Enlightenment - A Herold & Lantern Investments Podcast
Enlightenment - A Herold & Lantern Investments Podcast
Navigating the 2025 Investment Landscape: Market Trends, Tech Titans, and Lucrative Opportunities
January 6, 2025 | Season 7, Episode 1
What if you could navigate the unpredictable waters of the 2025 investment landscape like a seasoned pro? Get ready to unlock the secrets of booming market trends and lucrative investment opportunities that await in the new year. Our latest episode takes you on a journey through the economic milestones of 2024, highlighting an impressive 24% surge in the S&P 500 and the contrasting fortunes of growth versus value stocks. We'll unravel the stories behind the triumph of tech titans like Palantir Technologies and Nvidia, while examining the struggles faced by Walgreens Boots Alliance and Intel. With exciting developments on the horizon, including Microsoft's ambitious $80 billion AI data center plan, we'll set the stage for potential market shifts based on Nvidia's CEO's much-anticipated address.
Join us as we explore promising avenues in healthcare and consumer stocks, spotlighting giants like Eli Lilly, UnitedHealthcare, and Johnson & Johnson, amidst potential policy changes with RFK Jr.'s influence. We’ll dissect the tech sector's fierce competition between XAI and OpenAI, alongside Google's strategic advancements. Discover Apple's robust market position and its intricate ties with China, all while weighing the impacts of federal cases. We'll also guide you through the enticing realms of REITs, energy pipelines, and utilities, offering cautionary insights on junk bonds and convertibles. Finally, grasp the potential of European stocks, with BNP Paribas poised as a compelling opportunity in the international arena, especially as Federal Reserve rate cuts loom over dividends.
** For informational and educational purposes only, not intended as investment advice. Views and opinions are subject to change without notice.
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And now introducing Mr Keith Lenton.
Keith Lanton:Good morning. Today is Monday, january 6th, 2025. First Monday of 2025. And it is January 6th, which is a day that may resonate with you, because four years ago that was the day that there was trouble at Capitol Hill with the certification of the election, and today we also have the certification of the election, this time for President-elect Trump. So meaningful day in the US here, as we await the transition and perhaps some of the change in policies in Washington, also going to start out taking a look back at 2024. This will hopefully give us some context to look forward to 2025. Lots of news to look forward to. We have futures. Moving to the upside, this morning We'll also talk about what 2025 may look like in terms of equity performance, after two terrific years in equity markets.
Keith Lanton:S&p up two years in a row, more than 20%. We've talked about that, what that may mean for 2025. We'll take a look at Apple stock. We'll also talk a little bit about Google. So two of the magnificent seven in the spotlight. And then we'll finish up talking about Barron's cover story Best Income Ideas for 2025. Dividend-paying stocks, both here and abroad, as well as utility stocks, which were one of the strong sectors of the markets in 2024. And we'll talk about the likelihood of repeat performance in 2025. All right, so let's look back for a second before we leap forward.
Keith Lanton:Last year, us markets as measured by the S&P 500, up around 24%. If you're looking just at the fourth quarter of last year, things did slow down. Markets were up about 2.5%, breaking that down into value and growth value, which has been a long time laggard and continued to lag in the fourth quarter. Laggard and continued to lag in the fourth quarter After a return to some notoriety, and upside in the third quarter. Value was down 2%. Growth up 6% in the fourth quarter. For the year, growth up almost 24%, pretty much in line with the market, and value was up about 14%. If you were a dividend stock investor, well, you saw the fourth quarter last year was down about 2%. Overall we were up about 16%, kind of in line with the Dow type performance for dividend paying stocks.
Keith Lanton:Developed markets outside of the United States had a weak fourth quarter, down 7.4%. Emerging markets similarly, similarly down 7.8 percent. And for the year, developed markets outside the US were up about 5 percent. Emerging markets up 7.4, both significantly lagging the US and perhaps one of the reasons that we continue to see foreign flows into US equities. As the US continues to trounce most other overseas markets, bonds continued their lackluster performance in 2024. Core US bonds, including interest, were up about 1%. Fourth quarter we saw bonds down about 3%.
