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Advanced Micro Devices Inc. shares rose in the extended session Tuesday after the chip maker’s data-center sales gained and executives forecast sales of more than $5 billion to start 2023, even as cloud-customer demand begins the year light.
AMD shares AMD rose 3% after hours, following a 3.7% gain in the regular session to close at $75.15.
AMD…
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UBS Group AG on Tuesday reported a surprise rise in fourth-quarter profit as its wealth-management arm attracted billions in new client money, offsetting a slump at its investment bank amid macroeconomic headwinds.
The Swiss bank
UBS,
UBSG,
reported a net profit of $1.65 billion in the three months to the end of December, up from $1.35 billion for the same period a year earlier.
Revenue was $8.03 billion compared with $8.71 billion in the fourth quarter of 2021.
It meant the Zurich-based bank beat 4Q estimates of net profit of $1.28 billion and revenue at $7.98 billion, according to analysts’ consensus provided by the company.
UBS said it took on $23.3 billion in net new fee-generating assets at its key wealth-management business in the quarter, at a time when its local rival Credit Suisse Group AG had struggled with client withdrawals.
Profit before tax at wealth management jumped 88% to $1.06 billion, it added.
It also attracted $25 billion in net new money at its asset-management business, UBS said.
But at its investment bank, profit before tax tumbled to around $100 million, down 84%, as dealmaking slumped.
The bank cited persistent inflation, rapid central bank tightening, the Ukraine war, and geopolitical tensions that affected asset-pricing levels and investor sentiment in the year.
“While the macroeconomic outlook remains uncertain, our operational resilience, capital strength and capital generation put us in a great position to serve our clients, fund growth and deliver strong capital returns to shareholders,” Chief Executive Ralph Hamers said.
Its common equity tier 1 ratio, a measure of financial strength, at the end of December was 14.2%, down from 14.4% at the third quarter.
The company said it would propose a dividend of $0.55 for 2022, a 10% year-on-year increase.
The lender added that it would remain committed to a progressive dividend and expects to repurchase more than $5 billion of shares in 2023, after $5.6 billion in 2022.
Write to Ed Frankl at edward.frankl@dowjones.com
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This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.
https://www.barrons.com/articles/stock-market-movers-tesla-alibaba-gm-lucid-51674835133
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Royal Philips NV on Monday said it will cut an extra 6,000 jobs by 2025, including around 3,000 this year, as part of a plan to improve performance and drive value creation.
The Dutch health-technology company
PHIA,
PHG,
–which said in October that it was cutting 4,000 jobs, or about 5% of its 80,000-strong workforce–said Monday that the simplified operating model will make it more agile and competitive, while reducing costs. The job cuts announced Monday are in addition to those outlined in October.
Philips said that it will now focus on extracting the full value of its portfolio through a strategy of focused organic growth.
The company made the disclosure as it reported a swing to net loss for the fourth quarter of last year amid higher costs, but said that it has seen some improvement in the period and that is taking actions to address operational challenges in an uncertain environment.
The Dutch health-technology company–which sells products including MRI scanners and ultrasound machines–posted a net loss attributable to shareholders of 106 million euros ($170.6 million) compared with a profit of EUR157 million for the fourth quarter of 2021 and a company-compiled consensus loss of EUR16 million.
Adjusted earnings before interest, taxes and amortization–which strips out exceptional and other one-off items–was EUR651 million compared with EUR647 million and a consensus of EUR428 million.
The company said its performance was hit by cost inflation that was partly offset by pricing and productivity measures.
Group sales in the period were EUR5.42 billion compared with EUR4.94 billion and a consensus of EUR5.03 billion.
Like-for-like sales were up 3%, compared with a company-compiled forecast for a fall of 5.2%, due to improved component supplies
Royal Philips said it now expects low-single-digit comparable sales growth and high-single-digit adjusted Ebita margin for this year.
It has also targeted mid-single-digit comparable sales growth and a low-teens adjusted Ebita margin by 2025, and for mid-single-digit comparable sales growth and mid-to-high-teens adjusted Ebita margin beyond 2025.
“Considering the slowing of consumer demand and a gradual improvement of the order book conversion during 2023, Philips anticipates a slow start to the year, with improvements throughout the year supported by the ongoing productivity, pricing and other actions,” it said.
