4% to $495 billion in 2022 and surge again by a further 21.3% to almost $600 billion in 2023.
    And market leader Microsoft generated $23.4 billion in revenue from its cloud division in April’s Q3 results, a mountain of cash compared to the challenger’s $422.4 million.
    However, Snowflake aims to generate $10 billion of global revenue annually by 2029. Moreover, while the tech stock is competing with global titans — it’s also growing faster than them.
    And with analyst sentiment on its side, a near-term recovery for Snowflake’s share price could soon be in the offing.
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  17. MongiIG

    Are stocks back in a bull market?

    By MongiIG,


    Market News
    Bullish outlook on global equity indices as bank fears fade.
    Source: Bloomberg   Forex Indices Shares Bank Market trend Stock  Axel Rudolph FSTA | Senior Financial Analyst, London | Publication date: Thursday 30 March 2023  Are stocks back in a bull market?
    Equity indices in the US, Asia and Europe keep creeping higher but seem to do so cautiously as many investors remain worried about the recent banking crisis flaring up again.

    It is true that several more smaller US regional banks may still collapse this year but it is unlikely that a major ‘too big to fail’ bank does so and threatens global financial stability in the near future as central banks all over the world have made sure that liquidity is provided to those financial institutions which need it and other solutions such as the take-over of Credit Suisse Group AG (CH) by its bigger rival UBS Group AG seem to have averted a full-blown financial crisis as the one seen in 2008.

    A recent example of the financial system weathering the storm was the sudden panic surrounding Germany’s largest bank, Deutsche Bank AG, which saw its share price drop by up to 30% since the beginning of the month as the cost of insuring its debt against default through credit-default swaps soared despite the bank having been profitable for several years following its restructuring plan and showing a healthy Common Equity Tier 1 (CET1) capital ratio of 13.4%.

    Despite the high volatility surrounding its and other banks’ share prices, no contagion occurred with volatility coming down again as the banking sector stabilised this week.

    Yes, the banking sector isn’t out of the woods yet as can be seen by the iShares Stoxx Europe 600 Banks ETF but when one looks at the Euro Stoxx 600 index (orange line), it becomes clear that investors are buying the dip with regards to non-banking shares which has led to several global equity indices regaining most of their recent losses.

    iShares Stoxx Europe 600 Banks ETF versus Euro Stoxx 600 daily chart
    Source: Tradingview Why further upside in stocks is likely to ensue
    Except for the Dow Jones Industrial Average, which remains in negative territory year-to-date, all other major US and European equity indices continue to perform well, with the Nasdaq 100 outperforming greatly. The index is about to make a 20% gain year-to-date as investors over the past couple of weeks switched out of banking into technology stocks.

    Major US and European banks year-to-date performance comparison chart
    Source: Google finance With most European indices such as the CAC 40, DAX 40 and Euro Stoxx 50 and 600 now trading between 1% and 3% below their early March highs, and indices such as the Nasdaq 100 even briefly making a new seven month high, the odds favour further upside to be seen in the days and weeks to come.

    Technical reasons pointing to a continuation of the equity bull market
    The fact that these above mentioned indices have all risen and closed on a daily chart closing basis above last week’s relative highs and their respective 200-day simple moving averages (SMA) is technically significant and points to the continuation of the October 2022 medium-term bull market.

    New index highs for the year are thus likely to be seen across the board, provided, of course, that no bearish reversal takes these indices below their respective March lows which would probably mark the end of the current bull market.

    Since volatility indices such as the VIX have practically slipped back to levels last traded before the banking crisis kicked off and since seasonality points to a strong April, further upside looks probable, especially since the Advance/Decline line (A/D line) – which shows how many stocks are participating in a stock market rally - on many stock indices is turning back up again.

    S&P 500 daily chart
    Source: Tradingview Lagging indices such as the Dow and the S&P500 are also showing signs of improvement and look to be on track to close above last week’s highs as well this week which would solidify the recent recovery rally with the S&P 500 once more trading above its minor psychological 4,000 mark.