Keith Lanton:If you're just looking at the treasuries, long-term treasuries significantly underperformed last year. They were down about 8%. But overall treasuries if you're looking at a broad portfolio of treasuries for the year, including interest treasuries were up about three-quarters of 1%, assuming you had some short-term, mid-term and long-term treasuries. Fourth quarter treasuries were down about 3%. The standout in the bond market last year was high yield, which was up about 8% In the fourth quarter. It was pretty rough. Pretty much unchanged Tips last year one of the better performers in the bond market, but nothing spectacular. Tips were up about 2% last year, although in the fourth quarter they were down 3%. And if you're looking at the fourth quarter of last year, let's just talk about 10-year treasuries. 10-year treasuries are down almost 9% in the quarter, as we saw interest rates move up from about 3.85% to about 4.6%. And for the year, 10-year treasuries, including interest, down 6%. So a year in which fixed income certainly did not provide the returns that equities did relatively flat performance do that we were talking about some of the performance of last year.
Keith Lanton:What were some of the most successful stocks, the biggest winners? Hopefully some of these names will sound familiar to you because perhaps they're in your portfolio. Biggest gainer last year in 2024, was Palantir Technologies, up almost 350%, just under Vistra, which is a company that sells electricity, up 250 percent, riding the AI wave. Nvidia came in at number three. Number four, interestingly, was GE Vernova, which is one of the spin-offs from General Electric, up almost 150 percent. And United Airlines, surprisingly coming in at number five last year, up about 130%. On the downside, hopefully these names don't sound as familiar to you the biggest decline of last year was Walgreens Boots Alliance, the drugstore chain, down over 60%. Intel, struggling chipmaker, down over 60%. Intel, a struggling chip maker, down about 60%. Moderna, which had certainly a tremendous 2020, down over 50%. Selenese, which is a chemical company, down over 50%. And Estee Lauder, which had been a previous market darling, down almost 50%. Certainly hurt by business in China, but overall weakness in cosmetics, all right.
Keith Lanton:Transitioning to markets, this morning we are seeing Dow futures up about 170 points over fair value. S&p futures are up about 46. Nasdaq futures the strongest of the group, up 215. Nasdaq, up about 1% above fair value, s&p is about three quarters of 1% above fair value and the Dow just under half a percent. Buy market relatively flat. Ten-year treasury is at a 4.60% Futures higher.
Keith Lanton:Open here on the backs of mega caps and chip makers. Early strength open here on the backs of mega caps and chip makers. Early strength. The following impressive fourth quarter revenues from Foxconn, which makes things like the iPhone, and plans announced Friday by Microsoft to spend $80 billion in 2025 to build out AI data centers. Also, nvidia, perhaps up in anticipation of CEO Jensen Wang, who will be speaking this evening at the Consumer Electronics Show at 6.30 pm in Las Vegas, 9.30 pm Eastern Time. After focusing on AI processors for data centers for the past few years, nvidia is likely to introduce AI chips for PCs. Is what the market is expecting. It's also thinking that the CEO, jensen Wang, will save some big announcements for NVIDIA's own conference, which is in March. Overall, the Consumer Electronics Show this year will be heavy on artificial intelligence, robotics and wearable devices. We'll be heavy on artificial intelligence, robotics and wearable devices, so we will possibly get some exciting developments and products that we can get excited about coming out of that conference today. Also today we will get the December S&P Global US Services PMI. That is the final reading for that at 945. And at 10 o'clock November factory orders will be coming out.
Keith Lanton:Also in the news, getting a Lyft this morning no pun intended is Uber and Lyft. L-y-f-t and the Wall Street Journal reporting they are offering some new self-driving features. While both companies have given up on their plans to develop their own driverless taxis a couple of years ago, they are revamping their businesses to accommodate competitors. Who may have figured it out. Both companies will have driverless cars from Alphabet's Waymo and others on their apps this year. In coming months, riders in Austin, texas and Atlanta will be able to hail a Waymo through the Uber app. Lyft plans to offer May Mobilities driverless taxis in Atlanta.
Keith Lanton:Uber and Lyft have agreed to maintain these driverless fleets. They are finding locations to store cars, equipping them with chargers and high-speed internet and training workers to maintain the cameras, light and other gadgets that driverless cars depend upon. So teaming with companies like Google's Waymo, the current leader, in order to sort of do the back-end work and then getting these driverless cars on their apps. But Waymo, which is Google's driverless application, will continue to operate its own app in certain other cities. How will this work? Well, uber and Lyft will get a cut of the driverless taxi bookings for the cities that they partner in. The robo-taxi companies will get access to the ride-sharing's tens of millions of customers without having to advertise or build expensive technologies needed to efficiently connect their cars to customers.