Write to Ian Walker at ian.walker@wsj.com
The company said its performance was hit by cost inflation that was partly offset by pricing and productivity measures.
Group sales in the period were EUR5.42 billion compared with EUR4.94 billion and a consensus of EUR5.03 billion.
Like-for-like sales were up 3%, compared with a company-compiled forecast for a fall of 5.2%, due to improved component supplies
Royal Philips said it now expects low-single-digit comparable sales growth and high-single-digit adjusted Ebita margin for this year.
“Considering the slowing of consumer demand and a gradual improvement of the order book conversion during 2023, Philips anticipates a slow start to the year, with improvements throughout the year supported by the ongoing productivity, pricing and other actions,” it said.
Write to Ian Walker at ian.walker@wsj.com
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In the biggest week of the holiday-earnings season, Big Tech results will receive the spotlight amid thousands of layoffs that could only be the beginning.
After tech stocks were decimated in 2022, investors will be looking for signs of a turnaround in holiday reports and potential forecasts for the year ahead from three of 2022’s top five market-value losers: Amazon.com Inc.
AMZN,
Apple Inc.
AAPL,
and Meta Platforms Inc.
META,
The other two stocks on that list — Microsoft Corp.
MSFT,
and Tesla Inc.
TSLA,
— reported last week, and Microsoft’s results in the wake of a mass-layoffs announcement did not bode well for its Big Tech brethren.
See also: Microsoft could be the cloud sector’s ‘canary in the coal mine’
Those companies — along with Google parent Alphabet Inc.
GOOGL,
GOOG,
— will deliver results after finding themselves in unfamiliar territory: A backdrop of layoffs amid slowing demand for core products like digital ads, electronics and e-commerce, after a two-year pandemic surge and a two-decade-plus honeymoon with investors. Some analysts say the bottom hasn’t arrived, for either their finances or their workforces.
The one Big Tech company that hasn’t taken a sword to its payroll is Apple, which also increased its staff the least among the group during the COVID-19 pandemic. Apple shed $846 billion from its market cap last year, and now reports after its core product was part of the smartphone industry’s worst year since 2013 and worst holiday-season decline on record. The iPhone maker could also face questions from Wall Street about changing up its product sourcing, which has relied heavily on China, a nation whose COVID-19 restrictions have constrained production of some phones.
While the tech-industry layoffs have yet to hit Apple, some analysts say the company is unlikely to be spared, despite Chief Executive Tim Cook requesting and receiving a healthy cut to his compensation.
“Similar to other big technology companies, we expect Apple to adjust its head count to reflect an increasingly challenging global macroeconomic environment,” D.A. Davidson analyst Tom Forte said in a research note Tuesday.
Rivals that have already cut could face more if profit continues to fall along with revenue growth. Alphabet, for instance, is cutting 12,000 employees, but an activist investor has already said that is not enough considering how much the company grew during the pandemic, and the difficulties it now faces in the online-ad sector.
Opinion: Microsoft’s big move in AI does not mean it will challenge Google in search
Analysts have said Meta’s “darkest days” are still ahead, as it navigates a round of more than 11,000 layoffs, competition from TikTok and its early stumbles in the metaverse. While cutting, Chief Executive Mark Zuckerberg has promised to keep spending on metaverse development, even as the efforts slash the Facebook parent company’s previously healthy bottom line.
“In 2023, we expect Meta to remain engulfed in arduous battles inside the Octagon,” Monness Crespi Hardt analyst Brian White said in a research note on Thursday. “In the long run, we believe Meta will benefit from the secular digital ad trend and innovate in the metaverse; however, regulatory scrutiny persists, internal headwinds remain, and we believe the darkest days of this downturn are ahead of us.”
Full Facebook earnings preview: Meta’s ‘darkest days’ are ahead, but some analysts say ad sales are still on track
Online retailer Amazon
AMZN,
was the first Big Tech company to publicly declare cost-cutting was in order a year ago, and still coughed up $834 billion in market value in 2022. It kicked off 2023 with plans to lay off more than 18,000 workers as struggles continued throughout last year, when inflation siphoned away more consumer dollars toward essentials.
Amazon’s own AWS cloud-infrastructure unit has helped to drive sales in years past, as businesses built out their tech infrastructures. But remarks and the outlook from Microsoft executives — the third-biggest market-cap loser of 2022, and a big barometer for tech spending overall — weren’t exactly encouraging for cloud growth: Executives there last week warned of “moderating consumption growth” for its own cloud business.
