Tag: corporate

Apple can sell its latest smartwatches again after court pauses FTC import ban

The latest Apple Watches are available again after the company scored a legal victory Wednesday.

“We are thrilled to return the full Apple Watch lineup to customers in time for the new year,” Apple
AAPL,
+0.05%
said in a statement to MarketWatch. “Apple Watch Series 9 and Apple Watch Ultra 2, including the blood-oxygen feature, will become available for purchase again in the United States at Apple Stores starting today and from apple.com tomorrow by 3 p.m. ET.”

A U.S. appeals court earlier Wednesday temporarily blocked a government commission’s import ban on popular Apple Watch models following a patent dispute with medical-technology firm Masimo Corp.
MASI,
-4.57%.

The court’s order allows Apple to temporarily resume selling the Apple Watch Series 9 and Apple Watch Ultra 2. Both watches were pulled from Apple’s website last week and off store shelves this week when the ban went into effect. The appeals court is weighing a longer halt on the import and sales ban.

Masimo declined to comment.

On Tuesday, the tech giant filed an emergency request for the U.S. Court of Appeals for the Federal Circuit to halt the ban at least until U.S. Customs and Border Protection decides whether redesigned versions of its watches infringe Masimo’s patents.

The appeals court’s decision will allow the U.S. Customs department to consider Apple’s redesign of the offending Apple Watch models. A fix is expected by Jan. 12. Apple said in the motion Tuesday it could “suffer irreparable harm” if the ban is kept in place while the appeal is ongoing.

Shares of Apple were flat in trading Wednesday.

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December 27, 2023
Intel, Tesla, Apple, Iovance, NetEase, Coherus BioSciences, and More Stock Market Movers

Updated Dec 27, 2023, 7:34 am EST / Original Dec 27, 2023, 4:26 am EST

Stock futures traded slightly lower Wednesday after the S&P 500 finished higher Tuesday and just 0.45% below its record close of 4,796.56 hit Jan. 3, 2022. The broad market index has risen 24% this year and has gained 4.5% this month as traders bet the Federal Reserve will begin cutting interest rates as soon as March.

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December 27, 2023
Bristol Myers to Acquire RayzeBio in Deal Valued at $4.1 Billion

Bristol Myers Squibb will acquire radiopharmaceutical therapeutics company RayzeBio for $62.50 a share in cash.

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December 26, 2023
Why Alphabet Could Be the Best Bet Among Magnificent 7 Stocks in the New Year

Alphabet could be the best bet among the Magnificent Seven stocks that led the market higher in 2023.

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December 24, 2023
Nike says 'newness' is crucial to its growth. One analyst says it's not working

As sneaker makers try to stay relevant amid waning demand, Nike Inc. executives on Thursday said they were banking on “newness and innovation” to win over reluctant shoppers. And as sales deals on shoes proliferate, they said interest in its sneakers that cost over $100 is still solid, and that an expansion of its Jordan brand — beyond basketball gear and shoes — represents an opportunity to boost profits.

But one analyst on Friday cast doubt over whether those plans will work for all of Nike’s
NKE,
-11.83%
customers in the long term.

“Nike needs improved marketing outside of basketball, streetwear and lifestyle trends,” TD Cowen analyst John Kernan said in a research note on Friday. “Innovation at the higher end of its assortment is not resonating at scale while . . . Nike faces disruption from smaller competitors in footwear and apparel. Jordan brand moving into lower price points and away from a scarcity model creates risk to the fastest-growing piece of the business.”

That assessment came after Nike’s quarterly results and dimmer outlook after the market close on Thursday sent shares reeling. Management said that consumers were still cautious, as higher prices for essential goods siphon away what they can spend on new sneakers and clothes.

Following the results, TD Cowen analysts on Friday downgraded the stock to their version of a hold rating. CFRA, meanwhile, also lowered its opinion on the stock to sell from hold.

Shares of Nike were down 11.6% on Friday.

During Nike’s fiscal second quarter, sales trends were shaky in both the athletic-gear maker’s digital channels and its markets abroad, executives said Thursday. In North America, sales slipped 4% year over year. For the holidays, sales were softer outside of the big discount days like Black Friday and Cyber Monday. And competition from the likes of Adidas
ADDYY,
-5.55%,
Deckers Brands
DECK,
-1.48%
subsidiary Hoka One One and running-shoe maker On Holding
ONON,
-3.71%
hasn’t gone anywhere.

Nike’s results, Kernan said, were a sign that Wall Street’s profit estimates were too high for Adidas and other competitors like Vans owner VF Corp.
VFC,
-3.23%
and Under Armour
UA,
-3.52%.

On the company’s earnings call Thursday, Nike said it didn’t plan on getting sucked into a “race to the bottom on digital,” where weaker online traffic forced more markdowns. But like Kernan, Raymond James analyst Rick Patel also had questions about Nike’s efforts to push full-priced product.

“Nike noted that it intends to focus on full-price selling and doesn’t want to participate in aggressive discounting,” he said. “Also, it aims to manage inventories for key franchises more carefully going forward in order to avoid the promotional fray, which also limits sales growth. We view these as the right moves to protect the health of the brand, but also acknowledge that it leaves Nike at a near-term competitive disadvantage to drive revenue.”

