A U.S. District Court on Monday ordered Energy Transfer LP <ET.N> to shut and empty the largest pipeline from the North Dakota shale oil fields within 30 days, in a big win for the Native American tribes who have fought the line's route across a crucial water supply. Energy Transfer's <ET.N> 570,000 barrel-per-day (bpd) Dakota Access oil pipeline (DAPL) is a vital artery to transport oil out of North Dakota's Bakken shale basin to the Midwest and Gulf Coast refineries.
Shares of Tesla Inc. charge up toward another record, after even the most bearish Wall Street analyst lifts his price target following the electric vehicle maker‘s blowout deliveries results.
(Bloomberg) -- One of the largest utilities in America is starting to turn its back on natural gas.Dominion Energy Inc., the second-biggest U.S. power company by market value, on Sunday said it’s selling substantially all of its gas pipeline and storage assets to Berkshire Hathaway Inc. for $4 billion. It’s the largest deal announced this year to buy U.S. energy assets, according to Bloomberg data.In a separate statement, Dominion and its partner Duke Energy Corp. said they’re killing the controversial Atlantic Coast gas pipeline along the U.S. East Coast, citing ongoing delays and “cost uncertainty.”The moves come as utilities face increasing pressure from local governments, investors and environmentalists to quit fossil fuels. While long heralded as a cleaner alternative to coal and heating oil, gas is drawing stiff oppositions from left-leaning state lawmakers, making it increasingly difficult to build pipelines and other infrastructure.“Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged,” Dominion Chief Executive Officer Thomas Farrell said on a call with analysts. “This trend, so deeply concerning for our country’s economic growth and energy security, is a new reality.”Read More: Demise of Gas Project Shows U.S. Pipelines Becoming UnbuildableShares of Dominion, which also announced it’s cutting its dividend, fell as much as 7.6% Monday, the most in more than three months.The push away from gas positions Dominion as more of a pure-play state-regulated utility at a time when oil and pipeline operators have lagged the broader market. In the last year, an index of pipeline companies has fallen 36%, while the S&P 500 Index has gained 4.7%.“Given the bend towards decarbonization efforts in the country, the move away from natural gas, and investor demand for more simplified utility structures, we believe this is absolutely the correct move for Dominion to make,” Guggenheim analysts led by Shahriar Pourreza said in a research note.Read More: Wall Street Falls Out of Love With Once-Coveted Fossil FuelTo be clear, Richmond, Virginia-based Dominion, which provides power and gas to seven million customers in 20 states, isn’t walking away from the fossil fuel altogether. It will still sell gas to customers for heating and cooking. It’s retaining an interest in its Cove Point liquefied natural gas export terminal in Maryland. And 40% of the electricity the company generates comes from plants fueled by gas, coal and oil, according to its website.“They’ll still be burning lots of gas for decades ahead in the core utility business,” Bloomberg Intelligence analyst Kit Konolige said in an email.But pressure is mounting. Virginia enacted a law in April requiring Dominion’s utility in the state to be to be carbon-free by 2045.What Bloomberg Intelligence Says“Dominion’s unsurprising shutdown of the troubled Atlantic Coast Pipeline project and $4 billion sale of midstream properties take pressure off the strained balance sheet. In combination with a dividend cut, the steps shift Dominion to an almost all-utility growth story.”\-- Kit Konolige, senior utility analystRead the full report here.Atlantic Coast is the third U.S. gas pipeline project to scrapped or shelved this year. Williams Cos. opted not to reapply for a permit in May for a $1 billion pipeline extension after regulators in New York blocked it. And in February the Oklahoma-based company canceled plans for a pipeline that would have run from Appalachia to New York.While the Atlantic Coast pipeline project won a key victory last month when the U.S. Supreme Court sided against environmentalists and upheld a crucial permit, the project still faced formidable opposition and costs. “That would indicate that that wasn’t a strategic decision as much it was as a practical decision,” said Paul Patterson, an analyst at Glenrock Associates LLC.Read More: Duke to Book Charge of Up to $2.5 Billion From Canceled PipelineDeal with BerkshireDominion’s deal with Berkshire calls for the giant conglomerate to assume $5.7 billion in debt. The utility will use $3 billion of the proceeds to buy back shares. Dominion cut its projected 2021 dividend payment to around $2.50 a share, reflecting the assets being divested and a new payout ratio that aligns it better with industry peers.The transaction is expected to close during the fourth quarter. It will require the approval of federal agencies including the U.S. Department of Energy.Read More: Buffett Sticks to Comfort Zones With His Dominion Energy DealBerkshire is amassing more than 7,700 miles (12,400 kilometers) of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage in the deal with Dominion. Warren Buffett’s conglomerate will also acquire 25% of Cove Point.With this transaction, Buffett has ended his period of relative silence on the acquisition front since the pandemic.The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise value since its purchase of Precision Castparts Corp. in 2016. It will expand the company’s already sprawling empire of energy operations, which currently has operations in states including Nevada and Iowa.(Adds CEO quote in fifth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- To be an energy superpower, U.S. oil and natural gas requires a suitably gargantuan pipeline network that stretches for millions of miles. The country’s ability to expand that infrastructure is being tested like never before.In the span of less than 24 hours, a court ordered the Dakota Access crude oil pipeline to shut down and the developers of the Atlantic Coast gas conduit said they were canceling the project. It was a deluge of bad news for an industry that’s increasingly finding that the mega-projects of the past are no longer feasible in the face of unprecedented opposition to fossil fuels and the infrastructure that supports them.Armed with experienced lawyers and record funding, environmental groups are finding enormous success blocking key pipeline permits in court. The challenges come despite support from President Donald Trump, who so far has failed to ensure big projects like Keystone XL get built.