For more: One company could determine whether U.S. corporate profits rise to a record in 2023
“Sentiment was already bearish on AWS, with investors looking for slowing revenue over the next three quarters, largely confirmed after Microsoft earnings and conversations with industry checks,” Oppenheimer analyst Jason Helfstein said in a note on Wednesday. “Positively, we believe e-commerce revenue has stabilized, and margins should improve from organic scale and announced head-count reductions.”
Layoffs are also starting to spread beyond Big Tech companies that grew fast during the pandemic in response to massive demand spikes. International Business Machines Corp.
IBM,
confirmed plans for 3,900 layoffs as it reported earnings, despite already reducing its workforce by at least 20% during the pandemic.
One sector to watch is semiconductors, where a chip shortage has turned into a glut: Chip-equipment maker Lam Research Corp.
LRCX,
announced layoffs in the past week as Silicon Valley semiconductor giant Intel Corp.
INTC,
displayed “astonishingly bad” results while laying off workers. When Intel rival Advanced Micro Devices Inc.
AMD,
reports this week, it could determine whether there is any silver lining in the semiconductor storm.
Earnings preview: AMD faces even more scrutiny after ‘astonishingly bad’ Intel outlook
Wedbush analyst Daniel Ives said in a Sunday note that a common theme of this week’s Big Tech earnings will be that “tech layoffs will accelerate with more pain ahead to curb expenses,” though he added that “Apple will likely cut some costs around the edges, but we do not expect mass layoffs from Cupertino this week.”
Big Tech earnings were a salve to other problems in the market for the past decade-plus, but with layoffs already under way and doubts about the path forward, don’t expect salvation from their results this week.
For the week ahead, 107 S&P 500
SPX,
companies, including six members of the Dow Jones Industrial Average
DJIA,
will report results, according to FactSet. While more Dow components reported last week, this will be the busiest week for S&P 500 holiday earnings of the season, FactSet senior earnings analyst John Butters confirmed to MarketWatch.
Appliance-maker Whirlpool Corp.
WHR,
reports on Monday, after it forecast fourth-quarter sales that were below expectations, following what it called a “one-off supply-chain disruption” and the pandemic home-renovation boom.
On Tuesday, package-deliverer United Parcel Service Inc.
UPS,
reports, amid questions about holiday-season demand. So does streaming service Spotify Technology,
SPOT,
following its own layoffs and suggestions of possible price hikes, as well as McDonald’s Corp.
MCD,
amid concerns that rising prices are keeping people from dining out. Exxon Mobil Corp.
XOM,
Caterpillar Inc.
CAT,
Snap Inc.
SNAP,
and Pfizer Inc.
PFE,
also report Tuesday.
Earnings outlook: McDonald’s earnings haven’t been hit by higher prices
On Wednesday, T-Mobile US Inc.
TMUS,
reports, in the wake of a data breach and wobbling cellphone demand. Coffee chain Starbucks Corp.
SBUX,
reports on Thursday, with analysts likely to be zeroed in on U.S. demand and China’s reopening, after executives said they were confident that higher prices, along with enthusiasm from younger customers and for customizable drinks, could help them navigate any potholes in the economy.
For the Big Tech companies, Thursday is also the big day: Apple, Amazon and Alphabet will report that afternoon, after Meta reports the prior day.
WWE upheaval: World Wrestling Entertainment Inc.
WWE,
reports earnings on Thursday, as Vince McMahon — who returned to the professional-wrestling organization this month following allegations of sexual misconduct — seeks a buyer or some other so-called “strategic alternative” for the company.
Analysts have speculated how the company’s wrestling events and backlog of media content might be repurposed, with some entertaining the possibility of interest from Amazon or Netflix Inc.
NFLX,
But WWE has struggled to develop story lines that stick with viewers, and has thinned its ranks of wrestlers.
The Wall Street Journal this month reported that McMahon would pay a multimillion-dollar settlement to a former referee who accused him of raping her. Among the changes since McMahon returned was the departure of his daughter, who had been promoted to co-CEO after he stepped down from the role last year.