Keith Lanton:Now Uber and Lyft, both emphatically stating that human-driven cabs aren't going away anytime soon. They think that the future will be a combination of regular taxis and driverless cars. Think populated cities like New York, or think extreme weather conditions like snow Very unlikely that in a city, let's say, like Boston, in the middle of winter, when it's snowing and these sensors are getting covered that these driverless cars will be able to autonomously navigate anytime soon. Consumers are warming up to driverless cars. In August, Waymo picked up close to 500,000 passengers in California. That's up from 20,000 the year before, waymo's market share in San Francisco up to 22%, while Lyft's market share in San Francisco fell from a year prior from 34% to 22% and Uber's share had fallen 10%. So you are seeing more adoption by consumers of electric not only electric vehicles, but driverless vehicles when they have that option.
Keith Lanton:Other companies in the news Boeing is up about 3%, upgraded to to overweight from equal weight at Barclays. Salesforce downgraded to sell from neutral at Guggenheim. Intel article over the weekend saying the problems could even be worse than people thought. That's kind of scary because most people thought problems were pretty severe, but nevertheless, intel slightly this morning. All sorts of lawsuits flying after President Biden rejecting US steel's takeover by Nippon Steel this past week.
Keith Lanton:Moving on to geopolitical news, president-elect Trump tells House Speaker Mike Johnson he wants Congress to pass one large reconciliation bill instead of separate bills. That includes tax cuts, energy policy, border security, debt ceiling increase and spending cuts. These are reconciliation bills the Senate can pass with 51 votes. Mr Johnson says it is his goal to have the bill become law by the end of April. That's according to Politico. President-elect Trump says he is planning universal country tariffs, but only on critical imports instead of all products. A little clarification today. We'll see if he sticks with that reporting that President-elect Trump will not face any legal penalties at his January 10th sentencing for his New York conviction.
Keith Lanton:President Biden this morning taking action to protect the entire US East Coast, the Eastern Gulf of Mexico, the Pacific Coast off of Washington, oregon and California and additional portions of the Northern Bering Sea in Alaska from future oil and natural gas leasing. It's possible that President-elect Trump could overturn some or all of those decisions. Reports this morning that Canadian Prime Minister Justin Trudeau will announce his resignation soon. Reuters reporting that China is asking large fund managers there to restrict selling in an effort to calm markets. Over the weekend, the House passed the rules package which raises the threshold for triggering a vote to remove the Speaker of the House to nine Republican members Remember this was one single member previously could have triggered a vote to remove the Speaker, so this giving Speaker Johnson more leeway.
Keith Lanton:Bloomberg talking about President Biden and his efforts to have TikTok banned, and he is asking the Department of Justice to reject President-elect Trump's request to delay the TikTok ban. The Biden administration is sending $8 billion in arms to Israel. According to the Wall Street Journal. Senate Majority Leader John Thune tell President-elect Trump that Pete Hegeseth will be confirmed as the Secretary of Defense. According to CBS News, the Hill is reporting that some Democrats are open to supporting RFK for Secretary of the HHS and for those of us in New York, new York Times reporting that New York City congestion pricing plan has gone into effect after a judge in New Jersey rejected an emergency effort to stop the program. President-elect Trump has also said he is going to seek to stop the program. Unclear whether he has that authority, but as of now, if you're in New York and below 60th Street, you are subject to congestion pricing with a few exceptions, all right.
Keith Lanton:Wall Street Journal this morning reporting that unemployed office workers are having a harder time finding new jobs, which obviously is not good for those who are without work. But the bond market perhaps getting a little bit of comfort that perhaps that market is not super hot in terms of the potential for wage inflation. The US economy did add more than 2 million jobs over the last year, but the Wall Street Journal is reporting that people who are out of work are having a harder time getting back into work. As of November, more than 7 million Americans were unemployed, meaning they didn't have work and were trying to find it. More than 1.6 million of those jobless workers have been job hunting for at least six months. The number of people searching for that long is up more than 50% since the end of 2022. The pain is largely being felt in high-paying white-collar jobs, including tech law and media law and media. Also, average salary increases have slowed from about 6% wage inflation to about 4% wage inflation. So perhaps another measure that, while the job market remains healthy, it's not overheating as some had feared a couple of years ago.