    Ideally technicians would like to see a daily chart close above the early March high at 4,078, in which case a bottoming formation is most likely being formed with the August peak at 4,325 representing an upside target for the months ahead.
  18. MongiIG
    Tesco's share price remains flat after the UK’s grocery market leader reported resilient first quarter earnings. Where next for the FTSE 100 stalwart?
    Source: Bloomberg   Indices Shares Tesco Inflation Retail FTSE 100
     Charles Archer | Financial Writer, London | Publication date: Saturday 17 June 2023  Tesco shares (LON: TSCO) have seen some serious volatility considering the FTSE 100 company’s reputation as the bellwether for the UK’s retail economy. With a 27.1% market share according to Kantar, the FTSE 100 stock has risen by 15.2% year-to-date to 264p, having seen a low of 201p in October 2022 and a high of 303p in January 2022.
    But with many analysts considering that the worst of inflation is now behind us — CPI stands at 8.7%, down from a high of 11.1% in October 2022 — Tesco’s share price may be due for further recovery.
    Tesco shares: Q1 results
    For the 12 weeks ending 27 May, Tesco saw like-for-like sales rise by a solid 8.8% to £13.79 billion, driven primarily by high inflation in the UK, but held back by much lower growth in central European operations as the Hungarian government withdrew significant consumer stimulus.
    Tesco has advanced in four key areas. First, in the core UK business, it saw large store sales ‘particularly strong,’ with sales rising by 9.9%. Second, online sales grew by 8.2% as the FTSE 100 retailer saw its online market share rise by 75bps to 37.5% — and given the trajectory this could continue to rise over time.
    Third, it’s carefully targeting price-conscious consumers with 700 products now price matched to ‘discounter’ Aldi — which has been slowly stealing market share over the years — and seeing ‘strong volume response’ to its Low Everyday Prices price-lock scheme on over 1,000 products.
    But fourth, it’s also winning custom from wealthier customers, with a ‘ninth consecutive period’ of switching gains from premium retailers. For context, Finest sales rose by 14.9% after the retailer launched 126 new lines.
    It’s also worth noting that the Booker wholesaling distributor business saw significant growth with retail sales up by 15.6%.
    FTSE 100 shares: where next for Tesco?
    CEO Ken Murphy enthuses that Tesco is ‘well-positioned for the months ahead and we are reiterating our guidance for the full year.’ The anticipation is for ‘a broadly flat level of retail operating profit in 2023/24 and retail free cash flow within our target range of £1.4 billion to £1.8 billion.’
    Of course, this a fairly large range — but perhaps reflects the uncertainty in the UK’s macroeconomy with inflation uncomfortably elevated and the base rate at 4.5% — both far higher than most analysts had predicted at this point last year. Indeed, Murphy notes that ‘many of our customers continue to face significant cost-of-living pressures...(but) there are early encouraging signs that inflation is starting to ease across the market.’
    Food inflation currently stands at 19%, and though this is middle of the range across Europe, food remains one of the only areas of spending where consumers can cut back to value. The CEO has asked the government to help tackle inflation by easing Brexit-related regulations, and even wants business rates reduced, which have doubled over the past decade and cost the FTSE 100 company £700 million over the last year alone.
    However, Murphy also notes that even if inflation starts to dip amid rising wages, ‘it is unlikely prices will return to where they were.’ But the situation is perhaps better than first appears; most shoppers are down switching to own-label goods, or from fresh to frozen, such that personal inflation rates may be below the official 19% figure. In addition, the growth of sales at larger shops reflects bulk buying — even though overall sales are still falling.
    With the company winning market share from the likes of Marks & Spencer, Waitrose, and Ocado, Bloomberg Intelligence analyst Charles Allen considers that inflation remains a ‘huge factor’ for the FTSE 100 chain. Meanwhile John Choong at Investing Reviews points out that even though the update was ‘encouraging...(and) the growth rate is impressive by historical standards, this is mainly due to inflation boosting those figures.’
    RBC Brewin Dolphin’s John Moore is more bullish, arguing that ‘Tesco is strengthening its grip on its position as the UK’s top supermarket... with life likely getting tougher for its leveraged rivals, like Asda and Morrisons.’
    The FTSE 100 retailer remains the bellwether stock for the wider sector. A strengthening economy could see increased revenue, while weaker overall growth could see it continue to gain market share. In the low margin, highly competitive world of food retailing, the blue-branded operator remains the market leader for a reason. And recent volatility means that Tesco shares remain some way off their relatively recent high.
    Of course, volatility cuts both ways.
  19. MongiIG
    Agriculture is one of the world’s oldest markets. Though it’s been negatively affected by COVID-19, it’s made an impressive recovery. Check out the agribusiness stocks to consider in 2022.
    Source: Bloomberg   Shares Commodities Agriculture ETF Agribusiness Dividend  Grethe Kemp | Financial Writer, London | Publication date: Monday 20 December 2021 What’s on this page?
    What is agribusiness? Why are investors and traders interested in agribusiness? How to trade or invest in agriculture related stocks and ETFs Top 4 agriculture stocks to watch Top 3 agriculture ETFs to watch The benefits of investing in agribusiness What is agribusiness?
    Agribusiness is defined as all products that are linked to or form a part of farming products. This industry is one of the oldest in the market, and agribusiness is very closely linked to, and has a direct impact on sustainable development goals.
    Agriculture employs the most people in the world, more than any other economic sector. The business is the main source of income and food source for many people living on or below the poverty line.
    Investing in agriculture has a direct link to both improving food security and sustainability. The industry is vital to our survival and will be around for years to come. It is, however, affected by government policies and investors need to be aware of this.