There isn’t much clarity on whether Vince McMahon will be on Thursday’s earnings call, which was moved from the morning to the afternoon due to a scheduling conflict. But it should offer drama no matter who attends.
GM and Ford auto sales: Auto makers General Motors Co.
GM,
and Ford Motor Co.
F,
will issue results on Tuesday and Thursday respectively, amid signs of waning demand and rising interest rates that have made car loans more expensive. Despite falling new-vehicle sales in the third quarter, GM managed to keep its own sales higher, the AP noted.
Mary Barry, GM’s chief executive, called out the popularity of vehicles like the Escalade, the Chevrolet Bolt EV and some pickups and SUVs during the auto maker’s third-quarter earnings call in October. During that quarter, GM said it completed and shipped nearly 75% of the unfinished vehicles held in its inventory in June. She said supply-chains were opening up again, but added that “short-term disruptions will continue to happen.”
The auto makers report as they try to put a chip shortage and other production constraints behind them. But some forecasts call for 2022 auto sales, or sales volumes, to be the weakest in roughly a decade. Electric vehicle maker Tesla’s recent price cuts could also cut into GM’s and Ford’s own EV sales.
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The numbers: U.S. pending-home sales rose 2.5% in December, reversing a six-month losing streak, according to the monthly index released Friday by the National Association of Realtors (NAR).
Pending home sales were down for six months in a row, as the U.S. Federal Reserve increased interest rates and mortgage rates took off.
Pending-home sales beat analyst expectations. Analysts polled by the Wall Street Journal had forecast the pending home sales index to drop by 1%.
Contract signings rose in the South and the West.
Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed.
Economists view it as an indicator for the direction of existing-home sales in subsequent months.
Mortgage application activity hints at the housing market’s further recovery. Mortgage demand rose in the latest week.
Key details: Compared with a year earlier, transactions were down by 33.8%.
On a monthly basis, pending sales rose in the South and the West. Sales dropped in the Northeast and Midwest.
Pending home sales fell the most since last December in the West, by 37.5%.
Big picture: A dip in rates has boosted demand for mortgages. Buyers are coming back to the market, and the housing market is slowly recovering. But inventory remains low, as sellers hold out. Many are looking to the spring to see if sellers are motivated to list their homes.
What the realtors said: “This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Yun expects mortgage rates to hover between the 5.5% and 6.5% range.
He also expects the South to outperform in terms of sales, since the job market is stronger in the region.
What they’re saying: “Home sales have now largely adjusted to the collapse in demand since late 2021. … [but] a sustained recovery likely remains a long way off,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.
“The downturn in sales is coming to an end, but the decline in home prices is only just getting underway,” he added. He expects home prices to fall 15% over the next year.
Market reaction: The Dow Jones Industrial Average
DJIA,
and the S&P 500
SPX,
were mixed in early trading on Friday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose above 3.5%.
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Intel Corp. shares dropped more than 9% in the extended session Thursday after the chip maker reported a big miss for the fourth quarter, forecast a loss for the first quarter, said the data-center market was contracting and that inventory digestion will gnaw at margins.
Intel
INTC,
executives forecast an adjusted loss of 15 cents a share on revenue of about $10.5 billion to $11.5 billion and adjusted gross margins of about 39% for the current quarter. Analysts surveyed by FactSet had estimated adjusted first-quarter earnings of 25 cents a share on revenue of $13.93 billion.
Chief Executive Pat Gelsinger told analysts on a conference call he would not provide a 2023 forecast. Gelsinger restricted the outlook to the current quarter, citing macro uncertainties, a digestion of PC inventory that was “difficult” to forecast and a contracting data-center market. In the fourth quarter, AI group sales dropped 33% to $4.3 billion, while the Street expected revenue of $4.08 billion.
“We expect Q1 server consumption [total addressable market] to decline both sequentially and year-over-year at an accelerated rate, with first-half 2023 server consumption TAM down year-on-year before returning to growth in the second half,” Gelsinger said.
Chief Financial Officer David Zinsner told analysts that the company will institute an accounting change in the first quarter, where Intel will extend the useful life of their machinery to eight years from a current five years. Gelsinger said that Intel was going to “squeeze” its effective capacity.
While Zinsner would not give a full-year outlook, he did say that continued inventory digestion should be weighted to the first half of the year.
