All's Well That Ends Well

In case you hadn’t noticed, and the heat wasn’t a reminder, we have now finished the second quarter and are officially entering summer. The third quarter is usually the slowest of the year as families take vacations and fewer investors are looking at their portfolios. By this point, the economic data indicates where things are headed, and the surprises are out of the bag. However, this summer may be a bit different as we have two presidential nominating conventions which could be more contentious than usual. Furthermore, after last night’s debate, there are more questions than answers. We are hopeful that the next few months will be business as usual but recognize there are many uncertainties yet to be resolved, not the least of which is inflation before the Federal Reserve can rest comfortably that an economic soft landing is at hand.

With it being the last week of the quarter, there wasn’t much in the way of news. Consider this the quiet period before the “storm” of earnings announcements that will begin in a couple of weeks. Yes, the presidential debate was last night, but I am not touching that with a ten-foot pole. So, let’s talk about some lesser-known stories I came across this week that you may have missed.

Eli Lilly (LLY) and artificial intelligence – Eli Lilly is collaborating with OpenAI for medicines against drug-resistant bacteria. It hopes to leverage AI to invest in novel antimicrobials. To this point, we’ve heard about AI in terms of generative content and user interface. We are now seeing its promise in other areas, including pharmaceutical R&D. Other companies using this approach include Moderna and Sanofi.
Exxon Mobil (XOM) is synonymous with oil and gas. However, did you know that the company has committed $20B in green energy development over the next five years? And to my surprise, I learned this week that it has signed an agreement with South Korea’s SK On, an EV battery manufacturer, to supply the company with up to 100 thousand metric tons of lithium from its first planned project in Arkansas. Old meet new.
Chipotle (CMG), known for its delicious burritos, was famous for being the fourth most expensive stock available to investors. Prior to the 50-for-1 stock split this week, it was priced at $3,425 per share. Now that both it and Broadcom have undergone stock splits, the priciest stocks you can buy are Berkshire Hathaway A class $61,239 per share, NVR, Inc $7,673 per share, Booking Holdings Inc, $3,969 per share, Seaboard Corp. $3,128 per share, and AutoZone, Inc. $2,939 per share. Who’s up for a share of AutoZone?
Amazon (AMZN) announced it plans to launch a discount shopping service with direct shipping from China. Now instead of buying your Chinese-made product on Amazon’s website, you will be provided a shopping section that links buyers directly to cheaper items in Chinese warehouses. If reports are to be believed, this new service could begin as soon as this fall.

In the thank-goodness-we-don’t-own-that-department, we saw a few particularly big collapses this week. Walgreens (WBA) lowered its full-year outlook due to a tough overall backdrop for retail. While sales were up 2.6% year-over-year, the company slashed guidance by approximately 15%, well below the consensus estimate. The stock dropped 22% on the news. Today, Nike (NKE) announced it too is feeling the pressure and expects revenue to decline in the coming months. The stock fell 20% on today's news. And finally, this small company you may be familiar with named Levi Straus & Co (LEVI) fell 15% yesterday when it announced full-year revenue and earnings guidance well below expectations. It is worth noting that while we aim to own the best companies, it goes without saying we also try and avoid those that could tank. Fortunately for us, it’s been a while since we’ve stepped on a duck.

In closing, I came across this story on gassy cows and had to share it with you. In a world first, Denmark is looking to put a carbon tax on cows and pigs. Apparently, livestock accounts for 30% of human-caused methane emissions. Beginning in 2030, Denmark will require farmers to pay for greenhouse gases released by their cows, sheep, and pigs. The tax will start at $43 per ton of carbon dioxide equivalent in 2030 but increase to $108 by 2035. And in case you were wondering, one Danish cow produces over six tons of carbon dioxide equivalent in a year. Now you know.

Bruce J. Mason, MBA