    Traders on the other hand enjoy the vast movements, volatility and volumes experienced in the agricultural markets. Agribusinesses and commodity futures offer traders some interesting opportunities.
    Why are investors and traders interested in agribusiness?
    One major factor of why investors and traders are interested in agribusiness is its longevity. We need agriculture to feed the world, so it’ll be here long into the future. This means there will almost always be an opportunity for you to open for long-term investment or trading positions.
    Further, agriculture is a fast-developing industry with new projects and trends such as urban, small scale, aqua, vertical, and indoor farming coming onto the scene. This is particularly popular in European countries such as the Netherlands. Going forward, many agribusinesses are focusing on becoming more sustainable, which will likely affect their popularity among investors and traders.
    Overall, agricultural commodities have risen in the price due to the reduced transport and supply created in 2020 due to the Covid-19 pandemic. This saw commodities like sugar rise to £322 per tonne in February 2021.
    Agribusiness employs a large number of people across the globe. As the image below shows, the world relies heavily on the agriculture industry.
    Source: World Bank How to invest in or trade agriculture related stocks and ETFs
    Before investing or trading agriculture-related stocks and exchange traded funds (ETFs), you need to understand the difference between the two methods. Investing enables you to speculate on the longer-term results of an agribusiness or commodity. You’ll buy and own physical stocks or ETFs, and only make a profit if the share or ETF price increases. Plus, you could earn dividends if the company pays them and enjoy shareholder voting rights.
    Trading enables you to speculate on the price changes of agriculture stocks, ETFs and commodities without owning any assets outright.
    You can trade with us using spread bets and CFDs. Both are leveraged derivatives, which means you can open a position using a deposit (margin). You’d still get exposure to the full value of the trade, but this means profits and losses will be magnified. Always take care to manage your risk when trading on leverage.
    How to start trading or investing
    Choose whether to trade or invest Create an account or Open My IG Identify your opportunity Carry out your own analysis and research Open and monitor your position Top 4 agriculture stocks to watch
    Deere & Co. CF Industries Holdings Mosaic Co. Monsanto Co. Note that these stocks are not necessarily the best agri shares in the world, but rather based on various factors including market cap, future growth prospects, dividends and latest results.
    Deere & Co.
    Deere & Co. is the world’s largest farming equipment maker, often under the brand John Deere. The company has a solid dividend that has grown every year since 2003. Since 2015, the dividend has averaged at 3%1.
    It is also one of Berkshire Hathaway’s holdings (Warren Buffet’s company), which owns nearly 7% of Deere & Co. shares2.
    Trade Deere & Co.
    CF Industries Holdings
    To grow better and more fruitful crops, farmers use fertilisers on their crops. CF Industries Holdings is a major manufacturer and disturber of this product, predominantly nitrogen and phosphate-based fertilisers.2
    Recent reports from the company state that they believe the nitrogen to grow at a rate of 2% per year. The company share price has grown at 77% over the past year with a solid dividend of 2.19%.
    Trade CF Industries Holdings
    Mosaic Co.
    The world’s largest producer of phosphate and potash is Mosaic Co. Using phosphate and potash crop nutrients is one of the ways farmers add nutrients back into the soil for their crops.
    Mosaic Co. is said to benefit2 from the expected rise in demand for fertilisers worldwide. This increase in demand can be linked to population growth and healthy eating trends. The dividend yield last year was low at 0.84%, however, the company share growth was 94%.
    Trade Mosaic Co.
    Monsanto Co.
    Monsanto Co. is a worldwide agribusiness giant. Many US home gardeners will know their Roundup weed killer. The company produces and distributes seeds and crop protection products.
    Monsanto is continually on the cutting edge of developing new biochemical technology to help gardeners yield more from their plants.
    Trade Monsanto Co.
    Top 3 agriculture ETFs to watch
    Market Vectors Agribusiness ETF Teucrium Corn Fund Invesco DB Agriculture Fund Market Vectors Agribusiness ETF
    This ETF has a broad holding across the agribusiness sector. It derives 50% of its revenue directly from agricultural businesses. The ETF holds companies such as Monsanto, Syngenta, Tyson Foods and Potash in their fund.
    These companies give investors access to fertiliser, biochemical and seed producers in the agribusiness sector. The agriculture ETF also has a low expense ratio of around 0.57% and grew by 20.47% between January and September 2021.
    Trade the Market Vectors Agribusiness ETF
    Source: IG Teucrium Corn Fund
    This fund directly tracks the price of corn. Corn is one of the world’s most important food crops, making it useful as a tactical hedge against inflation. While this ETF does not offer diversification across multiple assets, it does offer a broad investment into the corn markets. The ETF has returned 35% year to date (YTD) and has a beta of 0.60.
    Trade the Teucrium Corn Fund
    Source: IG Invesco DB Agriculture Fund
    The Invesco DB Agriculture Fund offers diversification across many agriculture products and commodities, such as corn, wheat, fertilisers and biochemical products.
    The fund also has trading volumes above 500,000. This level of movement makes it easy to buy and sell, making it a suitable option for traders wishing to trade on the broad agriculture markets.3
    Trade the Invesco DB Agriculture Fund
    Source: IG The benefits and risks of investing in agribusiness
    By investing in agribusiness stocks and ETFs, you’re investing in more sustainability and eradicating food shortages. Many of the listed companies spend millions every year developing new products to improve the yield of crops and to improve the nutrients of the soil.
    Further, it gives you opportunities to invest in new trends such as indoor farming and biofuel, the ability to diversify your portfolio, and help to improve sustainability and combat food shortages.