Pressed on how Intel could get back to the 51% to 53% margins range he promised a year ago, Zinsner said a “significant inventory burn” on PC inventory would hit gross margins by 400 basis points in the first quarter. Gross margins for the fourth quarter dropped to 43.8% from 55.8% a year ago, and from 45.9% in the third quarter.
Intel reported a fourth-quarter loss of $664 million, or 16 cents a share, versus net income of $4.62 billion, or $1.13 a share, in the year-ago period. After adjusting for restructuring charges and other items, Intel reported earnings of 10 cents a share, compared with $1.13 a share from a year ago.
Revenue declined to $14.04 billion from $20.52 billion in the year-ago quarter, for a 10th straight quarter of year-over-year declines.
Analysts surveyed by FactSet estimated earnings of 21 cents a share on revenue of $14.49 billion, based on Intel’s forecast of 20 cents a share on about $14 billion to $15 billion.
Intel shares fell 9% in after-hours trading, after closing the regular session up 1.3% at $30.09. Other chip stocks also declined, including top rival Advanced Micro Devices Inc.
AMD,
which saw shares drop more than 3% in after-hours trading, and Nvidia Corp.
NVDA,
which declined 2%.
Breaking down divisions: Client-computing sales fell 36% to $6.6 billion from a year ago; “network and edge” sales slipped 1% to $2.1 billion; and foundry services revenue rose 30% to $319 million.
Analysts surveyed by FactSet expected revenue from client computing to come in at $7.36 billion; “network and edge” revenue of $2.23 billion; and foundry services revenue of $199.1 million.
Over the past 12 months, Intel stock has fallen 43%. Over the same period, the Dow Jones Industrial Average
DJIA,
— which counts Intel as a component — has slipped 1%, the PHLX Semiconductor Index
SOX,
has dropped 13%, the S&P 500 index
SPX,
has declined 7%, and the tech-heavy Nasdaq Composite Index
COMP,
has dropped 15%.
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Hasbro Inc. late Thursday said it plans to lay off about 15% of its workforce and warned Wall Street to brace for a quarterly loss and a drop in revenue after a disappointing holiday season.
Hasbro
HAS,
reported preliminary losses between $1 a share and 93 cents a share for its fourth quarter, and an adjusted loss of between $1.29 a share and $1.31 a share in the period.
That runs counter to FactSet consensus of an adjusted profit of $1.52 a share for the quarter.
The maker of My Little Pony, Baby Alive and other toy brands also reported preliminary fourth-quarter revenue of about $1.68 billion, down 17% year-over-year. That compares with FactSet consensus for revenue of $1.92 billion for the quarter.
Hasbro stock fell more than 8% in the extended session after ending the regular trading day down 0.5%.
Hasbro’s “consumer-products business underperformed in the fourth quarter against the backdrop of a challenging holiday consumer environment,” despite “strong growth” for digital gaming and other areas of the company, Chief Executive Chris Cocks said in a statement.
Several retailers have posted lower-than-expected fourth-quarter sales as concerns about the economy simmer. Layoffs have also been widespread, with International Business Machines Corp.
IBM,
and SAP
SAP,
among the latest announcing cuts.
The global job cuts will start in the next few weeks, Hasbro said. The toy maker employed 6,640 people worldwide as of December 2021, according to its most recent annual filing with securities regulators.
Hasbro said that the layoffs and “ongoing systems and supply-chain investments” will keep the company on track to hit its goal of between $250 million and $300 million in cost savings by the end of 2025.
Until then, however, 2022 and “particularly” the fourth quarter were a “a challenging moment for Hasbro,” the company said.
Earlier this month, analysts at BMO said they expected Hasbro’s holiday-season sales were likely among “the weakest in the North American toy industry.”
Hasbro’s stock has fallen about 29% in the last 12 months, compared with a decline of around 7% for the S&P 500 index
SPX,
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Intel Corp. shares dropped in the extended session Thursday after the chip maker reported a big miss for the fourth quarter and forecast a loss for the first quarter.
Intel
INTC,
shares fell 6% in after-hours trading, after closing the regular session up 1.3% at $30.09.
For the first quarter, Intel forecast an adjusted loss of 15 cents a share on revenue of about $10.5 billion to $11.5 billion and adjusted gross margins of about 39%. Analysts surveyed by FactSet had estimated adjusted first-quarter earnings of 25 cents a share on revenue of $13.93 billion.