CFRA analyst Zachary Warring, in emailed commentary, said some of Nike’s other rivals could cut into demand.

“Although Nike maintains a fortress balance sheet with significant capital returns, we believe the multiple will trend back down to pre-pandemic levels as the company faces competition from brands like Hoka and On [Holding] while it looks for new growth drivers and focuses on cutting costs,” Warring said.

Nike executives on Thursday said Jordan-branded clothing and products for golf, soccer and football, along with products for women and children, would bring stronger results. They said the same for bras, leggings, retro-themed running shoes and other offerings in its business geared toward women.

The company also announced plans to save up to $2 billion over the next three years. That savings effort, it said, could include simplifying its product selection, bringing more automation into its operations, and “streamlining” the company by shedding management layers.

Nike has reportedly already begun laying off workers. The company on Thursday said it expected to book pre-tax restructuring charges of around $400 million to $450 million “primarily associated with employee-severance costs.”

Nike plans to reinvest those savings back into the company. But as the company tries to fatten margins, Jefferies analyst Randal Konik said those reinvestments could do the opposite.

“We would expect [management] to reinvest a majority of these cost savings, likely leaving less margin and earnings ‘cushion’ should top-line performance continue to soften over the next 6-12 months,” he said.

In recent years, Nike has been trying to sell fewer items through outside retail chains and more through its own stores and online channels. But executives on Thursday said that multiyear effort had created “complexity and inefficiencies”

Edward Jones analyst Brian Yarbrough told MarketWatch that Nike is likely cutting costs after weighing the broader economic backdrop and weakness in its digital business against its sales and margin goals.

“Combined with a slower revenue-growth environment — and the fact that digital, which is their more profitable channel, is slowing and in some markets declining — I think they probably said, ‘If we’re going to get there, it’s probably going to have to come with some cost cuts,’” Yarbrough said.

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December 22, 2023
Trump SPAC Digital World says it expects to complete merger ‘as soon as first quarter of 2024’

Shares of Digital World Acquisition Corp.
DWAC,
-1.68%,
the blank-check company that wants to merge with former President Donald Trump’s media venture, rose after hours on Friday after the company said in a regulatory filing that it expects to complete that deal “as soon as the first quarter of 2024.” Digital World offered up those expectations after filing an amendment to its registration statement, which it said “includes a preliminary proxy statement of the company, and a prospectus in connection with the proposed business combination” with Trump Media & Technology Group, the company that runs Trump’s social-media platform Truth Social. “With this filing, we are closing in on the final steps before our merger becomes effective and goes to the shareholders for a vote,” Trump Media Chief Executive Devin Nunes said in a statement. Digital World shares were up 4.7% after the bell.

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December 22, 2023
OpenAI discussing new funding round that could give it $100 billion valuation: report

OpenAI, the influential artificial-intelligence startup behind ChatGPT, is in talks to raise new funding that could give it a valuation of at least $100 billion, Bloomberg reported on Friday. The talks are in their early stages, and the terms and valuation haven’t yet been nailed down, Bloomberg said, citing people familiar with the matter. But if that valuation holds, it would make OpenAI the second-most valuable U.S. startup behind Elon Musk’s SpaceX, Bloomberg said, citing data from CBInsights. The report also said that OpenAI has spoken with G42, an Abu Dhabi-based company focused on AI, about potentially raising money for “a new chip venture.” OpenAI did not immediately respond to a request for comment. The company declined to comment to Bloomberg.

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December 22, 2023
Synopsys and Ansys in talks to merge: report

Shares of Ansys Inc. soared 18% in trading Friday on reports the company is in discussions to be acquired by Synopsys Inc. in a deal that would create a design-software behemoth.

The potential deal would kick off 2024 with a mega-merger, even as the Federal Trade Commission attempts to crack down on such transactions. Talks remain fluid and a third party might still emerge as a possible suitor of Ansys, according to a Wall Street Journal report, which cited people familiar with the situation.

Ansys
ANSS,
+18.08%,
which has a market value of nearly $26.3 billion, makes software that helps predict how products in aerospace, healthcare and automotive applications will work in the real world. A deal could be struck early in 2024, according to people familiar with the matter. Ansys reported revenue of $2.1 billion in 2022.

Synopsys
SNPS,
-6.34%,
with a market value of $85.1 billion, makes software that engineers use to design and test silicon chips used in smartphones, self-driving cars and other forms of artificial intelligence. Its stock has climbed 65% this year as investors have hopped on the AI bandwagon boom. Shares of Synopsys dipped 6% in late trading Friday.

Synopsys’s customers include Nvidia Corp.
NVDA,
-0.33%,
Intel Corp.
INTC,
+1.95%
and Advanced Micro Devices Inc.
AMD,
-0.22%.

Representatives from Synopsys and Ansys were not immediately available for comment.

Should the companies strike a merger, it would offer a fresh test for the FTC and its chair, Lina Khan, who have opposed large tech mergers and acquisitions. The agency unsuccessfully sued Facebook parent Meta Platforms Inc.
META,
-0.20%
in its pursuit of VR developer Within, as well as Microsoft Corp.’s
MSFT,
+0.28%
$69 billion purchase of Activision Blizzard Inc.