    However, as with any type of investment, your capital is at risk. No stock price is ever guaranteed and unforeseen events, like extreme weather, could compromise agribusiness share prices. Always take steps to manage your risk carefully and invest within your means.
    Best agriculture shares and ETFs summed up
    Agribusiness is defined as all products that are linked to or form a part of farming products The industry is suited to both long-term investors and short-term traders who can explore commodities, shares and ETFs with us You can trade or invest in agribusiness using a spread betting or CF account, or invest on our share dealing platform
    Sources
    1 streetinsider.com, 2021
    2 US News, 2021
    3 Yahoo! Finance, 2021
  20. MongiIG
    These Artificial Intelligence ETFs could be the five best to watch next month. These ETFs have been selected for their large market valuations.
    Source: Bloomberg   Shares ETF Artificial intelligence Nvidia Robotics Automation  
     Charles Archer | Financial Writer, London What's on this page?
    1. ROBO Global Robotics and Automation Index ETF2. Global X Robotics & Artificial Intelligence ETF3. Wisdom Tree Artificial Intelligence UCITS ETF4. iShares Robotics and Artificial Intelligence ETF5. L&G Artificial Intelligence UCITS ETF   Artificial Intelligence (AI) has arguably been the Exchange Traded Fund theme of choice in 2023. The ‘magnificent seven’ US tech shares have delivered the vast majority of the returns within the S&P 500 this year — driven by AI enthusiasm.
    Indeed, the popular ‘picks and shovel’ AI stock — Nvidia — has seen its market capitalisation rise by 236% year-to-date to circa $1.2 trillion. Q3 results saw Nvidia’s revenue rise by a whopping 206% year-over-year $18.12 billion, with CEO Jensen Huang nothing that ‘NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.’
    The 2023 AI boom was arguably started by the launch of OpenAI’s chatbot, ChatGPT, but artificial intelligence has long been used across sectors including entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.
    For perspective, ChatGPT garnered over 1 million users in just five days — and now boasts over 100 million weekly active users. By contrast, it took Netflix three and a half years to hit the same milestone.
    As with every technological step forward, there are some risks to consider. To start with, AI development is costly, and is therefore mostly driven by the blue chips. Further, many AI experiments fail, and many investors consider that diversifying their risk through an AI-themed ETF could be an attractive choice.
    Of course, past performance is not an indicator of future returns. And no investment is risk free.
    Best AI ETFs to watch
    ROBO Global Robotics and Automation Index ETF
    The ROBO Global Robotics and Automation Index ETF was the first ETF of its kind to hit the market in the US. Launched in 2013, it has 78 holdings and boasts $1.4 billion in assets under management. The fund is focused on businesses driving ‘transformative innovations in robotics, automation, and artificial intelligence.’
    With holdings across both developed and emerging economics, the ETF contains companies ranging from fabless manufacturing company Keyence, warehouse robotics expert Symbotic, and robotic surgery specialist Intuitive Surgical.
    It’s worth noting the higher-than-average expense ratio of 0.95%, though the fund has performed well in 2023.
    Global X Robotics & Artificial Intelligence ETF
    The Global X Robotics & Artificial Intelligence Thematic ETF, established back in 2016, aims to ‘invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.’
    The ETF holds 44 stocks, including semiconductor champion Nvidia, but also Swiss industrial manufacturer ABB and Japanese robotics company Fanuc, alongside Keyence and Intuitive Surgical. These two are also in the ROBO ETF above — which isn’t too surprising when the specialisation of both companies is considered.
    The ETF is up by 35% over the past year and 70% over the past five years, but also has an elevated expense ratio of 0.68%. For perspective, a typical NASDAQ 100 index tracker might have an expense ratio of as little as 0.14%.
    Wisdom Tree Artificial Intelligence UCITS ETF
    The WisdomTree Artificial Intelligence UCITS ETF tracks the performance of the NASDAQ CTA Artificial Intelligence Index. The fund is run by Irish Life Investment Managers and provides access to a dedicated selection of companies working within the AI space.
    Top holdings include Upstart, Nvidia, Blackberry, and the promising C3.ai — with the vast majority of the ETF invested in the information technology sector, and heavily concentrated in the US. The fund is ISA, SIPP and UCITS eligible with a middling expense ratio of 0.4%. This could appear good value given the strong performance over the past few years.
    iShares Robotics and Artificial Intelligence ETF
    The iShares Automation and Robotics UCITS ETF is a popular Blackrock offering, which invests in developed and emerging companies generating significant sales from robotics and automation. It tracks the STOXX Global Automation and Robotics Index.
    The fund is worth more than $3 billion, and is UCITS, SIPP and ISA eligible. Like Wisdom Tree’s offering, it offers a reasonable expense ratio of 0.4%. With 86 holdings, its top 10 investments include Lattice Semiconductor Corp, Sage Group, Nvidia, Advantest, and Bentley Systems.
    In common with most AI ETFs, the fund performed poorly in 2022 though rebounded sharply in 2023. This recovery may be set to continue given falling inflation and analyst hopes of a soft landing.
    L&G Artificial Intelligence UCITS ETF
    The L&G Artificial Intelligence UCITS ETF is run by a management team which believes that AI is a long-term trend that is ‘radically changing the way we live and work.’
    The actively managed ETF picks stocks via a team of AI experts and is UCITS compliant. Significant holdings include the NASDAQ blue chips and ‘magnificent seven’ companies Alphabet, Nvidia, Microsoft and Amazon.
    While the ETF has done very well since its launch in 2019, Legal & General considers its risk profile to be a 7, on a scale where 1 is the lowest and 7 is the highest risk. Further, it has a mildly expensive expense ratio of 0.49%.
    Trade and invest in over 17,000 UK, US and global shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading or investing in shares with us, or open an account to get started today.
    *Based on revenue excluding FX (published financial statements, October 2021).