“I would expect this to be a turning point for new investment,” said Katie Bays, co-founder of Washington-based Sandhill Strategy LLC. “There is real investor fatigue around this parade of legal and regulatory headwinds to energy projects.”Dominion Energy Inc. and its partner Duke Energy Corp. said Sunday they’ll no longer pursue their $8 billion Atlantic Coast natural gas pipeline after years of delays and ballooning costs, becoming the third such project this year to be sidelined or canceled altogether amid mounting opposition to development of oil and gas.Then on Monday, a U.S. district court ordered Energy Transfer LP’s Dakota Access crude oil pipeline to shut down by Aug. 5. It ruled that a crucial federal permit for the project fell too far short of National Environmental Policy Act requirements to allow the pipeline to continue operating while regulators conduct a broader analysis ordered in a previous decision.The keep-it-in-the-ground movement has increasingly turned its attention to the pipes, rather than the wells themselves, because they require various federal and state permits, which, for the most part, can be more easily litigated.Trump has attempted to insulate the industry from those efforts. In his first week in office, he paved the way for Dakota Access and the contentious Keystone XL oil pipeline. Last year, the White House signed an executive order aimed at short-circuiting regulators who held up gas lines by refusing permits.Dakota Access entered service but remained embattled. Keystone XL still hasn’t been built. In February, Williams Cos. scrapped its Constitution natural gas pipeline after failing repeatedly to gain a water permit from New York. In contrast to Trump, presumptive Democratic presidential nominee Joe Biden has vowed to kill Keystone XL and is supporting a push to lower-carbon energy sources, even if it comes at the expense of oil and gas jobs.“The Dakota Access and Atlantic Coast pipes encapsulate the last few years of a trend we’ve watched: the dramatic expansion of using regulatory obligations to hurt infrastructure projects in the courts,” said Brandon Barnes, an analyst at Bloomberg Intelligence.When Atlantic Coast was proposed in 2014, it was expected to cost $5 billion and connect Appalachian shale gas plays with markets in the southeast. The price tag rose to $8 billion as the pipeline’s date to enter service was pushed back over and over again.In the end, not only did Dominion cancel it, the company also announced Sunday the sale of almost all its gas pipeline and storage business to Warren Buffett’s Berkshire Hathaway Inc. for $4 billion, while highlighting its target of net zero carbon emissions by 2050.Environmental groups heralded the Atlantic Coast cancellation and the court’s decision to shut down Dakota Access, while industry groups blamed these latest blows on litigious activists.“The well-funded, obstructionist environmental lobby has successfully killed the Atlantic Coast Pipeline,” U.S. Energy Secretary Dan Brouillette said in a statement.The American Petroleum Institute said in a statement that it’s “deeply troubled” by the Atlantic Coast cancellation and Dakota Access shutdown. “The need to reform our broken permitting system has never been more urgent,” the industry group said.Oil producers Continental Resources Inc. and Hess Corp., both of which have significant operations in the Bakken shale field of North Dakota, saw their shares fall Monday morning following the Dakota Access shutdown order. And a lack of new pipelines in the U.S. Northeast, which faces gas supply constraints, may hobble Appalachian producers and potentially hasten the pace of transition to renewable energy.The demise of Atlantic Coast also casts a dark cloud on Mountain Valley Pipeline, a $4.7 billion gas project being developed by EQM Midstream Partners LP alongside utility giants NextEra Corp., Consolidated Edison Inc. and others. Enbridge Inc.’s Line 3 and Line 5 crude pipelines remain ensnared in court battles and regulatory pushback.The Dakota Access ruling marks the first time a court has shut down a major, in-service pipeline for environmental concerns, Southern Methodist University energy law professor James W. Coleman said. The decision upends conventional wisdom that judges would always preserve the status quo by keeping projects in service, and will spur pipeline opponents to look for opportunities to shut down other existing projects, he said.Even in Texas, long considered a safe haven for the oil and gas industry, Kinder Morgan Inc.’s Permian Highway Pipeline is experiencing a backlash from landowners and conservationists who argue the project would harm aquifer recharge zones.“We have to be honest with ourselves that a world where ACP is too risky to get done is probably also a world where KXL is too risky to get done,” said Bays, using acronyms for Atlantic Coast and Keystone XL. “We’ll see companies pivot toward smaller, strategic investments and away from large interstate oil and gas pipelines.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Let’s talk about keeping safe. It’s a topic we can all relate to, these days, as reports of the coronavirus crisis continue to come in. Cases are rising in the wake of economic reopenings and wide-spread protests, but the fatality rate of the disease appears lower than had initially been feared. Still, social distancing seems to be the order of the day, as a precaution.You can stay safe in your investing, too. ‘Safe’ dividends come from companies that managed to avoid payout cuts during the height of the corona crisis – an important point, as many previously reliable dividends were suspended or slashed in recent weeks. They also feature low payout ratios, indicating that the paying company can easily afford them. Using TipRanks database, we’ve pinpointed three 'safe' dividend stocks with yields starting at 5%, an upside potential starting at 25%, and ‘Moderate or Strong Buy’ consensus rating from Wall Street’s analyst corps. These are stocks that will both grow the portfolio and provide a steady income – and success on multiple fronts is a key strategy to surviving a difficult market environment.Xperi Corporation (XPER)First on the list is a Silicon Valley tech licensing company, Xperi. The company made news late last year when it merged with TiVo, with combined entity using the Xperi name. That merger was completed on June 1 of this year. Xperi has its hands in communications, data storage, memory, and mobile computing, among other fields, and its licensed products are found in the automotive, imaging, and semiconductor industries. Xperi boasts a $1.7 billion market cap, and showed full-year billings of $413.9 million.The company’s strong growth helped it weather the corona storm in Q1. Despite a sequential drop in earnings, first