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December 22, 2023
Nike shares dive, company eyes $2 billion in cost cuts amid 'softer' outlook

Shares of Nike Inc. tumbled after hours Thursday after the athletic-gear giant warned of a “softer second-half revenue outlook” on its quarterly earnings call, and said it is targeting up to $2 billion in cost cuts over the next three years as it looks to shed management and focus on women customers and its Jordan brand.

Nike
NKE,
+0.91%
said that the savings could come from simplifying its product selection and using more automation and technology. But the athletic-gear giant has also reportedly begun to lay workers off, and said it expected to book pre-tax restructuring charges of around $400 million to $450 million, much of it in the company’s fiscal third quarter, “primarily associated with employee-severance costs.”

Nike did not immediately respond to questions about job cuts at the company, or how many staff have been or could be laid off. But on the company’s earnings call, management said its plans included “reducing management layers.”

In Nike’s earnings release, Chief Financial Officer Matthew Friend said the company’s fiscal second quarter — in which per-share profit beat expectations while sales were roughly in line — marked “a turning point in driving more-profitable growth.”

But investors appeared skeptical after hours on Thursday, as shares slid more than 11%.

Nike announced the cost-cutting drive as clothing and shoe brands try to steer through weaker demand overall and a broader price-cutting battle in retail stores for inflation-battered customers. Those customers have had to set aside more money to cover the costs of ever-pricier essential goods, at the expense of things like sportswear and sneakers.

“We are seeing indications of more cautious consumer behavior around the world in an uneven macro environment,” Friend said during the call.

Nike executives said consumer demand was strong through the back-to-school season, Black Friday and Cyber Monday, but lagged in between. Demand wobbled online, and in China and Europe.

They also said that the money they planned to save would be reinvested into helping Nike become more nimble and more responsive to consumer preferences, after years of shifting away from selling shoes and gear through traditional retail chains in favor of doing business through its own stores and e-commerce channels. They added that those efforts “added complexity and inefficiencies” as competition grew steeper.

Chief Executive John Donahoe said on the call that the Nike-brand women’s segment was already a $9 billion business. But he said new products — like bras, leggings, retro-themed running shoes and other offerings that span both sports and lifestyle — would help draw more women customers.

Within the Jordan category, Donahoe cited opportunities beyond basketball sneakers. Clothing and golf-, soccer- and football-related products, along with offerings targeted toward women and children, would also help drive growth, he said.

But for the rest of its fiscal year, Nike’s expectations were dimmer. The company said it forecasted “slightly negative” sales growth for its fiscal third quarter. For its fourth quarter, executives expect low-single-digits sales gains. And they said they now anticipate Nike’s full-year sales to increase around 1%, compared to an outlook in September for mid-single-digits gains.

In its fiscal second quarter, which ended on Nov. 30, Nike reported net income in the period of $1.58 billion, or $1.03 a share, compared with $1.33 billion, or 85 cents a share, in the same quarter last year. Revenue rose 1% year over year, to $13.4 billion.

Analysts polled by FactSet expected adjusted earnings per share of 84 cents, on sales of $13.39 billion.

Gross margin rose to 44.6%, helped by price increases and lower costs for ocean-freight shipping.

Outlooks this year from athletic-gear retailers like Foot Locker Inc.
FL,
+1.89%
and Dick’s Sporting Goods Inc.
DKS,
+0.78%
have also been cautious, and Nike has faced competition from the likes of Adidas
ADDYY,
+1.01%
and On Running
ONON,
-1.05%.

Nike management also said in their previous earnings call in September that they aimed to do more to attract women and running-shoe customers. However, they noted that demand for the company’s products remained solid and they were “cautiously planning for modest markdown improvements for the balance of the year,” as the company tightens up its supplies of sneakers and clothing in stock.

On Thursday’s call, executives said that demand for higher-priced products had been “resilient,” and that they didn’t have to cut prices as much as their rivals. And they said new releases — like the Sabrina 1 and Luka 2 sneakers — were the best way to stand out in a sea of discounts.

“We know in an environment like this, when the consumer is under pressure and the promotional activity is higher, that it’s newness and innovation which causes the consumer to act,” Friend said.

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December 21, 2023
Nike Beats Profit Expectations, Sees $2 Billion of Cost Cuts

Nike beat expectations for second-quarter profit and announced a $2 billion cost-cutting plan, as it sees sales softening for the second half of its fiscal year.

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December 21, 2023
Bluebird Bio Stock Is in Free Fall

Two weeks ago, bluebird bio secured Food and Drug Administration approval for its gene therapy for sickle cell disease, a significant milestone for the roughly 100,000 people in the U.S. who suffer from the condition.

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December 20, 2023
How Fed rate moves could impact different sectors of the stock market in 2024

Wall Street seems to agree that U.S. stocks will climb to fresh record highs in 2024. But the most important question for investors may still be the direction and speed of interest-rate moves.

Rate-sensitive groups of stocks with lackluster fundamentals, such as financials, utilities, staples, “may be able to outperform, at least early in the year,” if one expects interest rates “to come down quickly and permanently,” said Nicholas Colas, co-founder of DataTrek Research.

But if “one expects a bumpier ride on the rate front,” then stronger groups, like technology and tech-adjacent sectors “should do better,” Colas said in a Monday client note.