Keith Lanton:All right, let's move on to Barron's. Barron's talking about the stock market's strong 2023 and 2024, suggesting that once again, it's time to maybe play defense. Anyone who's suggested playing defense after a strong market rally, at least in the last couple of years, has been, at the very least, early and perhaps arguably wrong. But Barron's taken another stab at it. Stock soared in 2024, following a massive surge in 2023. Following two strong years on Wall Street, particularly for big tech, some could argue. Now is the time to be a little bit more cautious. Tech, some could argue. Now is the time to be a little bit more cautious. Barron's reporting that the annual return for the S&P 500, following consecutive yearly gains of more than 20%, is about 7%. So Barron's suggesting that the Magnificent Seven may not tank. But it may not hurt for investors to add some defensive-oriented stocks from healthcare and consumer staples to their portfolios. Consumer staples last year were up about 9%, and that's despite the fact that two big, large consumer staple companies, costco and Walmart, surged. But other consumer staple stocks like Coca-Cola, pepsi, mondelez and Target underperformed and they may now be relatively attractive.
Keith Lanton:Barron's art making an even stronger case perhaps to look at health care, which was relatively flat in 2024, despite the Monjuro maker, eli Lilly, lighting things up with their weight loss GLP-1 drugs. But we got declines in stocks like UnitedHealthcare, which was certainly in the news recently, and pharmaceutical companies like Merck and Johnson Johnson. We also got fears of crackdowns in health care, especially with vaccine skeptic RFK Jr potentially being confirmed as head of the HHS. Barron saying these concerns may be overdone. Health care and consumer sector stocks trading at around 16.5 and 18.5 times earnings. Consumer sector stocks not that long ago traded at a premium to the S&P 500. S&p 500 is now at 22 times Consumer stocks 18.5 times. So arguably there's room for upside in consumer stocks and also in healthcare stocks. Some Wall Street consensus estimates on some healthcare stocks Moderna estimates imply a 75% gain if you think that the analysts have it right. Biogen and Regeneron, if you look at analyst estimates relative to current prices and you could be looking at the upside of 50% if you think those estimates are correct. Many of these consumer staples and healthcare stocks also pay healthy large dividends which may be a tailwind if the Federal Reserve continues to cut short-term interest rates.
Keith Lanton:Barron's talked also about two stocks in the Magnificent Seven. One of them is Alphabet Some know it better as Google and Barron's talking about the fight that's going on between Elon Musk's company, xai, and OpenAI. If these two companies go at it and Sam Altman and Elon Musk get tied up, fighting each other that Google could be the big winner. Ironically, both XAI and OpenAI started because they were fearful that Google would dominate artificial intelligence, and now they are fighting with each other and they may consume time, energy and resources while Google keeps marching forward. The crux of this lawsuit is that Musk is suing OpenAI for violating its charter for being a for-profit entity. Ai research is expensive. Running ChatGBT, which is what OpenAI does, is consuming more dollars than perhaps Sam Altman thought. Openai has blown through Microsoft's investment and recently came back for another $6.5 billion of funding, and that requirement for more funding is what caused OpenAI to suggest that they were moving to a traditional for-profit structure, leading to the lawsuit by Elon Musk. Speaking of Google and XAI, which is Elon Musk's company, openai had the big head start when they released ChatGBT and they had about 100% market share of folks who were using AI in searches. That lead has dwindled down to about 29% of adults who say that they are regular users of chat GBT, with the next closest thing being Google's Gemini at 16%. So the market is certainly getting fragmented and as these two fight it out, the irony is that Google might be the biggest beneficiary.
Keith Lanton:All right, let's move on to Apple. Barron's, in their technology column, raising some worries about Apple, just given their price, not necessarily given their business model. Apple stock up about 30% last year versus 23% for the S&P, which is extraordinary given Apple's size. Apple had gotten up to an all-time high of about $260 to close the year and just at the end of the year it sold off and it's now around $250, but still sports evaluation of $3.8 trillion and it's just off of its high. Some talk about Apple possibly being the first company to hit $4 trillion in market cap. Ceo Tim Cook certainly has been a tremendous leader for Apple and its shareholders since becoming CEO August 24, 2011. Apple stock is up 1,785% versus 407% for the S&P 500. Its market cap, since Tim Cook took over, has gone up by $3.45 trillion.