“In 2023, we will continue to navigate the short-term challenges while striving to meet our long-term commitments, including delivering leadership products anchored on open and secure platforms, powered by at-scale manufacturing and supercharged by our incredible team,” said Pat Gelsinger, Intel’s chief executive, in a statement.
Intel reported a fourth-quarter loss of $664 million, or 16 cents a share, versus net income of $4.62 billion, or $1.13 a share, in the year-ago period. After adjusting for restructuring charges and other items, Intel reported earnings of 10 cents a share, compared with $1.09 a share from a year ago.
Revenue declined to $14.04 billion from $20.52 billion in the year-ago quarter, for a 10th straight quarter of year-over-year declines. Gross margins dropped to 43.8% from 55.8% a year ago, and 45.9% in the third quarter.
Analysts surveyed by FactSet estimated earnings of 21 cents a share on revenue of $14.49 billion, based on Intel’s forecast of 20 cents a share on about $14 billion to $15 billion.
Over the past 12 months, Intel stock has fallen 43%. Over the same period, the Dow Jones Industrial Average
DJIA,
— which counts Intel as a component — has slipped 1%, the PHLX Semiconductor Index
SOX,
has dropped 13%, the S&P 500 index
SPX,
has declined 7%, and the tech-heavy Nasdaq Composite Index
COMP,
has dropped 15%.
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Bed Bath & Beyond Inc. shares plunged more than 20% and were halted Thursday afternoon, after the retailer disclosed in a filing that it was in default on loans that have been called in.
The struggling retailer finally filed its quarterly report with the U.S. Securities and Exchange Commission on Thursday at roughly 2:30 p.m. Eastern time, after being threatened with having its stock delisted for being late with the required report.
Included in the filing is news that Bed Bath & Beyond
BBBY,
had defaulted on loans earlier this month, and executives were informed on Wednesday by banker JP Morgan Chase & Co.
JPM,
that the debt was due immediately.
“On or around January 13, 2023, certain events of default were triggered under the Company’s Credit Facilities as a result of the Company’s failure to prepay an overadvance and satisfy a financial covenant, among other things,” the filing reads.
“As a result of the continuance of such events of default, on January 25, 2023, the administrative agent under the Amended Credit Agreement notified the Company that (i) the principal amount of all outstanding loans under the Credit Facilities, together with accrued interest thereon, the FILO Applicable Premium and all fees (including, for the avoidance of doubt, any break funding payments) and other obligations of the Company accrued under the Amended Credit Agreement, are due and payable immediately.”
See also: Bed Bath & Beyond bankruptcy warning marks latest chapter in troubled retailer’s downward spiral
Shares had traded between $3.25 and $3.47 on the day until about 5 minutes after the filing was released, when shares suddenly dove, triggering a halt. The stock fell as low as $2.10 and was halted three times between 2:46 p.m. and 3:14 p.m. before closing at $2.52, a 22.2% daily decline.
The struggling retailer admitted earlier this year that it has “substantial doubt” about its “ability to continue as a going concern” and may need to declare bankruptcy. The home goods retailer also said that it expects to record lower sales for the latest quarter than analysts were anticipating.
“As we consider all paths and strategic alternatives, we continue to work with our advisors and implement actions to manage our business as efficiently as possible,” a Bed Bath & Beyond spokesperson said in an email Thursday. “As is our practice, we do not comment on speculation. We will update all stakeholders on our plans as they develop and finalize.”
Bed Bath & Beyond stock has become popular with “meme” traders and short sellers, who have been betting on opposite sides of the trade as the retailer reported a poor holiday season and plans to shut down stores. Shares have traded as high as $30.06 and as low as $1.27 in the past 12 months, while declining 81.8% overall in that time. The S&P 500 index
SPX,
has declined 7.7% in the past 12 months.
See also: Why naked short selling has suddenly become a hot topic
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STMicroelectronics NV on Thursday posted a surge in revenue and profit for the fourth quarter led by growth at its automotive and microcontrollers divisions.
The European chip maker STM IT:STM said net revenue climbed to $4.42 billion compared with $3.56 billion in the 2021 fourth quarter, with the company’s automotive business contributing $1.70 billion.