The S&P 500’s utilities, consumer staples and energy sectors have been the worst performing parts of the large-cap benchmark index so far in 2023, according to FactSet data.

With an over 10% year-to-date decline, the S&P 500’s utilities sector
XX:SP500.55
has significantly underperformed the broader index’s
SPX
23.6% advance.

The S&P 500’s best performing information technology sector
XX:SP500.45
was up 56.5% for the same period. But its consumer staples
XX:SP500.30
and energy
XX:SP500.10
sectors have slumped by 2.6% and 4.1% so far this year, respectively, according to FactSet data.

Utilities and consumer staples are usually considered defensive investment sectors, or “bond proxies,” because they can help investors minimize stock-market losses in any economic downturn. Companies in these sectors usually provide electricity, water and gas, or they sell products and services that consumers regularly purchase, regardless of economic conditions.

However, utilities and consumer staples stocks were under a lot of pressure this year. A relentless climb in U.S. Treasury yields in October made defensive stocks less attractive compared with government-issued bonds, or money-market funds offering 5%, especially as the economy remained strong, pushing recession expectations out further.

Colas expects “weaker groups” to catch a stronger tailwind if rates continue to decline.

See: Markets are declaring victory over inflation for Powell, and that has some economists worried

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
last week booked its biggest weekly decline in a year after the Federal Reserve signaled a pivot to rate cuts in 2024, which helped the S&P 500 score its longest weekly winning streak since 2017.

The S&P 500’s utilities and consumer staples sectors rose 0.9% and 1.6% last week, respectively, compared with the information technology sector’s 2.5% advance and communication services sector’s
XX:SP500.50
0.1% decline, according to FactSet data.

Earnings growth expectations for each S&P 500 sector in 2024 are indicated below. Sectors to the left of the dotted black line are expected to show better bottom-line results than the S&P 500 as a whole, while those to the right are expected to show weaker earnings growth.

SOURCE: FACTSET, DATATREK RESEARCH

Wall Street expects next year to see 11.5% growth in S&P 500 earnings-per-share (EPS), to $244, and 5.5% revenue growth, according to FactSet data.

However, there is a wide dispersion across S&P 500 sectors. The range goes from 2% revenue and 3% earnings growth for the energy sector, to 9% revenue and 17% earnings growth for the information technology sector, according to data compiled by DataTrek Research.

“Playing fundamentally weaker sectors therefore assumes even more good news on the rate front,” Colas said, adding that it still is riskier than sticking with “tried and true groups” like technology.

Moreover, sectors such as utilities, financials and consumer staples are not expected to show 10% earnings growth next year, while health care and big tech-dominated groups like communication services, technology and consumer discretionary, are expected to show much better than average revenue and earnings growth in 2024, said Colas, citing FactSet data.

U.S. stocks closed higher on Monday, with the Dow Jones Industrial Average
DJIA
building on its all-time high set last week. The S&P 500 gained 0.5% and the Dow Industrials closed fractionally higher. The Nasdaq Composite
COMP
finished up 0.6%, according to FactSet data.

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December 18, 2023
Nio stock jumps as Abu Dhabi investor to pour in $2.2 billion

Nio stock surged in premarket trade on Monday after the Chinese electric vehicle maker said it’s received a $2.2 billion investment from an Abu Dhabi investor.

Terms call for CYVN to invest $2.2 billion for 294 million shares at $7.50 each. Nio stock closed Friday at $7.98.

Nio’s U.S.-listed shares
NIO,
+1.53%
jumped 8% to $8.64 in premarket trade.

CYVN in July previously invested $738.5 million in Nio, as well as bought $350 million of shares in Nio from Tencent
700,
-0.89%.
The new deal at closing will give the Abu Dhabi group a 20% stake in the EV maker that focuses on the high-end of the market, and will give it the right to nominate two directors.

“With the enhanced balance sheet, Nio is well prepared to sharpen brand positioning, bolster sales and service capabilities, and make long-term investment in core technologies to navigate the intensifying competitive landscape, while continually improving execution efficiency and system capabilities,” said William Li, founder, chairman and chief executive officer of Nio, in a statement.

Nio has been cutting jobs and reducing projects that aren’t making financial contributions, as it fends off a price war from rivals including Tesla
TSLA,
+0.98%.

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December 18, 2023
U.S. Steel Stock Soars on $14.9 Billion Acquisition by Nippon Steel

U.S. Steel Stock Soars on $14.9 Billion Acquisition by Nippon Steel

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December 18, 2023
Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

Yields on 3-month
BX:TMUBMUSD03M
and 6-month
BX:TMUBMUSD06M
Treasury bills have been seeing yields north of 5% since March when Silicon Valley Bank’s collapse ignited fears of a broader instability in the U.S. banking sector from rapid-fire Fed rate hikes.

Six months later, the Fed, in its final meeting of the year, opted to keep its policy rate unchanged at 5.25% to 5.5%, a 22-year high, but Powell also finally signaled that enough was likely enough, and that a policy pivot to interest rate cuts was likely next year.

Importantly, the central bank chair also said he doesn’t want to make the mistake of keeping borrowing costs too high for too long. Powell’s comments helped lift the Dow Jones Industrial Average
DJIA
above 37,000 for the first time ever on Wednesday, while the blue-chip index on Friday scored a third record close in a row.