        This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  21. MongiIG
    Microsoft, Apple, Nvidia, Alphabet and Amazon could be the best AI stocks to watch next month. These stocks are the largest AI stocks in the US based on market capitalisation.
    Source: Getty   Shares Forex Artificial intelligence Nvidia Amazon Apple Inc.  
    Written by: Charles Archer | Financial Writer, London   The artificial intelligence (AI) boom — which started in late 2022 with the release of OpenAI’s groundbreaking ChatGPT — may be showing signs of consolidation. While 2023 was hallmarked as a year of exuberant growth, the largest US companies are perhaps due a pullback in 2024.
    AI factors to consider
    Of course, AI advances over the past couple of years have been simply staggering — with companies of all sizes implementing the new tech into their corporate strategies — with a particular focus on generative AI. And from images to film, AI is being rolled out on a mass scale, with access freely available to the general public.
    Indeed, perhaps the most telling development came during the months-long SAG-AFRTA strike against AMPTP, which when combined with the Writers Guild of America strike, cost 45,000 jobs and an estimated $6.5 billion loss to the Southern California economy.
    A key component of the strike, which lasted from July to November 2023, was demands to create a compromise over the use of AI and digital recreation of actors.
    Much of the financial success of AI has been directed towards the ‘magnificent seven,’ but this may be changing. Nvidia’s roaring success as the poster child of the AI revolution was recently checked by a one-day 10% drop, though it has since recovered to $887. All eyes are watching for its upcoming earnings.
    For context, popular AI shares including Super Micro Computer, Palantir, ARM and AMD have all seen similar volatility. And it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.
    Another key factor to consider is upcoming legislation to regulate AI development. For example, New York City recently implemented a new law to regulate AI for use in hiring employees. This could be the first of many — creating risks and opportunities for individual AI shares.
    Best AI stocks to watch
    There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.
    Microsoft Apple Nvidia Alphabet Amazon Microsoft
    Microsoft remains the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business retains a close relationship with OpenAI prior to the famous ChatGPT launch and has invested billions into the company since 2019.
    In Q3 results, revenue increased by 17% year-over-year to $61.9 billion, driving operating income up by 23% to $27.6 billion. Chairman and CEO Satya Nadella enthused that ‘Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry.’
    Copilot is marketed as a conversational chat interface that lets you search for specific information, generate text such as emails and summaries, and create images based on text prompts you write.
    Market capitalisation: $3 trillion
    Apple
    Apple is in the middle of a market struggle — independent research firm Counterpoint estimates that iPhone sales in key market China fell by 19% in the March quarter — the worst performance since covid-19 struck in 2020.
    In Q2 results to 30 March 2024, Apple saw revenue fall by 4% year-over-year to $90.8 billion with earnings per diluted share of $1.53. While revenue did beat analyst expectations, iPhone revenue was down by 10% to $46 billion, as the company suffered increased competition from Huawei and Samsung.
    CEO Tim Cook notes that there was an ‘all-time revenue record in Services’ and was ‘thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks. We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month.’
    Market capitalisation: $2.8 trillion
    Nvidia
    Nvidia is arguably the prime beneficiary of the AI boom, with a wide economic moat as the ‘picks and shovels’ stock for the artificial intelligence age.
    Nvidia CEO and founder Jensen Huang recently enthused that ‘accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations…NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators.’
    However, clouds may be gathering on the horizon. Super Micro Computer is deeply tied to Nvidia as it makes the titan’s servers — and the Super Mico's own results were mixed. Although revenue rose sharply, it missed analyst estimates.
    Nvidia reports Q1 results on 22 May.
    Market capitalisation: $2.2 trillion
    Alphabet
    Alphabet is the owner of both Google and YouTube, including Google Cloud. In recent quarterly results, revenue surged above estimates to $80.54 billion, while total advertising sales increased from $54.55 billion in the same quarter a year before to some $61.66 billion.
    The increased ad sales bodes well for Alphabet, as this critical revenue generator had previously struggled through 2023, with rising interest rates and higher inflation reducing corporate spending on marketing.
    Importantly, operating income at the cloud business more than quadrupled to $900 million, and it is continuing to invest in AI features, including within Google search.
    CEO Sundar Pichai noted that ‘our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.’
    Market capitalisation: $2.1 trillion
    Amazon
    Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.
    Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share. Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising.
    In Q1 results, net sales rose by 13% to $143.3 billion excluding the impact of forex rates. President and CEO Andy Jassy enthused that ‘the combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate).’
    Market capitalisation: $1.9 trillion
          This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  22. MongiIG
    Microsoft, Apple, Nvidia, Alphabet and Amazon could be the best AI stocks to watch next month. These stocks are the largest AI stocks in the US based on market capitalisation.
    Source: Bloomberg   Shares Artificial intelligence Microsoft Amazon Nvidia Apple Inc.  
    Written by: Charles Archer | Financial Writer, London   2023 was arguably the year of AI — the NASDAQ Composite rose by 43% in the calendar year, driven by AI-fuelled bubbles in Nvidia alongside the rest of the so-called ‘magnificent seven.’
    The year was immediately preceded by the launch of revolutionary — and crucially, free to use — ChatGPT, which was swiftly followed by a response from both Alphabet in the form of Bard (now Gemini) while many other tech companies soon followed.
    In March 2023, the more advanced GPT-4 hit the market, which was swiftly followed by multiple AI-generated imagery tools — in one case, a realistic fake image of Pope Francis wearing a certain clothing brand circulated the internet, highlighting the openness of AI to abuse. That same month, tech leaders from across the US spectrum signed an open letter urging a pause on AI development for six months to assess the risks.
    A couple of months later, ChatGPT gained internet connectivity — and was soon incorporated into Bing, Microsoft’s search engine. For context, Microsoft has a significant stake in ChatGPT’s parent, OpenAI.
    Add in the constant stories of academic controversies, and the months-long Writers Guild of America strike over concerns that AI had the potential to replace human writers, and it’s easy to see how AI is already embedded throughout the global markets.
    AI is already in use across a wide variety of real-world applications, including in entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.
    Every Netflix recommendation, every supermarket rewards purchase, and every football match is analysed ever more relentlessly in order to provide more and better data. And analysts think the sector will only grow.
    Of course, there will be casualties; whether Microsoft or Meta, virtually every tech company is engaged in layoffs. While much of this can be blamed on higher interest rates, arguably AI is already replacing some workers.
    Best AI stocks to watch
    There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.
    Microsoft Apple Nvidia Alphabet Amazon Microsoft
    Microsoft is the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business already had a strong relationship with OpenAI prior to the ChatGPT launch and has invested $13 billion into the company since 2019.
    In Q2 results, revenue increased by 18% year-over-year to $62 billion, while net income rose by 33% to $21.9 billion. CEO Satya Nadella enthuses that ‘we’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.’
    Most recently, the US titan has agreed a decade-long partnership with Vodafone to bring generative AI, digital, enterprise and cloud services to more than 300 million businesses and consumers.
    Vodafone will invest $1.5 billion in customer-focused AI developed with Microsoft's Azure OpenAI and Copilot technologies and will replace its physical data centres with Azure cloud services — meanwhile, Microsoft plans to become an investor in Vodafone's managed IoT platform. On the other hand, Copilot has reportedly disappointed some early adopters.
    Market Capitalisation: $2.90 trillion
    Apple
    Apple is in the middle of a sea change — it’s now topped Samsung as the largest smartphone maker by volume in the world but has lost its crown to Microsoft as the largest company on the planet.
    Investor hopes for continued growth may lie in future innovation, and in particular, the long-awaited Vision pro headset which releases on 2 February in the US with a $3,499 price tag. For context, Meta’s Quest 3 can be reliably found on sale for circa £500.
    However, the release of the Apple headset has been met with mixed results — and Meta CEO Mark Zuckerberg even released an informal video arguing that the cheaper device is not only better value for money, but better overall. In better news, Apple’s Keyframer AI tool has impressed new users with its ability to animate images using text descriptions.
    In Q1 results, Apple saw revenue rise by 2% year-over-year to $119.6 billion, while quarterly earnings per diluted share increased by 16% to $2.18. CEO Tim Cook noted the company’s ‘all-time revenue record in Services’ and also enthused that the company’s ‘installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.’
    Market Capitalisation: $2.82 trillion
    Nvidia
    Nvidia is arguably the prime beneficiary of the AI boom, last week overtaking Alphabet in market capitalisation, and then eclipsing Amazon a day later. While this rise may be unsustainable, Q3 results saw revenue rise by 206% year-over-year and 34% quarter-on-quarter to $18.12 billion. CEO Jensen Huang now considers that ‘NVIDIA GPUs, CPUs, networking, AI foundry services and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.’
    Barclays analysts remain particularly enthusiastic over the AI company, noting that ‘With supply constraints, customers are often using the entire NVDA platform in order to get priority shipments of accelerators.’ Q4 results are to be released on 21 February.
    Market Capitalisation: $1.39 trillion
    Alphabet
    Google parent Alphabet may control 84% of the global search market share — but Yahoo was once king of search too. In addition to launching Bard, AI is already used across many of Google’s current functions. And it’s got at least two more AI-focused projects; its coding-focused Generative Language API, and DeepMind which it acquired in 2014.
    In Q4 results, CEO Sundar Pichai enthused that ‘we are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come.’ Quarterly revenue rose by 13% year-over-year to $86 billion.
    Perhaps most importantly, Alphabet is now ready to launch Gemini 1.5. This is seen as the company’s serious answer to ChatGPT-4, with Pichai arguing that it ‘represents one of the biggest science and engineering efforts we've undertaken as a company.’
    Then there’s its new custom-built AI chips to consider — Apple may win its crown back before too long.
    Market Capitalisation: $1.79 trillion
    Amazon
    Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.
    Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share.
    Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising. Then there’s the smart devices, including Alexa and the Fire tablets. CEO Andy Jassy enthuses that the AI opportunity will be ‘tens of billions of dollars of revenue for AWS over the next several years.’
    Q4 net sales increased by 14% year-over-year to $170 billion.
    Market Capitalisation: $1.58 trillion
     