Net…
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Tesla Inc. late Wednesday reported mixed quarterly results, with revenue slightly below Wall Street expectations, but injected some optimism in its production outlook for 2023 and promised to rein in costs faster.
Demand is not a problem, Chief Executive Elon Musk said in a call with analysts after results. “I want to put that concern to rest,” he said, adding that January orders are stronger than ever, and demand far outstrips Tesla’s rate of production.
“We…
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A few days into the first Lunar New Year holiday since the lifting of pandemic restrictions in China, Chinese consumers are eager to travel but are also wary as a major COVID wave sweeps the nation, MarketWatch’s Tanner Brown reported.
The 15-day festival is considered the world’s largest annual migration, during which students and workers return to their hometowns in droves — that is, until COVID shut down travel in 2020.
On…
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Shares of AT&T Inc. were rising in premarket trading Wednesday after the company swung to a loss upon taking restructuring charges, but beat earnings expectations on an adjusted basis and showed continued subscriber growth in its fourth quarter.
The company posted a loss from continuing operations of $23.1 billion, or $3.20 a share, whereas it earned $5.2 billion, or 66 cents a share, a year-earlier. The loss includes $3.57 cents a share of non-cash impairment, abandonment, and restructuring charges, among other factors.
…
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ASML Holding NV said Wednesday that for the fourth quarter it beat net profit consensus and net sales rose, and that it expects continued strong sales growth in 2023 despite a challenging environment.
The Dutch semiconductor-equipment maker NL:ASML ASMLsaid net profit for the period was 1.8 billion euros ($1.96 billion) compared with EUR1.77 billion for the fourth quarter of 2021, and consensus of EUR1.71 billion, taken from FactSet and based on 17 analysts’ estimates.
For…
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Microsoft
posted better-than-expected results for the December quarter, driven by strength in cloud computing. But the strong results were tempered by disappointing guidance for the March quarter.
While the company saw weakness in its PC software business, Microsoft (ticker: MSFT) posted solid results in cloud computing and enterprise applications. In particular, the Azure public cloud business beat Wall Street growth estimates, which is a relief to investors nervous about the outlook for corporate IT spending.
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Microsoft Corp.’s profit declined more than 12% in the holiday season, and executives said Tuesday that a revenue deceleration at the end of 2022 is expected to continue into the new year as the company lays off workers.
Microsoft MSFT Chief Financial Officer Amy Hood said in a conference call Tuesday that “we are seeing customers exercise caution,” which resulted in “moderating consumption growth in Azure and lower-than-expected growth in new business” in December. Hood then said that “we expect business trends that we saw…
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Several energy companies are expected to post record earnings in 2022.
Exxon Mobil
alone is on track to make about $60 billion. But 2023 is a different story. While the setup is still very strong for most oil-and-gas companies, many are expected to see their earnings per share fall from 2022 levels.
Oil prices have fallen well below last year’s highs, and natural gas has slipped too. Producers of oil and gas are also expecting higher costs this year, with oil services companies raising their rates.
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Most investors want to keep things simple, but digging a bit into details can be lucrative — it can help you match your choices to your objectives.
The JPMorgan Equity Premium Income ETF
JEPI,
has been able to take advantage of rising volatility in the stock market to beat the total return of its benchmark, the S&P 500
SPX,
while providing a rising stream of monthly income.
The objective of the fund is “to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility,” while paying monthly dividends, according to JPMorgan Asset Management. It does this by maintaining a portfolio of about 100 stocks selected for high quality, value and low price volatility, while also employing a covered-call strategy (described below) to increase income.
This strategy might underperform the index during a bull market, but it is designed to be less volatile while providing high monthly dividends. This might make it easier for you to remain invested through the type of downturn we saw last year.
JEPI was launched on May 20, 2020, and has grown quickly to $18.7 billion in assets under management. Hamilton Reiner, who co-manages the fund with Raffaele Zingone, described the fund’s strategy, and its success during the 2022 bear market and shared thoughts on what may lie ahead.
First, here’s a chart showing how the fund has performed from when it was established through Jan. 20, against the SPDR S&P 500 ETF Trust
SPY,
both with dividends reinvested:
FactSet
Total returns for the two funds since May 2020 pretty much match, however, JEPI has been far less volatile than SPY and the S&P 500. Now take a look at a performance comparison for the period of rising interest rates since the end of 2021:
FactSet
Those total returns are after annualized expenses of 0.35% of assets under management for JEPI and 0.09% for SPY. Both funds have had negative returns since the end of 2021, but JEPI has been a much better performer.