“People were really shocked by Powell’s comments,” said Robert Tipp, chief investment strategist, at PGIM Fixed Income. Rather than dampen rate-cut exuberance building in markets, Powell instead opened the door to rate cuts by midyear, he said.

New York Fed President John Williams on Friday tried to temper speculation about rate cuts, but as Tipp argued, Williams also affirmed the central bank’s new “dot plot” reflecting a path to lower rates.

“Eventually, you end up with a lower fed-funds rate,” Tipp said in an interview. The risk is that cuts come suddenly, and can erase 5% yields on T-bills, money-market funds and other “cash-like” investments in the blink of an eye.

Swift pace of Fed cuts

When the Fed cut rates in the past 30 years it has been swift about it, often bringing them down quickly.

Fed rate-cutting cycles since the ’90s trace the sharp pullback also seen in 3-month T-bill rates, as shown below. They fell to about 1% from 6.5% after the early 2000 dot-com stock bust. They also dropped to almost zero from 5% in the teeth of the global financial crisis in 2008, and raced back down to a bottom during the COVID crisis in 2020.

Rates on 3-month Treasury bills dropped suddenly in past Fed rate-cutting cycles

FRED data

“I don’t think we are moving, in any way, back to a zero interest-rate world,” said Tim Horan, chief investment officer fixed income at Chilton Trust. “We are going to still be in a world where real interest rates matter.”

Burt Horan also said the market has reacted to Powell’s pivot signal by “partying on,” pointing to stocks that were back to record territory and benchmark 10-year Treasury yield’s
BX:TMUBMUSD10Y
that has dropped from a 5% peak in October to 3.927% Friday, the lowest yield in about five months.

“The question now, in my mind,” Horan said, is how does the Fed orchestrate a pivot to rate cuts if financial conditions continue to loosen meanwhile.

“When they begin, the are going to continue with rate cuts,” said Horan, a former Fed staffer. With that, he expects the Fed to remain very cautious before pulling the trigger on the first cut of the cycle.

“What we are witnessing,” he said, “is a repositioning for that.”

Pivoting on the pivot

The most recent data for money-market funds shows a shift, even if temporary, out of “cash-like” assets.

The rush into money-market funds, which continued to attract record levels of assets this year after the failure of Silicon Valley Bank, fell in the past week by about $11.6 billion to roughly $5.9 trillion through Dec. 13, according to the Investment Company Institute.

Investors also pulled about $2.6 billion out of short and intermediate government and Treasury fixed income exchange-traded funds in the past week, according to the latest LSEG Lipper data.

Tipp at PGIM Fixed Income said he expects to see another “ping pong” year in long-term yields, akin to the volatility of 2023, with the 10-year yield likely to hinge on economic data, and what it means for the Fed as it works on the last leg of getting inflation down to its 2% annual target.

“The big driver in bonds is going to be the yield,” Tipp said. “If you are extending duration in bonds, you have a lot more assurance of earning an income stream over people who stay in cash.”

Molly McGown, U.S. rates strategist at TD Securities, said that economic data will continue to be a driving force in signaling if the Fed’s first rate cut of this cycle happens sooner or later.

With that backdrop, she expects next Friday’s reading of the personal-consumption expenditures price index, or PCE, for November to be a focus for markets, especially with Wall Street likely to be more sparsely staffed in the final week before the Christmas holiday.

The PCE is the Fed’s preferred inflation gauge, and it eased to a 3% annual rate in October from 3.4% a month before, but still sits above the Fed’s 2% annual target.

“Our view is that the Fed will hold rates at these levels in first half of 2024, before starting cutting rates in second half and 2025,” said Sid Vaidya, U.S. Wealth Chief Investment Strategist at TD Wealth.

U.S. housing data due on Monday, Tuesday and Wednesday of next week also will be a focus for investors, particularly with 30-year fixed mortgage rate falling below 7% for the first time since August.

The major U.S. stock indexes logged a seventh straight week of gains. The Dow advanced 2.9% for the week, while the S&P 500
SPX
gained 2.5%, ending 1.6% away from its Jan. 3, 2022 record close, according to Dow Jones Market Data.

The Nasdaq Composite Index
COMP
advanced 2.9% for the week and the small-cap Russell 2000 index
RUT
outperformed, gaining 5.6% for the week.

Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years

Year Ahead: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.

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December 17, 2023
'Smidcap' companies are becoming a big deal. Here's a look at some of the best.

The stocks of long-neglected small companies are finally showing signs of life as the market rally broadens. But these tiny companies still remain vastly undervalued. So, they are one of the best buys in the stock market right now.

Small- and medium-cap companies, or smidcaps, have not been this cheap since the Great Financial Crisis 15 years ago. “Smidcaps relative to large caps look very attractive,” says says portfolio manager Aram Green, at the ClearBridge Select Fund LBFIX, which specializes in this space. “Over the long term you will be rewarded.”

Green is worth listening to because he is one of the better fund managers in the smidcap arena. ClearBridge Select beats both its midcap growth category and Morningstar U.S. midcap growth index over the past five- and 10 years, says Morningstar Direct. This is no easy feat, in a mutual fund world where so many funds lag their benchmarks.