        This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  23. MongiIG
    Microsoft, Apple, Nvidia, Amazon and Meta could be the best AI stocks to watch next month. These stocks are the largest AI stocks in the US based on market capitalisation.
    Source: Bloomberg     2023 was inarguably the year of AI — as the big NASDAQ tech stocks experienced huge surges in market capitalisation — backed by hopes that artificial intelligence progress, in particular in generative AI, could displace current models of working.
    These so-called ‘magnificent seven’ have driven much of the gains in the US market, with market darling Nvidia rising to $950 per share in March. However, the company has since corrected to $824, recently suffering a 10% one-day fall as investors weigh up the relative risks and rewards.
    AI in 2024
    While AI is undoubtedly filtering into ever more aspects of daily life and work environments, new tech has a history of inspiring market bubbles which pop before the winners go on to generate sustainable growth. This was arguably the case with the dot-com crash — and while no two scenarios are exactly the same, history does tend to rhyme.
    On the other hand, the AI advances of the last 18 months have been extraordinary — with artificially generated text, imagery and video available to the masses on a scale never before seen.
    There are even rumours that OpenAI has developed a model approximating Artificial General Intelligence (AGI) — capable of surpassing human-like intelligence with the ability to self-teach. And then there’s the employee question: many companies are already laying off staff in favour of AI-based replacements, and this trend could be set to continue.
    With some disquiet not just at Nvidia, but other popular shares including Super Micro Computer, Palantir, ARM and AMD, it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.
    As ever, while there may be significant growth opportunities, there are also risks. Past performance is not an indicator of future returns.
    Best AI stocks to watch
    There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.
    Microsoft Apple Nvidia Amazon Meta Platforms Microsoft
    Microsoft remains the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business retains a close relationship with OpenAI prior to the famous ChatGPT launch and has invested billions into the company since 2019.
    In Q2 results, revenue increased by 18% year-over-year to $62 billion, while net income rose by 33% to $21.9 billion. CEO Satya Nadella enthused that ‘we’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.’
    In upcoming earnings, two metrics will be closely watched: revenue derived from Azure and related services — which rose by 30% in Q2, including 6% from AI — and revenue from the company’s Microsoft 365 Copilot AI tool, as Q3 will be the first full quarter of sales.
    Arguably, the two are key bellwethers for AI sentiment.
    Market Capitalisation: $3.03 trillion
    Apple
    Apple is in the middle of a market struggle — independent research firm Counterpoint estimates that iPhone sales in key market China fell by 19% in the March quarter — the worst performance since covid-19 struck in 2020.
    But in Q1 results, Apple saw revenue rise by 2% year-over-year to $119.6 billion, while quarterly earnings per diluted share increased by 16% to $2.18. CEO Tim Cook noted the company’s ‘all-time revenue record in Services’ and also enthused that the company’s ‘installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.’
    The focus of upcoming results may be on new product launches, including new iPads on 7 May and iOS 18, which is rumoured to host artificial intelligence capacity entirely offline on customer iPhones.
    Market Capitalisation: $2.58 trillion
    Nvidia
    Nvidia is arguably the prime beneficiary of the AI boom, with a wide economic moat as the ‘picks and shovels’ stock for the artificial intelligence age.
    In Q4 2024 results, the company saw revenue rise by 265% year-over-year and 22% quarter-on-quarter to a record $22.1 billion, driven by Data Centre revenue which increased by 409% in the year to $18.4 billion.
    CEO and founder Jensen Huang enthuses that ‘Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations… NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators.’
    However, clouds may be gathering on the horizon. The 10% one-day drop mentioned above was potentially caused by Super Micro Computers failing to preannounce positive Q3 results as it had last quarter — the business is deeply tied to Nvidia as it makes the titan’s servers.
    Market Capitalisation: $2.06 trillion
    Amazon
    Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.
    Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share. Total Q4 net sales increased by 14% year-over-year to $170 billion.
    Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising. Then there’s the smart devices, including Alexa and the Fire tablets. CEO Andy Jassy enthuses that the AI opportunity will be ‘tens of billions of dollars of revenue for AWS over the next several years.’
    Positively, Bank of America analysts consider that next week’s earnings will see Amazon Web Services and its advertising segment come in on the upside of Wall Street guidance.
    Market Capitalisation: $1.87 trillion
    Meta Platforms
    Meta Platforms now boasts monthly active users of 3.98 billion people across its ‘family’ of apps, comprising Facebook, Instagram, threads and WhatsApp — an increase of 6% compared to Q4 2023.
    2023 full-year results saw ad impressions across the family rise by 28% year-over-year, while the average price per advert dropped by 9%. Accordingly, revenue rose by 1% to $134.9 billion. CEO Mark Zuckerberg enthuses that ‘our community and business continue to grow. We've made a lot of progress on our vision for advancing AI and the metaverse.’
    A common theme among analysts for 2024 is that the company needs a new catalyst to sustain further gains. But the next catalyst could well come externally — with US politicians considering a ban on competitor TikTok unless parent ByteDance sells the app to a non-Chinese company.
    Market capitalisation: $1.26 trillion
        This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  24. MongiIG
    Microsoft, Apple, Nvidia, Amazon and Meta could be the best AI stocks to watch next month. These stocks are the largest AI stocks in the US based on market capitalisation.
    Source: Bloomberg   Shares Artificial intelligence Amazon Nvidia Revenue Apple Inc.  
    Written by: Charles Archer | Financial Writer, London   2023 was inarguably the year of AI — as the big NASDAQ tech stocks experienced huge surges in market capitalisation — backed by hopes that artificial intelligence progress, in particular in generative AI, could displace current models of working.
    These so-called ‘magnificent seven’ have driven much of the gains in the US market, with market darling Nvidia rising to $950 per share in March. However, the company has since corrected to $824, recently suffering a 10% one-day fall as investors weigh up the relative risks and rewards.