Keith Lanton:Now, many of you may or may not remember that when Tim Cook took over as CEO of Apple. There were so many questions, most folks were sure that he would certainly not be able to lead Apple as effectively as Steve Jobs. Now, while Steve Jobs created Apple and certainly comparing the two is something that really isn't necessary or warranted Nevertheless there were lots of concerns and doubts that anybody could follow up on what Steve Jobs had done and built, that anybody could follow up on what Steve Jobs had done and built. And Tim Cook has certainly been, at the very least, a fantastic person who has executed and has been a master of creating very deep-moved businesses. So let's delve a little bit into the scale of Apple.
Keith Lanton:For fiscal 2024, apple posted $391 billion in revenue. That's number three in the US, after Walmart and Amazon. It's the seventh largest company in the world, third largest in the US. Fifty-one percent of its revenue comes from the iPhone. Twenty-four percent comes from its services business. Its services business is about as big as Disney's entire business, and the rest of its business is spread between the Mac, the iPad and wearables, each the size of fortune 200 company.
Keith Lanton:There are questions, though, about While Cook seems to believe Apple still has a strong path in China, his company is exposed to many risks $66 billion, or about 17% of Apple's revenue comes from China. That is down from $72 billion in 2023. Perhaps equally concerning, apple assembles much of its hardware in China and is subject to the whims of the Chinese government, as well as the whims of President-elect Donald Trump's tariff policy. Now Apple has been moving some manufacturing to India, but is still very exposed to manufacturing in China. Also, apple watchers are following two federal cases the US case against Apple and the US case against Apple. Let's call it frenemy Google. While Tim Cook and President-elect Trump appear to be on good terms these days, a wild card is Elon Musk, who has his own tech ambitions and the ear of the president-elect.
Keith Lanton:In general, wall Street isn't quite as bullish on Apple as they usually are, mostly because of its valuation. The mean price target of the 46 analysts who follow Apple is $248, which is pretty much where the current price is If you go back to the end of 2016,. So go back eight years. Apple stock was then around $23, had a dividend yield of 2.2% and a PE ratio of 10N. Today, the stock is up more than tenfold. Its dividend yield is 0.4% and its PE ratio is 37. So Barron's isn't suggesting that Apple is on the verge of a massive sell-off. Of course, no one knows, but what they do say is that you could be looking at a protracted trip sideways, which is something that Apple did from October of 2020 to October of 2022. All right, let's change gears. Move on to fixed income here as a substitute, as much as I possibly can, for Brad.
Keith Lanton:Barron's cover story talked about the best income ideas for 2025, stocks, bonds and everything in between. We already talked about bonds took a backseat to stocks in 2024, but investors are still going to find ways to get paid. They did last year and they very likely will in 2025. Looking ahead to 2025, there is still plenty of yield to be found in stocks and bonds. In fixed income markets, investors can get 3% to 5% yields on munis, 7% or more on junk, 5% to 7 seven on preferred stocks, 2% on convertibles plus potential upside, and 4% plus on treasuries of varying maturities. These returns might not be as exciting as those available, let's say, in the private credit market, which has been getting a lot of attention, but that area is getting crowded and returns may not match those seen in recent years.
Keith Lanton:Now Barron's lists the sectors that they think have the most upside in the income world, and last year's list was pretty accurate in terms of the sectors that they thought would perform well, with one exception foreign dividend stocks, which Barron's ranked number two. Last year that sector was down about 1.8% but Barron's is doubling down and moving foreign dividend stocks up to number one this year as their favorite way to get income. They suggest taking a look at the iShares International Select Dividend and Schwab International Dividend Equity ETFs. The symbol on those, the iShare is IDV and the Schwab International Dividend Equity is SCHY. Dividend yield on those guys 5.8% for IDV and about 6% on SCHY. Article also mentioned some individual stocks in the UK Shell, hsbc, the big UK bank and GlaxoSmithKline, gsk are all yielding around 4% and British Petroleum symbol, bp, yielding about 6% and diversified miner Rio Tinto, trading near a 52-week low as iron ore prices are weak, but that is yielding about 6% as well.