The timing for smidcap outperformance seems about right, since these stocks do well coming out of recessions. Technically, we have not recently had a recession. But there was an economic slowdown in the first half of the year, and the U.S. did have an earnings recession earlier this year. So that may count.

To get smidcap exposure, consider the funds of outperforming managers like Green, and if you want to throw in some individual stocks, Green is a great guide on how to find the best names in this space.

I recently caught up with him to see what we can learn about analyzing smidcaps. Below are four tactics that contribute to his fund’s outperformance, with nine company examples to consider.

1. Look for an entrepreneurial mindset: Green’s background gives him an edge in investing. He’s an entrepreneur who co-founded a software company called iCollege in 1997. It was bought out by BlackBoard in 2001. He knows how to understand innovative trends, identify a good idea, secure capital and quickly ramp up a business. This experience gives him a “private market mindset” that helps him pick stocks to this day.

“Founder-run companies regularly outperform.”

Green looks for managers with an entrepreneurial mindset. You can glean this from company calls and filings, but it helps a lot to meet management — something most individual investors cannot do. But Green offers a shortcut, one which I regularly use, as well. Look for companies that are run by founders. This will give you exposure to managers with entrepreneurial spirit.

Here, Green cites the marketing software company HubSpot
HUBS,
+0.79%,
a 1.9% fund position as of the end of the third quarter. It was founded by Massachusetts Institute of Technology college buddies Brian Halligan and Dharmesh Shah. They’re on the company’s board, and Shah is chief technology officer.

Academic studies confirm founder-run companies regularly outperform. My guess is this is because many founders never lose the entrepreneurial spirit, no matter how easy it would be to quit and sip Mai Tai’s on a beach after making a bundle.

In the private market, Green cites Databricks, a data management and analytics company with an AI angle. This competitor of Snowflake
SNOW,
-0.92%
is likely to go public in 2024. If you feel like an outsider because you lack access to private market investing, note that Green says he typically buys more exposure to private companies on the initial public offering (IPO), and then in the market. “We like to spend time with them when they are private so we can pounce when they are public,” Green says.

2. Look for organic growth: When companies make acquisitions their stocks often decline, and for good reason. Managers make mistakes in acquisitions because they overestimate “synergies.” Or they get wrapped up in ego-enhancing empire building.

“We favor entrepreneurial management teams that do not make a lot of acquisitions to grow, but use their resources to develop new products to keep extending the runway,” says Green.

Here, he cites ServiceNow
NOW,
+2.62%,
which has grown by “extending the runway” with new offerings developed internally. It started off supporting information technology service desks, and has expanded into operations management of servers and security, onboarding employees, data analytics, and software that powers 911 emergency call systems. Green obviously thinks there is a lot more upside to come, given that this is an overweight position, at 4.6% of the portfolio (the fund’s biggest holding).

Green also puts the “Amazon.com of Latin America” MercadoLibre
MELI,
+0.17%
in this category, because it continues to expand geographically and in areas such as logistics and payment systems. “They have really morphed into a fintech company,” Green says. He puts HubSpot and the marketing software company Klaviyo
KVYO,
-5.73%
in this category, too.

3. Look for differentiated business models: Green likes companies with offerings that are special and different. That means they’ll take market share, and face minimal competition. They’ll also enjoy pricing power. “This leads to high margins. You don’t have someone beating you up on price,” he says.

Green cites the decking company Trex
TREX,
+0.10%,
which offers composite decking and railing made from recycled materials. This gives it an eco-friendly allure. Compared to wood, composite material lasts longer and requires less maintenance. It costs more up front but less over the long term. Says Green: “The alternative decking market has taken about 20% of the market and that can get to 50%.”

Of course, entrepreneurs notice success, and try to imitate it. That’s a risk here. But Trex has an edge in its understanding of how to make the composite material. It has a strong brand. And it is building relationships with big-box retailers Home Depot and Lowe’s. These qualities may keep competitors at bay.

4. Put some ballast in your portfolio: Green likes to keep the fund’s portfolio balanced by sector, size, and business dynamic. So the portfolio includes the food distributor Performance Food Group
PFGC,
-1.69%.
The company is posting mid-single digit sale growth, expanding market share and paying down debt. Energy drinks company Monster
MNST,
-0.85%
also offers ballast. Monster’s popular product line up helps the company to take share and enjoy pricing power, Green says.

It’s admittedly unusual to see a food companies in a portfolio loaded with high-growth tech innovators. But for Green, it’s all part of the game plan. “Rapid growth, disrupting businesses are not going to work year in year out. There are times they fall out of favor, like 2022. So, having that balance is important because it keeps you invested in the equity market.”

In other words, keeping some ballast means you’re less likely to get shaken out by sharp declines in high-growth and high-beta tech innovators when trouble strikes the market.

Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN, TSLA and MELI. Brush has suggested AMZN, TSLA, NOW, MELI, HD and LOW in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks

More: Nvidia, Disney and Tesla are among 2023’s buzziest stocks. Can they continue to sizzle in 2024?

Also read: Presidential election years like 2024 are usually winners for U.S. stocks

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December 17, 2023
Activision Blizzard to pay $55 million to settle California civil-rights lawsuit

Videogame maker Activision Blizzard has agreed to pay nearly $55 million to settle a California civil-rights lawsuit brought over complaints of sexual harassment, discrimination and pay disparities by women employees that helped trigger the company’s acquisition by Microsoft.