quarter billings beat the forecast by a wide margin, coming in at $112.8 million. The company sees Q2 showing billings in the $85 to $90 million range, in line with estimates.The important metric for our purposes is the dividend, which was paid out at 20 cents per share back in March, and again at 20 cents in May. Xperi has a 6-year history of maintaining its dividend payment, and the payout has been steady at 20 cents quarterly for the past three years. The payout ratio is only 29%, showing that the payment is clearly affordable under current earnings. The yield is excellent, at 5.56%.Craig-Hallum’s 5-star analyst Richard Shannon sees the TiVo acquisition as the key factor in XPER’s current outlook. He writes, “The stock has traded down since the acquisition closing, and with such negative sentiment being priced in we don’t think it would take much for the stock to correct to a more reasonable 10x multiple (~40-50% upside) once the acquisition is better understood…”To this end, Shannon rates XPER a Buy along with a $20 price target, which suggests an upside of 37% for the stock over the coming year, (To watch Shannon’s track record, click here)Overall, Xperi holds a Strong Buy rating from the analyst consensus, and Wall Street is unanimous, with 3 Buy ratings on the stock. Shares are priced at $14.38, and the average price target of $25.33 indicates a very bullish 73% upside potential. (See Xperi stock analysis on TipRanks)Solaris Oilfield Infrastructure (SOI)Moving on, we come to the oil industry. Solaris is an infrastructure company, providing the gear and equipment that the extraction companies need to pull out and gas out of the ground. The company offers solutions for enhanced drilling, well completion and cleaning, and safety features. Solaris is a small-cap player, with just $322 million in market cap, but boasts that its products are key to increasing efficiency in the North American shale oil sector.Solaris’ stock has underperformed the overall markets, and SOI is still down 45% from its February peak levels. A strong Q1 earnings report could only partially offset downward pressure. The company reported over $11 million in net cash provided by operations, and ended the quarter with $11 million in positive free cash flow. The solid cash position bolstered SOI’s quarterly dividend, which was held steady at 10.5 cents per share. The most recent payment was made in June.Solaris has been operating publicly for less than two years; its June dividend payment was only the company’s seventh since the IPO. During that time, the dividend has been increased once, and currently features a low payout ratio of 32% and a high yield of 5.9%.Analyst Tom Curran, of B. Riley FBR, has an upbeat opinion of this stock, writing, “Given its pristine balance sheet, highly FCF generative, specialty-rental business model, and 1 market position that should strengthen and grow, we continue to recommend SOI for investors trying to identify attractively valued, secular winners in the U.S. land OFS space.”Curran puts solid numbers with his Buy recommendation, including an $11 price target that implies a one-year upside of 56%. (To watch Curran’s track record, click here)Wall Street is somewhat more divided on SOI shares, a circumstance reflected in the Moderate Buy analyst consensus rating. That rating is based on 7 reviews, including 4 Buys and 3 Holds. Shares are priced at $7.04, and the average price target suggests an upside potential of 29% for the next 12 months. (See Solaris stock analysis on TipRanks)Paramount Group, Inc. (PGRE)Last on our list is a real estate investment trust. Paramount owns and operates commercial office space in some of the country’s most desirable locations, including addresses on Broadway, Avenue of the Americas, and Fifth Avenue in New York City, Market Plaza in San Francisco, and Pennsylvania Avenue in Washington, DC.The sheer quality of the company’s portfolio allowed it to post a modest earnings gain during the first quarter, a time when many REITs found themselves under pressure from reduced incomes as tenants and clients had difficulties paying bills. PGRE saw earnings rise modestly from 26 cents per share to 27 cents during the quarter.In better news for investors, Paramount kept up its dividend. The current payment is 10 cents per common share, paid quarterly. It has been held at this level for the past two years, and the payout ratio of 37% suggests that it can easily remain so. The dividend yield, at 5.26%, compares favorably to most common investments; the average dividend yield among S&P companies is only 2%, and the Treasury bonds are yielding less than 1% in most cases.Reviewing the stock for Wells Fargo, Blaine Heck wrote, “[We] believe that despite tough leasing and operating conditions in the NYC office market for the foreseeable future, shares trade at a meaningful discount to fair value, the company is poised to reap the rewards of previously executed leasing progress in its NYC portfolio, and more recently at 300 Mission (formerly 50 Beale) in San Francisco, and we’re positive on the company recycling capital … into the [strong] San Francisco office market…”Heck backs his assessment, and his Buy rating, with a $15 price target, suggesting a 99% upside potential for the year ahead. (To watch Heck’s track record, click here)PGRE shares have a 2 to 1 split between the Buys and the Holds, giving the stock an analyst consensus rating of Moderate Buy. The average price target is $11, which indicates room for 46% growth from the current share price of $7.60. (See Paramount stock-price forecast on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Is it time to run with the bulls? Writing from investment bank JPMorgan, quantitative strategist Marko Kolanovic says it is. You may remember Kolanovic, if you follow market news regularly; he was one of the few who correctly called the bottom back in March. Now he says that the near- to mid-term prospects remain bullish. He notes two points of particular importance for investors, economic support policies, and the ongoing COVID-19 epidemic.Regarding policy support, Kolanovic is quick to connect recovery in liquidity with the massive fiscal and monetary support put in place by Congress and the Federal Reserve. He reminds investors that “liquidity has recovered meaningfully from the March lows.”The second point is more subtle. Kolanovic writes, “Higher COVID-19 incidence in mainly impacting younger populations, [with] drastically lower mortality rates and likely reflects high testing rates, recent protests, backlogs of hospital visits, and increased economic activity.” In other words, as we return to normal life, more people are getting exposed to the virus – but the people getting exposed are more resistant to the disease, and