Keith Lanton:Moving on to number two, which was number one last year, which is US dividend stocks which, as we talked about before, returned about 15% to 16% last year. They are yielding a little bit over 3%. Healthcare stocks we talked about this sector a few minutes ago. They say look appealing. Merck and Johnson. Johnson, mrk and J&J Sport yields over 3%, while former pharmaceutical leader Pfizer. Pfe has a dividend yield of over 6%. Energy stocks sold off in December and the result is that ExxonMobil symbol XOM and Chevron CVX yield almost 4% and 4.5% respectively. Food stocks like Kraft, heinz, khc, yield more than 4% and Pepsi, pep, yielding over 3.5%.
Keith Lanton:Among the many dividend-oriented mutual funds and ETFs are the Vanguard high dividend yield and Schwab US dividend equity ETFs, both yielding more than 3%. The Vanguard high dividend yield is VYM and the Schwab. There is SCHD. Number three this year is REITs, which last year returned about 4.8%. They are moving up to number three from number seven last year. 4.8% they are moving up to number three from number seven last year and Barron's saying the startup for 2025 for REITs looks favorable, with REIT yields about 4% on average Stocks trading around 22 times adjusted funds from operations, which is in line with the historical averages.
Keith Lanton:Some of the sectors favored by some of the managers that Barron mentions are cell towers, single-family residential housing, senior housing those sectors they say all have demand tailwinds Number three last year. Number four this year is energy pipelines, which were up almost 23% last year, and that's because there would be no AI without electricity. There would be no AI without electricity. Much of that juice comes from natural gas which is transported by pipeline operators like Kinder Morgan, KMI, Williams Companies, WMB, Average stocks yielding about 5%, with high yielders like Energy Transfer symbol last year at number four and utilities returned about 23 percent last year. So this sleepy sector certainly coming to life in 2024. Normally considered a defensive play, utilities nearly matched the return of the S&P 500, led by independent powers like Constellation Energy, as they capitalize on the huge power needs of data centers. Barron says take a look at the traditional utilities like Southern Company SO and Duke Energy, DUK, which are yielding around 3.5%.
Keith Lanton:Moving on to the next area is mortgage securities mortgage-backed securities, which offer high credit quality and relatively attractive yields, currently yielding around 5% to 6%. Much of the market consists of agency mortgage securities like Ginnie Mae, Fannie Mae and Freddie Mac that carry little to no credit risk, often viewed as backed by the US government. Ginnie Mae is, and Fannie and Freddie have an implied moral obligation that in 2008, at least, that moral obligation held. Mortgage securities are one of the few areas of the taxable bond market in which yield spreads versus treasuries are appealing relative to history, trading about 1.25% over treasuries, which is wide by historical standards. Then, of course, we have treasuries up next, one of the few parts of the bond market that did experience negative returns in 2024 and could lead to a better setup for 2025. We said that long treasuries suffered declines of almost 8% last year. The good news is the treasuries now offer nice yields, with long-term bonds yielding almost four and three quarter percent. Longer term treasuries could return 20 percent if yields were to fall back to four percent.
Keith Lanton:Let's talk about the areas of the market where Barron sees a little bit of upside, but not quite as much as they did last year, and that's junk bonds, which were up about eight percent last year, but now the spreads have tightened to their tightest levels in 20 years as we've had optimism about the economy, low default rates and high demand for high yield. Average junk bond yield is now about 7%, so to some extent, junk bonds being priced for really good news, so any bad news could set them back. Convertibles returned about 10% last year in line with small to mid-cap equities. A lot of this market is made up by MicroStrategy, which is the company that issues convertible bonds to go out and buy Bitcoin. So Barron's a little bit hesitant to go all in in convertibles because they have some reservations regarding micro strategy.