The settlement, announced by the California Civil Rights Department on Friday evening, resolves the lawsuit filed against the “Call of Duty” videogame studio by the agency in 2021 over claims that it “discriminated against women at the company, including by denying promotion opportunities and paying them less than men for doing substantially similar work,” CRD said.

The agreement, subject to court approval, will see Activision pay nearly $46 million into a settlement fund dedicated to compensating women employees and contract workers at the company, plus more than $9 million in attorneys’ fees and costs. Additionally, Activision will take steps “to help ensure fair pay and promotion practices at the company,” including retaining an independent consultant to evaluate its compensation and promotion policies.

Yet the settlement also sees CRD withdraw its initial claims alleging a culture of widespread, systemic workplace sexual harassment at Activision, according to a copy of the agreement provided to MarketWatch. The document notes that the department is filing an amended complaint that removes the sexual-harassment allegations against the company and focuses on the gender-based pay and promotion claims.

CRD made no note of its prior sexual-harassment claims against Activision in its announcement Friday. A spokesperson for the department said the statement “largely speaks for itself with respect to the historic nature of this more than $50 million settlement agreement, which will bring direct relief and compensation to women who were harmed by the company’s discriminatory practices.

Representatives for Activision declined to comment.

The Wall Street Journal first reported the news of the settlement Friday.

The California agency’s complaint was one of several high-profile investigations by both state and federal regulators in recent years into alleged workplace misconduct at Activision and failures by its leadership to respond appropriately.

While Activision repeatedly denied the allegations, they ramped up pressure on the Santa Monica, Calif.-based company and its CEO, Bobby Kotick, and eventually led to a $68.7 billion takeover bid by Microsoft
MSFT,
+1.31%
in January 2022. The acquisition closed this October after receiving approval by U.K. and E.U. antitrust regulators, though the U.S. Federal Trade Commission continues to challenge the deal in court. Kotick is expected to leave the company, which he led for more than three decades, at the end of this year.

The settlement would be the second-largest ever for the California Civil Rights Department, according to the Journal, after its $100 million agreement with another Los Angeles-area videogame developer, Riot Games, to resolve gender-discrimination allegations in 2021. The agency had initially sought a much-larger settlement with Activision, the publication reported, citing how the state had estimated the company’s liability at nearly $1 billion to some 2,500 employees with potential claims.

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December 15, 2023
Broadcom now ranks among 10 largest U.S. companies after big 2023 stock gains

Nvidia Corp. has catapulted up the list of the most valuable U.S. companies this year, rising eight spots from the end of last year to sit in the fifth position with a market capitalization of $1.2 trillion.

But other chip companies have seen their positions rise even more. Just look at Broadcom Inc.
AVGO,
+2.10%,
which has climbed 16 spots over the course of 2023 and on Friday cracked the top 10 for the first time, according to Dow Jones Market Data. Broadcom eclipsed Visa Inc.
V,
-0.27%
at Friday’s close to take the No. 10 spot, with a valuation of $527.7 billion.

Read: Could Nvidia’s stock — up 231% this year — actually be a bargain?

Admittedly, Broadcom had some help along the way. The company acquired VMware in late November, and its market capitalization gained about $50 billion at the close of the transaction, according to FactSet data.

But Broadcom’s ascent also reflects how chip stocks have gotten more shine this year amid the artificial-intelligence frenzy. Broadcom’s stock has doubled so far in 2023.

Mizuho desk-based analyst Jordan Klein expects “an order acceleration in networking silicon for AI clusters” in the second half of 2024, as calendar year 2025 could bring a big year of capital-expenditure investments in AI for ethernet back-end high-speed connections.

Broadcom “is the KEY WINNER in that investment cycle as the arms dealer to all networking OEMs,” or original equipment manufacturers, wrote Klein, who’s associated with Mizuho’s sales team and not its research arm.

Advanced Micro Devices Inc.
AMD,
+0.83%
has also seen a nice march up the charts, rising 48 spots so far in 2023 to rank 30th in terms of market cap. AMD was valued at $223.9 billion as of Friday’s close.

“We view AMD as well-positioned to gain incremental share of the hugely profitable $100 billion-plus accelerator market while continuing to make progress in server [central processing units] against incumbent [Intel],” BofA Securities analyst Vivek Arya wrote in a recent upgrade.

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December 15, 2023
DocuSign's stock pops as company reportedly considers a sale

One-time pandemic darling DocuSign Inc. may be looking to sign a deal of its own.

The e-signature company is working with advisers as it considers a sale, the Wall Street Journal reported Friday afternoon. A deal for DocuSign
DOCU,
+11.37%,
valued at upwards of $11 billion, could result in one of the largest recent leveraged buyouts, the report said, noting that private-equity firms and technology companies were among the potential suitors.

DocuSign shares were up more than 11% in afternoon trading Friday following the report.

A DocuSign spokesperson said the company doesn’t comment on rumors or speculation.

The company was a pandemic-era poster child as businesses looked for ways to get signatures on contracts, mortgages and other documents in a virtual world. But DocuSign has struggled to match its earlier growth rates as offices have resumed in-person activity, and management acknowledged a tough macroeconomic environment when DocuSign last posted earnings.