the death rates are dropping. The coronavirus crisis is turning out less dangerous than was originally feared, and that is good news – especially for stock bulls.Kolanovic’s colleagues at JPM have run with his bullish view, and are pinpointing stocks that have great upside potential. We’ve used the TipRanks database to pull the details on three of those stocks – the upsides start at 22%, but let’s see what else makes them compelling to JPM’s experts.Warner Music Group (WMG)After a nine-year run as a private company, Warner Music, the global music industry’s third largest recording company, completed a new IPO just last month. The stock sale raised almost $2 billion, and was considered a smashing success. Music is a competitive industry, and Warner has some aces in the hole. The company owns recording rights to a slew of big-name artists, including Madonna, Prince, the Rolling Stones, and Metallica. This playbook is an enormous asset, and one that puts Warner on solid footing.With just one month of market trading behind it, WMG hasn’t got a long history for analysts to review – but it does have that playbook, and JPM analyst Alexia Quadrani is suitably impressed. Quadrani writes, “As the only pure play music content company, WMG is well-positioned to benefit from the ongoing growth in paid music streaming globally. We believe WMG shares will maintain a premium valuation over the average of our large-cap media universe due to its higher growth profile, and our outlook reflects our confidence in the growth of streaming and WMG’s execution.”To this end, Quadrani rates WMG a Buy and suggests a $40 price target, which implies a robust upside of 36%. (To watch Quadrani’s track record, click here)In its first month since the IPO, WMG shares have earned a Moderate Buy rating from the analyst consensus. Wall Street’s stock watchers are divided 7 to 8 on Buys and Holds, mainly reflecting caution during the coronavirus crisis. The stock’s $33.64 average price target indicates a one-year upside potential of 15% from the current share price of $33.64. (See WMG stock analysis on TipRanks)Varonis Systems, Inc. (VRNS)With so many people moving to remote work, data security is at a greater premium than ever. Varonis Systems, a security software company, offers a platform that is perfect for the times. Using digital behavior analysis techniques, Varonis’ platform allows businesses to identify cyberattacks based on abnormal user behavior. It’s an idea whose time has clearly come, and Varonis is running with it. The company’s newest platform features remote work security capability.That doesn’t mean the company was able to fully dodge the corona bullet. The broad declines in Q1 – due to the social and economic lockdown policies – put a hurt on VRNS. The company reported steep losses in earnings, seeing the net loss drop sequentially from 47 cents to $1.05. Revenue performed better, beating the forecast at $54.18 million.The stock, however, has performed better than the earnings, rising nearly 27% year-to-date.Sterling Auty, 5-star analyst with JPM, lays out a clear case to explain Varonis’ strong share appreciation: “[We] believe Varonis represents one of those attractive situations as its subscription transition offers the opportunity for significant outperformance relative to revenue and margin estimates that we believe can deliver stock outperformance. This is aided by the growing need for data security solutions as cloud adoption increases and work-from-home setups drive usage of tools that create security challenges.”Auty’s Buy rating on the stock is supported by his $130 price target, which indicates room for a potential 31% upside in the coming year. (To watch Auty’s track record, click here)Overall, Varonis has a Strong Buy rating from the analyst consensus, based on 11 Buys versus just 2 Holds. The stock’s recent share gains, however, have pushed the price almost up to the average price target. VRNS currently trades at $98.58; the average target is $100.36. (See Varonis stock analysis on TipRanks)Masonite International (DOOR)Last on our list is a major name in the construction industry. Tampa-based Masonite, through its subsidiary companies, manufactures doors and their associated systems (frames, screens, windows, and locks) for both interiors and exteriors. It’s a niche product, but an important one; even a small house can have two exterior doors and 8 or 10 interior ones.Masonite posted a strong Q1, despite the corona crisis. Net sales increased 4%, reaching $551 million. EPS rose sharply, too, to $1.24. These gains came even as the company withdrew its full-year 2020 guidance due to COVID-19 concerns.JPM’s Michael Rehaut likes what he sees in Masonite, noting, "[Not] only did the company provide a positive sales update – pointing to June sales down only mid single-digits (with N. America Residential up modestly), following May down low teens – but importantly, DOOR also pointed to some positive margin trends as well,""[We] point to the company’s pricing strategy, strong execution and longer term margin optimization efforts as positive differentiators, along with its attractive relative valuation trading at only roughly 8.5x and 7.3x our 2020E and 2021E EBITDA, respectively," the analyst concluded. In line with his comments, Rehaut puts a $95 price target and a Buy rating on DOOR shares. His target implies an upside of 22% for the next 12 months. (To watch Rehaut’s track record, click here)DOOR is another stock with a Strong Buy consensus rating, in this case based on 6 Buys and 2 Holds. Shares are currently trading at $77.54, and the average price target of $85.38 suggests a one-year upside of 10%. (See Masonite’s stock-price forecast on TipRanks)To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Nikola stock dropped more than 13% to close last week. Founder Trevor Milton wondered whether bearish investors have been ganging up on the fledgling company.
Workhorse, NIO, Tesla, Nikola, and Tortoise have gained almost 180% over the past month. Now their shares are trading, on average, 146% above Wall Street price targets. When stocks go up like this they become hard to value.
Millions of Americans have lost their job during the COVID-19 outbreak and are relying on unemployment benefits as they pay their bills and re-start their career. “There will definitely be some people who are going to be surprised at tax time next year and I’d like to minimize that,” said Michele Evermore, senior policy analyst at the National Employment Law Project, an advocacy organization for workers. Here’s why Evermore and other observers are concerned: though the Internal Revenue Service counts unemployment benefits as taxable income, people getting that money may not be withholding a portion for federal income taxes.