““Income is the outcome.””
Which investors JEPI is designed for? “Income is the outcome,” Reiner responded. “We are seeing a lot of people using this as an anchor tenant for income-oriented portfolios.”
The fund quotes a 30-day SEC yield of 11.77%. There are various ways to look at dividend yields for mutual funds or exchange-traded funds and the 30-day yield is meant to be used for comparison. It is based on a fund’s current income distribution profile relative to its price, but the income distributions that investors actually receive will vary.
It turns out that over the past 12 months, JEPI’s monthly distributions have ranged between 38 cents a share and 62 cents a share, with a rising trend over the past six months. The sum of the past 12 distributions has been $5.79 a share, for a distribution yield of 10.53%, based on the ETF’s closing price of $55.01 on Jan. 20.
JEPI invests at least 80% of assets in stocks, mainly selected from those in the S&P 500, while also investing in equity-linked notes to employ a covered call option strategy which enhances income and lowers volatility. Covered calls are described below.
Reiner said that during a typical year, investors in JEPI should expect monthly distributions to come to an annualized yield in the “high single digits.”
He expects that level of income even if we return to the low-interest rate environment that preceded the Federal Reserve’s cycle of rate increases that it started early last year to push down inflation.
JEPI’s approach may be attractive to investors who don’t need the income now. “We also see people using it as a conservative equity approach,” Reiner expects the fund to have 35% less price volatility than the S&P 500.
Getting back to income, Reiner said JEPI was a good alternative even for investors who were willing to take credit risk with high-yield bond funds. Those have higher price volatility than investment-grade bond funds and face a higher risk of losses when bonds default. “But with JEPI you don’t have credit risk or duration risk,” he said.
An example of a high-yield bond fund is the iShares 0-5 Year High Yield Corporate Bond ETF
SHYG,
It has a 30-day yield of 7.95%.
When discussing JEPI’s stock selection, Reiner said “there is a significant active component to the 90 to 120 names we invest in.” Stock selections are based on recommendations of JPM’s analyst team for those that are “most attractively priced today for the medium to long term,” he said.
Individual stock selections don’t factor in dividend yields.
JEPI’s high income is an important part of its low-volatility total-return strategy.
A call option is a contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.
A covered call option is one an investor can write when they already own a security. The strike price is “out of the money,” which means it is higher than the stock’s current price.
Here’s an example of a covered call option provided by Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev.
If you had made this trade and 3M’s shares didn’t rise above $130 by Jan. 19, 2024, the option would expire and you would be free to write another option. The option alone would provide income equivalent to 6.40% of the Jan. 20 purchase price in the period of a year.
If the stock rose above $130 and the option were exercised, you would have ended up with the maximum gain as described by Roberts. Then you would need to find another stock to invest in. What did you risk? Further upside beyond $130. So you would have written the option only if you had decided you would be willing to part with your shares of MMM for $130.
The bottom line is that the call option strategy lowers volatility with no additional downside risk. The risk is to the upside. If 3M’s shares had doubled in price before the option expired, you would still wind up selling them for $130.
JEPI pursues the covered call options strategy by purchasing equity-linked notes (ELNs) which “combine equity exposure with call options,” Reiner said. The fund invests in ELNs rather than writing its own options, because “unfortunately option premium income is not considered bona fide income. It is considered a gain or a return of capital,” he said.
In other words, the fund’s distributions can be better reflected in its 30-day yield, because option income probably wouldn’t be included.
One obvious question for a fund manager whose portfolio has increased quickly to almost $19 billion is whether or not the fund’s size might make it difficult to manage. Some smaller funds pursuing narrow strategies have been forced to close themselves to new investors. Reiner said JEPI’s 2% weighting limitation for its portfolio of about 100 stocks mitigates size concerns. He also said that “S&P 500 index options are the most liquid equity products in the world,” with over $1 trillion in daily trades.
Summing up the 2022 action, Reiner said “investing is about balance.” The rising level of price volatility increased options premiums. But to further protect investors, he and JEPI co-manager Raffaele Zingone also “gave them more potential upside by selling calls that were a bit further out of the money.”
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