DocuSign shares traded above $310 at their highest point in September 2021, but they closed Thursday near $56. The stock was changing hands just south of $64 Friday amid the intraday rally.

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December 15, 2023
This is what we can expect to see from meme stocks in 2024

It may be a couple of years since the meme-stock feeding frenzy hit its heights, but we’re still seeing occasional bursts of meme-like activity in number of stocks.

No discussion of meme stocks would be complete without OG AMC Entertainment Holdings Inc.
AMC,
-0.89%.
But while the movie theater chain and original meme stock darling still grabs plenty of attention, it no longer fits the bill of a meme stock, according to Alicia Reese, VP of equity research at Wedbush. “AMC has seemingly lost its meme status, its share price having come crashing back down to earth over the past several months, particularly since its APE fold-in and reverse stock split,” she said. “AMC is now trading at a more normalized valuation, even if still at the high-end of its pre-meme historic range.”

AMC’s shares ended Friday’s session at $6.65, a far cry from their high of $393.63 on June 2, 2021, during the meme-stock frenzy.

Related: AMC’s stock falls more than 5% after company completes $350 million equity offering

“AMC’s premium valuation here is driven in part by a sub-section of the shareholders it gained during its meme stage, who have remained loyal to the company and have long claimed to be AMC shareholders for life,” Reese added. “AMC shed all the rest of its meme-era shareholders and are now left with the lifers, along with some institutional shareholders now that valuation has come back to a more normalized range.”

The analyst thinks that in 2024, AMC will continue to issue pre-authorized shares to pay down its high-debt balance, as evidenced by the $350 million equity offering completed this week. “The company is focused on right-sizing the balance sheet, while attempting to maintain strong relations with the AMC lifers still propping up the stock,” said Reese.

Fellow original meme stock GameStop has also been in the news recently, with the company’s board of directors approving a new investment policy, which lets the company invest in equity securities, among other investments. The board also gave Chairman and Chief Executive Ryan Cohen the authority to manage the investment portfolio. The new policy was dubbed “alarming” and “inane” by Wedbush Managing Director Michael Pachter.

“If he can invest in anything – farmland, chicken feed, cryptocurrency – that’s not in the best interests of the shareholders,” he told MarketWatch. “Heaven knows what he will do.”

Related: GameStop’s plan to buy stocks with company cash ‘alarming’ and ‘inane,’ analyst says

As for GameStop, the analyst describes the videogame retailer as a declining business, pointing to the company’s third-quarter revenue of $1.078 billion, which was down from $1.186 billion in the prior year’s quarter. “They are shrinking, period, and they can’t save their way to prosperity,” he added.

The company’s new investment policy could also fuel more meme-style activity, according to Pachter, who says that Cohen’s moves will be closely watched. “He will invest in something and it will possibly become the next meme stock,” the analyst told MarketWatch.

Pachter pointed to Cohen’s decision in 2022 to unload his huge stake in beleaguered home goods retailer and sometime meme stock Bed Bath & Beyond Inc. just months after buying it. In August of that year Cohen sold his entire stake in Bed Bath & Beyond five months after accruing the stake in an activist campaign, amassing a profit of more than $58 million.

Stocktwits, a social platform for investors and traders, told MarketWatch that it has seen a dedicated core audience of retail investors stick with the likes of AMC and GameStop. “Message volume and sentiment have remained elevated on the platform throughout the year, with their audiences growing temporarily around earnings or other events that create volatility,” Tom Bruni, senior writer at Stocktwits, told MarketWatch.

Related: Small-cap Chinese stocks spark meme-like buzz

Retail traders are still on the lookout for high-volatility situations, according to Bruni, who cited the example of Vietnamese electric vehicle stock VinFast Auto Ltd.
VFS,
+13.54%,
which had a “crazy month” in August before crashing back down. “However, we would note that there have been fewer instances of these types of meme stocks occurring this year, and their lifespan tended to be pretty short,” he added.

“For stocks with the ‘meme’ potential in 2024, look to beaten-down areas of the market that already have strong retail investor communities around them,” Bruni told MarketWatch. “Several that stick out are electric vehicle stocks (specifically startups), solar stocks, or anything China-related. Traders will likely be looking for stocks at the intersection of these themes, like Lucid Group ($LCID), as potential ‘powder kegs’ for volatility in 2024.”

Shares of Lucid Group Inc.
LCID,
-7.20%
are down 30.2% in 2023, compared with the S&P 500 index’s
SPX
gain of 22.9%.

One thing is for sure – the social media dynamics that created the meme stock phenomenon are not going away. “Internet culture will continue to be more prevalent in markets as the world becomes more digitized and young people age into participation,” Tommy Tranfo, head of community at Stocktwits, told MarketWatch. “Crypto markets are an area where we expect to see a large concentration of this activity, particularly within the context of a crypto bull market, which will likely bring in a new wave of market participants who will skew toward the internet culture demo.”

Related: This EV company has a bigger market cap than Ford or GM. But you may not have heard of it.

“New crypto meme communities such as the $BONK (a dog-themed coin on the Solana blockchain) are already clear examples of this craze taking place,” he added.

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December 15, 2023