(Bloomberg) -- As Warren Buffett moves off the sidelines for the first time since the global pandemic struck, he’s sticking to the areas he knows best.Berkshire Hathaway Inc. announced an agreement Sunday to purchase Dominion Energy Inc.’s natural gas pipeline and storage assets for an enterprise value of $9.7 billion, expanding its energy empire even further. While the deal wasn’t the splashy “elephant-sized” acquisition that Buffett has sought for his $137 billion cash pile, the move shows he’s carefully opening Berkshire to acquisitions, according to Cathy Seifert, an analyst at CFRA Research.“It represents a little bit of an opening of a valve. I don’t necessarily think it’s a light switch that flipped from off to on,” Seifert said. The deal is a “prudent move and one that can be strategically justified and also tucked into the existing business model.”Buffett has stayed relatively quiet as the Covid-19 outbreak ripped through the U.S., raising questions about whether he would find attractive deals or financing opportunities similar to the moves he pulled off in the 2008 credit crisis. In some ways, the Federal Reserve beat him to the punch, taking steps that helped swiftly unlock markets earlier this year. That meant that the opportunities Berkshire had been looking at dried up, Buffett told investors in May at his annual meeting.The deal with Dominion Energy hints that opportunities might start cropping up for his conglomerate. It also shows Buffett is willing to put some of his funds to work, despite expressing caution in May that his cash pile wasn’t unreasonably high when considering worst-case possibilities for the pandemic.“He’s willing to make investments now, of a fairly sizable amount,” said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business. “It’s very positive that he’s sending a signal for the right deal at the right price, $10 billion or more -- ‘We’re ready to go, we’re ready to invest.’”Buffett, who has crafted Berkshire into a conglomerate valued at nearly $443 billion, built his reputation as an investor able to swoop in during volatile markets to strike unique and complicated deals in past crises. After being stymied on the acquisition front during the recent bull market for stocks, Buffett still wasn’t finding any deals during the initial stages of the pandemic and even dumped his stakes in the major U.S. airlines.His inability to make a major acquisition recently has drawn scrutiny from his critics, who argued that Buffett lost his ability to pull off the game-changing transactions that helped vault Berkshire into the ranks of the most valuable U.S. public companies. Now, the deal to buy substantially all of Dominion Energy’s natural gas transmission and storage assets for $4 billion, along with the assumption of $5.7 billion in debt, ranks as its biggest acquisition in more than four years.“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” Buffett, who is chief executive officer and chairman of Omaha, Nebraska-based Berkshire Hathaway, said in a statement Sunday.Berkshire’s Class A shares, which are down almost 20% this year, gained 2.1% to $273,254 at 10:30 a.m. in New York. Dominion Energy dropped 6.7% to $77.18.“I’m inspired to see that, given that he’s bearish, he’s still willing to make acquisitions where he thinks it makes sense and where it meets Berkshire’s hurdle points,” said Darren Pollock, a portfolio manager at Cheviot Value Management, which invests in Berkshire shares.Buffett has considered its energy business one of the “lead dogs” of Berkshire’s non-insurance operations alongside its railroad. The purchase expands its hold in the sector, adding more infrastructure to handle natural gas to its already sprawling energy operations across states such as Nevada and Iowa. Berkshire also struck the deal at a low point in the market. Natural gas futures in the U.S. dropped last month to their lowest point in 25 years and have recovered just slightly since then.“This looks like confirmation that commodities like energy are undervalued,” Bill Smead, chief investment officer at Smead Capital Management, which owns Berkshire shares, said in an emailed comment. “At the bottom, assets move from weak hands to strong hands.”What Bloomberg Intelligence Says“Berkshire Hathaway’s $9.7 billion acquisition of Dominion’s gas-line assets and debt further solidifies its position in natural gas and is opportunistic, given the movement in energy prices this year and the desire of some participants to move to cleaner fuel sources.”\--Matthew Palazola, senior industry analyst, and Derek Han, associate analystBerkshire is digging deeper into a business that’s been facing increasing scrutiny amid the push for energy companies to shift away from fossil fuels. In its own statement on Sunday, Dominion Energy cited its target to reach net-zero emissions by 2050.The deal also highlights the work of one of Buffett’s key deputies, Greg Abel, who led the energy business for years and is now chairman of Berkshire Hathaway Energy alongside his role as Berkshire’s vice chairman for all non-insurance businesses. Abel gained a reputation as a key dealmaker for Berkshire with the 2013 purchase of NV Energy and even the battle to buy Oncor Electric Delivery Co., which didn’t ultimately come together. Abel is viewed as a potential successor to Buffett, 89.The Dominion deal is set to be Berkshire’s largest acquisition ranked by enterprise value since its purchase of Precision Castparts Corp. in 2016. Still, Buffett ended the first quarter with a record $137 billion on hand and has been hankering for a major acquisition to put a chunk of cash to work. The Dominion agreement’s total enterprise value would account for about 7% of that total.“It’s not something that’s going to move the needle from a balance-sheet standpoint, but it’ll produce several hundred million dollars a year in net income to Berkshire,” said Cheviot’s Pollock. “That’s no paltry sum. That adds up over time.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- As a diplomatic tit-for-tat escalates between Washington and Beijing, millions of Chinese investors — defiant and patriotic — are once again engineering a fast and furious bull market on their home turf. The theme? Self-reliance.Two years ago, when the trade war first hit, China’s $8.5 trillion stock market sank into one of its deepest bear episodes, as worries about the economic damage of decoupling took root. This time, tension with the U.S. hasn't even made a dent. Rather, mainland shares are on fire. The benchmark CSI 300 Index has rallied 14% this year, to trade at a five-year high. The S&P 500 Index, by comparison, is still in the red. Daily trading volume has exceeded 1 trillion yuan ($142 billion) for three consecutive trading days. The latest frenzy began right after Beijing imposed its national security law on Hong Kong, despite U.S. opposition. Now, investors have renewed their faith that China is finally recognizing the importance of self-sufficiency. Bullish sell-side analysts are tossing around buzz words like national champions, import substitutes and capital market reforms; ultimately, these boil down the idea that turning inward is good for stocks. There are many examples. Consider Shanghai-based Semiconductor Manufacturing International Corp., a chip foundry that counts Huawei Technologies Co. as its largest client. Rather than languishing as Huawei gets boxed out of U.S. technology, SMIC’s Hong Kong-listed shares are up over 200% this year.On the financing front, SMIC is behaving every bit like a national champion already. On May 15, the day Huawei got slapped with further sanctions, the state-owned China Integrated Circuit Industry Investment Fund, which held close to 20% of SMIC as of December 2019, said it would co-invest about $2.5 billion into one of its wafer plants. Meanwhile, securities regulators have fast-tracked the company’s plans to raise as much as $7.5 billion in Shanghai, the largest mainland initial public offering in a decade. Beijing is well aware that chip manufacturing is a capital-intensive business, and it must provide financial support as SMIC races to catch up on technology. In the industrial space, global supply-chain disruption is already benefiting Chinese players. For instance, Sany Heavy Industry Co., China’s largest excavator maker, has seen its domestic market share jump to 27% from 8% in 2010, at the expense of foreign brands, data provided by HSBC Holdings Plc show. No surprise, Sany’s stock is up 24% this year, while Caterpillar Inc., whose mainland market share shrank to 11% from 14% in 2016, is down 13.5%. Jiangsu Hengli Hydraulic Co., a large manufacturer, tells a similar story. It’s up 55% this year. Washington’s attempt to block mainland businesses’ access to U.S. money — from the delisting of Chinese American depositary receipts in New York, to forbidding federal pension funds from investing in mainland companies — is only forcing Beijing to speed up its capital markets reform. Regulators are already rewriting equity financing rules, including the launch of new registration-based IPOs, and opening new funding venues for young startups. As a result, we can expect China’s stock market to grow to 100% of its gross domestic product in the next five to 10 years, from 60% now, estimates CICC Research.When it comes to stock investing, China and the U.S. face the same set of problems. A slowing economy inevitably eats into corporate earnings growth, narrowing any justification for a further bull run.But President Donald Trump is giving China’s stock market a second wind. Huawei may prefer chips made by Taiwan Semiconductor Manufacturing Co. — after the U.S. sanctions, though, it may have no choice but hold its nose and buy domestic. Meanwhile, industry consolidation, which benefits domestic firms, is only accelerating now that Beijing is openly supporting its national champions. Trump is always looking at the stock market for validation. This time, he’s looking at the wrong one.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Mortgage rates fall to a new record low, bringing sub-3% into play. Concerns over COVID-19 and its impact on the economy led rates downwards.