    AI in 2024
    While AI is undoubtedly filtering into ever more aspects of daily life and work environments, new tech has a history of inspiring market bubbles which pop before the winners go on to generate sustainable growth. This was arguably the case with the dot-com crash — and while no two scenarios are exactly the same, history does tend to rhyme.
    On the other hand, the AI advances of the last 18 months have been extraordinary — with artificially generated text, imagery and video available to the masses on a scale never before seen.
    There are even rumours that OpenAI has developed a model approximating Artificial General Intelligence (AGI) — capable of surpassing human-like intelligence with the ability to self-teach. And then there’s the employee question: many companies are already laying off staff in favour of AI-based replacements, and this trend could be set to continue.
    With some disquiet not just at Nvidia, but other popular shares including Super Micro Computer, Palantir, ARM and AMD, it remains to be seen whether this is the end of the bubble or simply some profit taking before a sustained move higher.
    As ever, while there may be significant growth opportunities, there are also risks. Past performance is not an indicator of future returns.
    Best AI stocks to watch
    There is some disagreement on what constitutes an AI stock — and whether it must be the main focus of a company or simply be a significant growth area. Here we have listed the top AI stocks in the US based on companies where AI is a growth area and ordered by market capitalisation.
    Microsoft Apple Nvidia Amazon Meta Platforms Microsoft
    Microsoft remains the original global computing power, so it makes sense that the US behemoth tops the list of the best AI stocks to watch — and is now the most valuable company in the world. The business retains a close relationship with OpenAI prior to the famous ChatGPT launch and has invested billions into the company since 2019.
    In Q2 results, revenue increased by 18% year-over-year to $62 billion, while net income rose by 33% to $21.9 billion. CEO Satya Nadella enthused that ‘we’ve moved from talking about AI to applying AI at scale. By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.’
    In upcoming earnings, two metrics will be closely watched: revenue derived from Azure and related services — which rose by 30% in Q2, including 6% from AI — and revenue from the company’s Microsoft 365 Copilot AI tool, as Q3 will be the first full quarter of sales.
    Arguably, the two are key bellwethers for AI sentiment.
    Market Capitalisation: $3.03 trillion
    Apple
    Apple is in the middle of a market struggle — independent research firm Counterpoint estimates that iPhone sales in key market China fell by 19% in the March quarter — the worst performance since covid-19 struck in 2020.
    But in Q1 results, Apple saw revenue rise by 2% year-over-year to $119.6 billion, while quarterly earnings per diluted share increased by 16% to $2.18. CEO Tim Cook noted the company’s ‘all-time revenue record in Services’ and also enthused that the company’s ‘installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.’
    The focus of upcoming results may be on new product launches, including new iPads on 7 May and iOS 18, which is rumoured to host artificial intelligence capacity entirely offline on customer iPhones.
    Market Capitalisation: $2.58 trillion
    Nvidia
    Nvidia is arguably the prime beneficiary of the AI boom, with a wide economic moat as the ‘picks and shovels’ stock for the artificial intelligence age.
    In Q4 2024 results, the company saw revenue rise by 265% year-over-year and 22% quarter-on-quarter to a record $22.1 billion, driven by Data Centre revenue which increased by 409% in the year to $18.4 billion.
    CEO and founder Jensen Huang enthuses that ‘Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations… NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators.’
    However, clouds may be gathering on the horizon. The 10% one-day drop mentioned above was potentially caused by Super Micro Computers failing to preannounce positive Q3 results as it had last quarter — the business is deeply tied to Nvidia as it makes the titan’s servers.
    Market Capitalisation: $2.06 trillion
    Amazon
    Amazon is well-known as the largest e-commerce retailer in the world, but the company is also a growing operator in the AI space. It offers several cutting-edge AI tools within its AWS business, including Code Whisperer and SageMaker — and clients can customise Amazon’s own machine learning model.
    Of course, competitors have their owns services, but Amazon is by far the largest cloud computing company, with circa a third of the global market share. Total Q4 net sales increased by 14% year-over-year to $170 billion.
    Within its e-commerce offering, Amazon uses AI to identify consumer trends, manage inventory and also make personalised product recommendations — including targeted advertising. Then there’s the smart devices, including Alexa and the Fire tablets. CEO Andy Jassy enthuses that the AI opportunity will be ‘tens of billions of dollars of revenue for AWS over the next several years.’
    Positively, Bank of America analysts consider that next week’s earnings will see Amazon Web Services and its advertising segment come in on the upside of Wall Street guidance.
    Market Capitalisation: $1.87 trillion
    Meta Platforms
    Meta Platforms now boasts monthly active users of 3.98 billion people across its ‘family’ of apps, comprising Facebook, Instagram, threads and WhatsApp — an increase of 6% compared to Q4 2023.
    2023 full-year results saw ad impressions across the family rise by 28% year-over-year, while the average price per advert dropped by 9%. Accordingly, revenue rose by 1% to $134.9 billion. CEO Mark Zuckerberg enthuses that ‘our community and business continue to grow. We've made a lot of progress on our vision for advancing AI and the metaverse.’
    A common theme among analysts for 2024 is that the company needs a new catalyst to sustain further gains. But the next catalyst could well come externally — with US politicians considering a ban on competitor TikTok unless parent ByteDance sells the app to a non-Chinese company.
    Market capitalisation: $1.26 trillion
        This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  25. MongiIG
    Consumer staples stocks are popular defensive portfolio investments, with a unique set of advantages and drawbacks. These five are the largest on the FTSE 100.
    Source: Bloomberg   Indices Shares Reckitt Diageo Haleon Consumer  
    Written by: Charles Archer | Financial Writer, London Consumer staples stocks are shares in companies which specialize in selling daily essentials — food and drink, hygiene and household products, cosmetics, alcohol and tobacco. These stocks are classified as ‘defensive’ — consumers will continue to buy them regardless of the state of the economy — meaning the companies benefit from inelasticity of demand.