Keith Lanton:Municipal bonds we talk a lot about municipals bonds exempt from federal income tax and, in some cases, state and local taxes. They certainly remain a favorite of individual investors due to their tax benefits, but not all munis are as attractive right now as they were in previous years. If you're in a moderately low tax bracket, then short-term munis may not be as attractive, but for folks who are even in the 10% to 15% tax bracket, well, longer-term munis are still attractive, with yields in the neighborhood of 4%. And then, rounding out the rest of the fixed income universe, cash. Barron's somewhat tempered on their enthusiasm for cash, as the Federal Reserve is still expected to cut interest rates despite the relatively strong economy and the feeling that perhaps you could have superior returns in the aforementioned areas of the markets relative to cash.
Keith Lanton:And finally, last on Barron's list is preferred stocks. Not so much because they think that preferred stocks have any underlying fundamental issues, but Barron's feels that preferred stocks could seek increased issuance in 2025 after a lull in issuance the last couple of years, and this is because of the fact that many banks were restricted in terms of how much preferreds they could issue from a capital standpoint, in terms of using them as good capital. And with some of the changes that are expected to be made to banks and their capital structure and what would be considered good capital, it's possible that banks could start to issue more preferreds and therefore we could see an increased supply and therefore that could weigh on the prices of the existing bonds in the marketplace. All right, before I finish things off, I will talk about one specific sector that we talked about. That was foreign stocks, and mentioned some specific examples. Barron said that European stocks, they say, are actually experiencing a fire sale and they talk about some bargains that perhaps you'd be interested in International stocks trading around 13 times forward earnings versus 22 times earnings in the US. David Harrow, a manager of the Oakmark International Fund, views depressed European stocks as a coiled spring that could explode to the upside if they ever start to close the valuation gap.
Keith Lanton:A couple of specific stocks mentioned here. One is BNP Paribas, which is one of Europe's largest banks. It's interesting that it has a $2.6 trillion in assets. Jp Morgan in the US has $4 trillion in assets. Bnp is about a 12% return on equity, JP Morgan about 15%. So certainly a little bit of a laggard relative to JP Morgan, but BNP is valued at about $70 billion, which is one-tenth of JP Morgan's market cap. Bnp trades for six times earnings and 60% of book value. Jp Morgan's at 14 times earnings and two times book value. It does have liquid US traded shares, so investors don't have a liquidity discount for the inability to buy them domestically.
Keith Lanton:David Harrow, also partial to luxury good company Kering, which owns Gucci, also likes Richemont, the parent of Cartier and Swatch Group, Each of these companies now trading for 15 to 20 times earnings versus historical multiples north of 20 times earnings. And finally, for a sector that is significantly out of favor and some would argue for good reason, that is, the European auto industry, certainly facing headwinds in China and also potential tariffs here in the United States. So certainly a very disliked sector, but, Barron's would argue, when the sector is extremely disliked, perhaps that's the time to take a look at them, and they suggest taking a look at BMW and Mercedes. Both are cash rich and both are trading at about six times forward earnings. Bmw market cap at around $50 billion has about $10 billion in cash and it has had success with its battery electric vehicles. Admittedly, it's a much smaller portion of their business than Tesla, but they are growing that business right now at a faster rate than Tesla is.
Keith Lanton:In terms of electric vehicles, BMW arguably is not in secular decline, not in financial distress. Trading at six times earnings with $10 billion in cash, which is 20% of market cap, arguably falls into the value camp. Market cap arguably falls into the value camp. Mercedes, certainly even less successful in the EV space, but does have a market cap of $60 billion $30 billion in net cash and cash equivalents at its core auto operations. So 50% of its market cap in net cash has its stake in its truck business, which is worth about another $10 billion. Owns a finance business with a book value of $17 billion. Add it all up you get the $57 billion out of $60 billion. So basically you're paying about $3 billion, which is quite not much for their entire auto business. So arguably BMW and Mercedes for the patient investor with some guts might make sense.
Keith Lanton:That's everything I've got.
Alan Eppers:Thank you for listening to Mr Keith Lanton. This podcast is available on most platforms, including Apple Podcasts, Spotify and Pandora. For more information, please visit our website at www. heraldlantern. com.
Sophie Cohen:Opinions expressed herein are subject to change and not necessarily the opinion of the firm. Past performance is no guarantee of future results. The information presented herein is for informational purposes only and is not intended to provide personal investment advice. It is important that you consider your tolerance for risk and investment goals when making investment decisions. Investing in securities does involve risk and the potential of losing money The material does not constitute research, investment advice or trade recommendations.