The holiday weekend has done nothing to slow the positive momentum for U.S. stocks, with futures significantly higher on Monday
(Bloomberg Opinion) -- It doesn’t take much imagination to see the Federal Reserve supporting the stock price of Apple Inc.The central bank’s Secondary Market Corporate Credit Facility recently released details about its “Broad Market Index,” which is a roadmap for which individual bonds it will buy for its portfolio after changing the rules to avoid forcing issuers to certify they’re in compliance with the Coronavirus Aid, Relief, and Economic Security Act. Just looking at the 13 companies with weightings of at least 1%,(2)which collectively make up almost one-fifth of the index, a few things stand out. First, there are six automobile companies, with subsidiaries of Japan’s Toyota Motor Corp. and Germany’s Volkswagen AG and Daimler AG as the three largest issuers overall. In fourth is AT&T Inc., the largest nonfinancial borrower due in no small part to its $85.4 billion takeover of Time Warner Inc. Then there’s Apple. As a reminder, it’s the largest U.S. company by market capitalization at $1.57 trillion, edging out Microsoft Corp. and Amazon.com Inc. Its shares have easily rebounded from the selloff caused by the coronavirus pandemic, rallying 24% so far in 2020. Yes, Apple has about $100 billion of debt outstanding, but it’s also known for having one of the largest cash piles in the world. It’s so big, in fact, that the company could repay all its obligations and still have roughly $83 billion left over.With so much cash, that naturally raises the question: Why does Apple take on debt in the first place?In each of Apple’s past three dollar-bond sales, in November 2017, September 2019 and May, the company said it would use proceeds at least in part to repurchase common stock and pay dividends under its program to return capital to shareholders. In total, the company has doled out more than $200 billion since the start of 2018. It’s easy to see why company leadership would see it as too cheap not to borrow. Apple has the second-highest investment-grade credit ratings from Moody’s Investors Service and S&P Global Ratings, allowing it to issue $2.5 billion of 30-year bonds in May that yielded just 2.72%. Its $2 billion of three-year debt, within the Fed’s maturity range, priced to yield less than 0.85%.Luca Maestri, Apple’s chief financial officer, said during the last quarter’s earnings call that the company has more than $90 billion in stock buyback authorization left, adding that it plans to continue the same capital allocation policy going forward.Obviously, cash is mostly fungible for large enterprises, and any number of American companies in recent years surely issued bonds for reasons other than buybacks and also repurchased shares. Goldman Sachs Group Inc. estimated some $700 billion of shares were acquired by U.S. companies in 2019, which would make them the biggest net buyer of equities.Still, Apple openly using debt sales to help finance share repurchases puts the Fed in a somewhat awkward position. Chair Jerome Powell has consistently framed questions about its secondary-market facility in the context of supporting the central bank’s full employment mandate. Workers are “the intended beneficiaries of all of our programs,” he said in a hearing last month. It’s possible Americans “are able to keep their jobs because companies can finance themselves.”And yet, the Fed’s secondary-market facility comes with no strings attached. In fact, as I noted last month, its maneuver to create Broad Market Index Bonds circumvented the CARES Act requirement that any company must have “significant operations in and a majority of its employees based in the United States.” Rather than focus on the American worker, the stated goal is to “support market liquidity for corporate debt,” and, by extension, keep borrowing costs down for creditworthy firms. So there’s every reason to expect that Apple can and will issue bonds again in the near future, at an even cheaper rate, to fund stock buybacks and dividends. That, in turn, would most likely support share prices.That shouldn’t sit well with many people. Even President Donald Trump, who has used the stock market as a barometer of his economic policies, has signaled a preference for capital projects over buybacks. On March 20, just before the S&P 500 Index fell to its lowest level of the Covid-19 selloff, he lamented that companies used the money saved from his 2017 tax cut to repurchase shares rather than build factories. He said at the time that he would support a prohibition on buybacks for companies that receive government aid.“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.” The Fed’s strategy for buying corporate bonds is passive enough that few would equate it to receiving direct assistance from the federal government. The same can’t be said about the central bank’s Primary Market Corporate Credit Facility, which as of last week is open for business. Companies that want to place bonds directly with the Fed must certify that they have “not received specific support pursuant to the CARES Act or any subsequent federal legislation” and “satisfy the conflicts-of-interest requirements of section 4019 of the CARES Act.” As my Bloomberg Opinion colleague Matt Levine described in detail last week, there’s a huge amount of paperwork for issuers, and the Fed has the right to demand its money back if the forms are wrong and companies use funds for unapproved reasons.In all likelihood, these constraints will turn almost every company away from the Fed’s primary-market facility. Instead, finance officers will reap the benefits of the central bank’s broad secondary-market interventions to issue new debt to private investors at rock-bottom rates and with no such rules, as they have for the past three months. And Wall Streeters will be happy with business-as-usual in the credit markets.To put it plainly one more time: The Fed didn’t have to loosely interpret the law to create this index of corporate debt. It was already following through on its pledge to buy exchange-traded funds and had a system in place for companies to become eligible for individual purchases. It chose this third route, encouraging headlines like “Buying Corporate Bonds Is Almost Easy Money, Strategists Say.” What could go wrong?Now that it’s scooping up individual bonds issued for share buybacks without any stipulations, policy makers should be asked again why this program is the right way to go about supporting the recovery. The truth is likely that corporate America needs low-cost debt to survive. Apple and its shareholders are more than happy to tag along for the ride.(1) The Fed's facility has not yet purchased debt from all the companies in the index, at least according to its disclosure, which only covers the$429 million in bonds it bought on June 16 and 17. Its largest purchases were Comcast Corp., AbbVie Inc. and AT&T Inc.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Shares of Emergent BioSolutions Inc. were up 1.1% in premarket trading on Monday after it announced a five-year deal with Johnson & Johnson to manufacture the drug substance for the drugmaker's still-investigational COVID-19 vaccine. J&J will pay $480 million for two years of Emergent's contract development and manufacturing services. The two companies had previously announced in April a deal to reserve manufacturing capacity for J&J's vaccine candidate. Emergent has also announced coronavirus vaccine manufacturing deals with AstraZeneca , Novavax and Vaxart Inc. as part of a new strategy to build out manufacturing capacity for COVID-19 vaccines before they have proven their efficacy or safety. Emergent's stock has gained 55.8% since the start of the year. The S&P 500 , in comparison, has declined 3.1%.