    These are non-cyclical businesses, which means sales, revenue and at least some profit is generally expected. However, consumer staples stocks are unlikely to make headlines for capital growth or explosive revenue increases.
    Instead, they offer low price volatility, dividends, and defensive positioning within a wider portfolio. And a key trade-off is that consumer staples companies can be better able to pass on inflation-matching cost increases to customers — this is a huge advantage in inflationary periods which is becoming more apparent.
    Given the perceived lower risk, lower return, consumer staples stocks are often popular with investors closer to retirement, or else investors starting to venture outside the diversification offered by ETFs.
    Perhaps a core advantage that is often ignored is the heritage and branding power of most larger consumer staples companies. Many have been in operation for decades or more due to the defensive nature of the sector, and this can have a positive ongoing effect on investment attractiveness.
    Of course, past performance is not an indicator of future returns.
    Top consumer staples stocks to watch
    The following five shares are the largest FTSE 100 consumer staples stocks by market capitalisaiton. There is an element of subjectivity to inclusion as there is no standardised ‘consumer staples’ definition.
    Unilever Diageo British Amercan Tobacco Reckitt Benckiser Haleon Unilever
    Unilever is a very well-known transnational consumer staples business which produces a dizzying array of products including food, drinks, cleaning agents, beauty and personal care products. Some of its well-known brands include Dove, Ben & Jerry’s, Cornetto, Domestos and Hellmann's.
    Full-year 2023 results saw underlying sales growth at the FTSE 100 company rise by 7% — with a turnover of €59.56 billion. Encouragingly, the business’s underlying operating margin rose by 60bps to 16.7%. CEO Hein Schumacher argues that ‘2023 Full Year results show an improving financial performance, with the return to volume growth and margins rebuilding. We are moving with speed and urgency to transform Unilever into a consistently higher performing business.’
    Unilever shares have remained almost flat over the past five years, with some investors arguing it has underperformed the wider market. However, it is in the midst of a turnaround plan; Schumacher took the reins in July 2023 noting that it is not ‘reaching its potential’ and that productivity and returns have ‘under-delivered.’
    Diageo
    While some consider alcohol not to be a consumer staple, it is a consumer product that people tend to buy regardless of the wider economic climate. Diageo is one of the largest alcoholic drinks manufacturers in the world, and controls a premium brand portfolio covering Johnnie Walker, Guinness, Smirnoff, Baileys, Captain Morgan, Tanqueray and Gordon's.
    In recent interim results, CEO Debra Crew did note that ‘the first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year…looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level.’
    For context, an unfavourable foreign exchange market and the declines in Latin America and the Caribbean saw net sales decline by 1.4% to $11 billion. Accordingly, operating profit fell by 11.1% to $3.3 billion — though this fall was just $205 million when excluding the LAC region.
    In more bad news, the stock has fallen to its lowest level in four years as news of China’s ‘anti-dumping’ investigation into brandy from the EU heats up.
    British American Tobacco
    Debate it if you must, but tobacco is also commonly thought of as a consumer staple. Smokers and vapers typically buy their favourite product — with the addictive component of nicotine an ethical question for individual investors to consider.
    British American Tobacco is one of the world’s biggest tobacco companies, with a significant brand portfolio of famous names. However, the business is dealing with changing consumer preferences and government intervention. It wrote off circa £25 billion in value of its US-based cigarette portfolio in December 2023 — while the UK is planning to implement a ban on disposable vapes soon.
    For context, revenue fell by 1.3% in full-year results (though rose by 3.1% at constant rates). ‘New category’ revenue grew by 21% — and revenue from non-combustibles now makes up 16.5% of the group’s overall revenue. Best of all, new categories achieved profitability in 2023 after years of losses and two years ahead of target.
    But longer-term, combustibles revenue is expected to continue to fall, while some investors think replacing this revenue with vaping may be harder than the company expects. CEO Tadeu Marocco contends that the ‘refined strategy commits us to 'Building a Smokeless World', a predominantly smokeless business, with 50% of our revenue from Non-Combustibles by 2035.’
    Reckitt Benckiser
    Like Unilever, Reckitt Benckiser has been effectively flat over the past five years. The company owns many famous brand names, including Dettol, Strepsils, Veet, Gaviscon, Calgon and Air Wick. It’s widely assumed that consumers are prepared to pay a price premium for cleaning products and medications compared to other categories.
    In Q3 results, Reckitt saw like-for-like net revenue growth rise by 3.4%, led by strong a broad-based growth of 6.7% across its hygiene and health segments. While overall volume declined by 4.1% year-over-year, the company remains the market leader in the US nutrition business — and with its recent strategic update, the company expects to target sustained mid-single digit life-for-like sales growth in the medium term.
    In further good news, the company has initiated a £1 billion share buyback programme. CEO Kris Licht notes that ‘we are firmly on track to deliver our full year targets, despite some tough prior year comparatives that we continue to face in our US Nutrition business and across our OTC portfolio in the fourth quarter.’
    Haleon
    Like Reckitt Benckiser, Haleon is a consumer healthcare multinational which controls its own famous brand portfolio — including Sensodyne, Panadol and Centrum vitamins. And it’s widely regarded as one of the largest over-the-counter medicines operators in the world.
    Spun off from GSK, the company could remain a stalwart of the FTSE 100 for decades to come. In Q3 2023 results, Haleon saw 5% organic revenue growth, while adjusted operating profit rose by 8.8% at constant currency rates. And the company saw an adjusted operating profit margin of 24.6%.
    CEO Brian McNamara enthuses that the results ‘demonstrate continued strong momentum across the business. Despite challenging markets, we have delivered another quarter of strong organic growth…our FY guidance remains unchanged and we expect to deliver strong growth in both organic revenue and adjusted operating profit constant currency.’
     

        This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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