Up, up and away they go. Kicking off the second half of the year with a bang, the S&P 500 followed up its best quarter in over 20 years by extending its winning streak to four sessions. That said, given the current climate of uncertainty, predicting what the remainder of 2020 holds can feel like a guessing game. So, maybe it’s time to look at what the insiders are doing. Company owners, presidents and other officers, board members – have a direct line to information that the rest of us don’t usually see. Their positions put them in place to know what is about to impact their companies, and they have access to better legal and regulatory advice than the general public. It’s only natural – and very human – for them to use this information in their personal trading activities. To keep the playing field a bit more level, these people in the know are required to disclose their inside trades quarterly. TipRanks collects that insider trading data, and puts it in the context of the larger markets. The Insiders’ Hot Stocks tool lets you follow the insiders, sorting the data by stock or by trading strategy. It’s a smart way to get an inside track, and to demonstrate, we’ve picked three stocks that have recently skewed strongly positive on the strength of insider trades. T-Mobile US, Inc. (TMUS) The first stock is a company you know. T-Mobile is the country’s third largest wireless carrier, by customer base, and the company started Q2 by taking ownership of competitor Sprint. This past quarter marked the first full quarter of activity by the combined entity, and TMUS shares rose an impressive 24% during the period. Along with strong share appreciation in Q1, TMUS posted unexpectedly solid earnings. The earnings, reported back in May, showed EPS coming in at $1.23, which beat the forecast by 23%. Looking forward, T-Mobile has strong prospects for growth due to its commitment to increasing 5G coverage. As part of the Sprint merger, the company had to commit to expanding rural coverage and making 5G service available to 97% of the US population within three years. In the wake of the successful Sprint merger, TMUS has seen a major insider buy. The purchase, by Director Ronald Fisher, was for 350,000 shares, for which he shelled out more than $36 million. It was a big move, and it swung the insider sentiment on the stock deep into positive territory. Writing on T-Mobile and its prospects, 5-star analyst from Wells Fargo, Jennifer Fritzsche, says, “…in our view the true value of Sprint’s platform is access to greater scale and a deeper spectrum portfolio. With the combined Sprint asset mix, we believe TMUS has a 1-2 year head start for 5G relative to its peers. And despite the recent outperformance, we believe the valuation is more than justified considering the significant growth opportunity ahead to expand margins and grow market share.” To this end, Fritzsche rates the stock a Buy, and her new $120 price target, up from $110, indicates a potential for 13% upside growth in the coming year. (To watch Fritzsche’s track record, click here) Do other analysts agree with Fritzsche? As it turns out, most do. With 10 Buys and 2 Holds assigned in the last three months, the word on the Street is that TMUS is a Strong Buy. Its recent share appreciation has pushed the stock price close to the average price target in recent weeks. The stock is selling for $106.01, and the average price target of $111.61 implies room for another 5% growth this year. (See T-Mobile stock analysis on TipRanks) Arcimoto, Inc. (FUV) The next company on our list, Arcimoto, is an Oregon-based ‘green economy’ player. Arcimoto has developed, and is marketing, a series of low-weight, high-efficiency electric vehicles. The company’s name for the line, Fun Electric Vehicle, is also the source of its stock ticker, FUV. Over the past year, Arcimoto has expanded its EV designs to include delivery vehicles and rental fleet options. The company was forced to suspend manufacturing operations during the coronavirus crisis, but has since reopened its assembly facilities. In a move to raise capital and expedite recovery from the pandemic’s impact, Arcimoto put 1.7 million shares of common stock on the market at the end of June. The move grossed $8.5 million, the proceeds of which will be used for general working capital, including acceleration of manufacture and delivery of pre-ordered vehicles. The offering was an opportunity for insiders, as well as the public, and three company officers made significant purchases in recent days. Mark Frohnmayer, company President, bought 78,531 shares for an estimated $334,000, and two board members, Jesse Grant Eisler and Joshua Scherer, also made six-figure purchases. These were informative buys, the first in a year, and have moved the company’s insider sentiment far more positive than its sector average. Amit Dayal, 4-star analyst with H.C. Wainwright, is bullish on Arcimoto, rating the stock a Buy and writing, “We once again reiterate the 'multiple shots on goal' aspect of the company's market positioning, where one vehicle platform has the flexibility to serve multiple applications and markets. Accordingly, pushouts in vacation oriented sales should, in our opinion, be compensated with pickup in delivery applications... The company's cash burn was lowered during the lockdown but should be expected to ramp with production picking up.” Dayal’s $7 price target suggests that FUV has room for 3% growth over the next 12 months. (To watch Dayal’s track record, click here) Recent share appreciation – the stock rose an eye-opening 378% in Q2 – has pushed FUV above the average price target, too fast for most analysts to adjust their outlooks. Shares are currently selling for $6.82, so the $5.38 average price target puts the downside potential at 21%. The Strong Buy analyst consensus rating is unanimous, based on 4 recent positive reviews. (See Arcimoto stock analysis on TipRanks) Principal Financial (PFG) Last on our list is Iowa-based Principal Financial Group, an $11 billion asset management and insurance company. PFG shares are still down 26% year-to-date, having only partially recovered from losses in February and March. One thing the ‘corona quarter’ could not do was derail the company’s dividend. PFG paid out a generous sum in both Q1 and Q2, giving an annualized payment of $2.18 per share and an impressive yield of 5.4%. There has been one recent informative insider purchase of this stock in recent weeks. Board member Daniel Gelatt bought a block of 28,148 shares, paying a disclosed $999,823. His move pushed overall insider sentiment on PFG into positive territory, just above the sector average. Piper Sandler analyst John Barnidge covers this stock, and points out that PFG has so far managed to avoid a direct blow to its insurance operations from the COVID-19 epidemic – and in a curious way, its vision and dental policies have brought a benefit to the company. Barnidge writes, “As of 1Q20, the company has not yet experienced any known CV19 deaths in its life insurance products and only a limited amount of claims on benefit products, primarily short-term disability. PFG continues to benefit from dental & vision claim tailwinds from a lack of ability to make appointments… PFG could potentially see more of a benefit from a lack of claims in dental & vision than actual direct impact from CV19 claims.” Barnidge’s Buy rating on the stock is supported by his $43 price target, suggesting a one-year upside potential of 5%. (To watch Barnidge’s track record, click here) While Barnidge is bullish, Wall Street is still cautious here. The analyst consensus rating on PFG is a Hold, based on 7 reviews. The reviews break down as 2 Buys, 4 Holds, and 1 Sell. Shares are currently priced at $40.79, and the average price target of $43.57 implies a modest 7% upside potential. (See Principal Financial stock analysis on TipRanks)
D is selling gas assets to Berkshire Hathaway for $4 billion
(Bloomberg) -- Shares of Tesla Inc. rose as much as 6.3% Monday after three analysts lifted the electric-car maker’s price target, including JMP Securities by 43%.The boost to $1,500 from $1,050 comes after the Palo Alto-based company delivered more Model 3 and Model Y vehicles in the second quarter than JMP expected, analyst Joseph Osha said in a note.“Our target is now based on our belief that TSLA is positioned to become a $100 billion company” by 2025, in terms of revenue, Osha said. At the end of last year, Tesla had $24.6 billion in revenue.While data for deliveries in China haven’t yet been released, the firm appears to have been more successful in the U.S. and Europe than JMP thought, Osha said. NIO Inc., Tesla’s Shanghai-based rival, has been gaining ground. The company’s U.S.-traded shares rose as much as 23% Monday.Deutsche Bank analyst Emmanuel Rosner also raised Tesla’s price target to $1,000 from $900, referencing the stronger-than-expected vehicle shipments.Even bearish analyst Ryan Brinkman at JPMorgan boosted his price target by $20 to $295 and expects a second-quarter loss that’s smaller than he previously estimated. He maintained his sell-equivalent rating, citing the company’s “lofty valuation coupled with higher investor expectations and high execution risk.”TSLA has 9 buys, 11 holds and 16 sell ratings, with an average price target of $730, according to data compiled by Bloomberg.(Adds JPMorgan raising target in sixth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Coronavirus has prompted vast monetary and fiscal stimulus. Will central banks be forced to keep rates low to stop the cost of debt service from absorbing ever more of the public budget? Into this debate comes Stephanie Kelton, a professor of economics and public policy at Stony Brook University, and the former chief economist on the US Senate’s budget committee.
The Trump administration on Monday released the names of hundreds of thousands of businesses which took money from a high-profile $660 billion pandemic aid program, letting the public see for the first time how the majority of the cash was spent and whether it helped save jobs. The U.S. Treasury and Small Business Administration (SBA) said the $521.4 billion approved so far has supported employers of some 51.1 million jobs, or 84% of all small business employees. The colossal data set on the Paycheck Protection Program, released by the Trump administration after some initial resistance, provides transparency for the first-come-first-served program that has been dogged by technology, paperwork and fairness issues.
Lemonade Inc. shares had a second strong day of trading Monday following the mobile-based insurance startup launched its initial public offering late Wednesday. Lemonade shares recently touched an intraday high of $96.51 and were last up 31% at $91.17. On Thursday, Lemonade shares skyrocketed to close up nearly 140% on their debut on the New York Stock Exchange while U.S. markets were closed for the Independence Day holiday. The company fashions itself as a disruptor in the insurance industry that uses AI and data analytics and markets itself to tech-savvy, socially conscious millennials. SoftBank Group Corp. owns a nearly 22% stake in the company.
(Bloomberg) -- Elon Musk made good on a promise to produce a pair of “short shorts” to mark his triumph against investors who had bet against Tesla Inc., unveiling the item Sunday among the range of branded apparel for sale on the electric-car maker’s online store.A pair of the limited edition satin shorts would cost “Only $69.420” Musk tweeted -- a likely reference to the $420 per share price at which he considered taking the company private in 2018. The Securities and Exchange Commission sued over his tweeting about that ordeal.“Run like the wind or entertain like Liberace with our red satin and gold trim design,” read a blurb describing the shorts, which come in various sizes. “Enjoy exceptional comfort from the closing bell.”Following Musk’s initial tweet, which was “liked” by Twitter users over 41,000 times, Tesla’s online store was temporarily unable to process orders for the item.Musk has repeatedly joked about “short shorts” to short sellers who took positions against Tesla, such as hedge fund manager David Einhorn.Tesla shares have surged 189% this year.Elon Musk Taunts the SEC Amid Surge in Tesla Stock PriceFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.