Day: November 3, 2024

Social Security is vital for most retirees. It delivers about 30% of income to those Americans aged 66 or older. Indeed, per the Social Security Administration (SSA): “Among Social Security beneficiaries aged 65 and older, 12% of men and 15% of women rely on Social Security for 90% or more of their income.”

One great thing about Social Security is that benefits are increased in most years, helping retirees keep up with inflation — via cost of living adjustments (COLAs). The latest COLA was just announced, and there wasn’t widespread rejoicing.

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The latest COLA, to take effect in 2025, was recently announced, and it’s… 2.5%. That’s very close to the 2.6% average annual hike over the past two decades. The table below lists some recent Social Security COLAs:

Source: Social Security Administration.

If you think that 2.5% isn’t much of an increase, you’re not alone. We at the Motley Fool surveyed a bunch of retirees and found that 54% viewed it as insufficient. In fact, fully 31% found it “completely insufficient.”

I understand the sentiment — because as of September, the average monthly retirement benefit was $1,922 — or only about $23,000 per year. That’s far from enough to support most of us in retirement. Increase it by 2.5% and it rises to only $23,641 — only about $577 more, and an increase of just $48 per month.

Even worse, COLAs are likely to disappoint many more times, unless they start getting tied to a more appropriate measure of inflation — the CPI-E, not the CPI-W. The CPI-W is meant to reflect the expenses of workers, while the CPI-E is meant to better reflect the spending of older folks. Thus, for example, it more heavily weights medical care — a category that has experienced higher-than-average cost increases.

Of course, if you’ve earned more than average over your working life, you’ll likely collect bigger-than-average benefit checks. But they still are not likely to come close to providing all you need or want. So, what can you do to prepare for retirement?

One good strategy is to build multiple income streams for your retirement. Definitely be saving and investing for retirement — saving aggressively and investing effectively. Figure out how much you’ll need in retirement, and then figure out how you’ll amass it.

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After a whirlwind week of tech earnings, it’s time to take a deep breath and fasten your seat belts again for another big ride. This week is expected to be intense, high-stakes, and perhaps exhausting as Americanshead to the polls to decide the country’s 47th president.

Election Day falls on Tuesday, Nov. 5. Hopefully, by the end of the week, the world will know who will lead the nation — Kamala Harris or Donald Trump. Current polls show an incredibly close race, suggesting a tight contest that could bring volatility to markets and emotions alike.

The historic event will likely impact market sentiment, and investors will need to stay tuned to stock market movements and macroeconomic indicators. Election outcomes can significantly affect the market’s direction, shaping policies that impact industries, fiscal policy, and international relations. As results unfold, expect heightened activity in the markets and prepare for potential shifts in market strategy based on the election’s outcome.

Super Micro Computer and Palantir to report earnings

Palantir Technologies (PLTR) is set to release its earnings report on Monday after the market closes. Known for its advanced AI tools used by military and intelligence agencies, Palantir has become a prominent player amid the tech world’s ongoing AI surge.

On Wednesday, Novo Nordisk (NVO) and CVS Health (CVS) will announce their earnings before the opening bell. Later that day, AMC Entertainment (AMC), a popular “meme stock,” and QUALCOMM (QCOMM), a key player in wireless technology, will release their results after the market closes. Super Micro Computer (SMCI), which faces the threat of delisting from the Nasdaq, is also expected to report on Wednesday, although the exact timing remains unconfirmed.

Airbnb (ABNB) is scheduled to report earnings on Thursday after the market closes, shedding light on its performance amid shifting travel trends.

Finally, on Friday, Paramount Global (PARA) and Trump Media & Technology (DJT) will release their earnings, providing insights into their standing within the media and social media landscapes, respectively.

Interest rate decision due this week

This week, several significant macroeconomic reports are scheduled for release, beginning on Tuesday with the U.S. trade deficit figures for September. This data is crucial for understanding the country’s trade dynamics and overall economic health.

On Thursday, two important reports will be issued: the weekly initial jobless claims and the consumer credit report for September. Moreover, investors will closely monitor the Federal Open Market Committee’s interest rate decision, as well as the subsequent press conference featuring Fed Chair Jerome Powell. This announcement will be pivotal in shaping market expectations regarding monetary policy and interest rates.

Finally, on Friday, the preliminary consumer sentiment index will be released, offering a glimpse into consumer confidence levels.

For the latest news, Facebook, Twitter and Instagram.

On Oct. 12, Wall Street celebrated the two-year anniversary of the current bull market. Optimism among investors has been readily apparent, with the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-powered Nasdaq Composite (NASDAQINDEX: ^IXIC) reaching multiple all-time highs.

But if history has taught us anything, it’s that stock market corrections and bear markets are normal and inevitable. Although no predictive metric is 100% accurate in forecasting directional moves lower in the Dow Jones, S&P 500, and Nasdaq Composite, there are a small number of events and data points that have strongly correlated with weakness in stocks throughout history. These events and data points are the ones that investors sometimes look to in order to gain an advantage.

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One of these highly correlative forecasting metrics, which has an immaculate history of predicting U.S. economic downturns dating back more than 150 years, is foreshadowing trouble for Wall Street.

The one predictive tool that should be raising eyebrows within the investment community is U.S. money supply.

While there are a number of ways to measure money supply, the two with the greatest relevance are M1 and M2. M1 factors in all cash and coins in circulation, travelers’ checks, and demand deposits found in a checking account. This is money that can be spent by consumers at a moment’s notice.

On the other hand, M2 takes everything found in M1 and adds in savings accounts, money market accounts, and certificates of deposit (CDs) under $100,000. This is still money consumers can access, but it requires more time and effort to get to before it can be spent. It’s this measure of money supply that is raising red flags.

Economists more or less ignored M2 money supply for the overwhelming majority of the last 90 years because it had been expanding without fail. A steadily growing economy needs more capital in circulation to facilitate transactions.

But in those very rare instances throughout history where notable declines in M2 money supply have occurred, it has spelled trouble for the U.S. economy and Wall Street.

M2 is reported monthly by the Board of Governors of the Federal Reserve System. In April 2022, it hit an all-time high of $21.723 trillion. But between April 2022 and October 2023, U.S. M2 money supply would decline by a peak of 4.74% from this record high.

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This marked the first drop-off of at least 2% in M2 money supply from an all-time high, as well as the first year-over-year decline of at least 2%, since the Great Depression.

Before digging any deeper, be aware that there are two caveats to this meaningful decline in M2 money supply.

First, M2 is once again climbing. Based on the September 2024 reading of $21.221 trillion, M2 has risen by 2.7% on a year-over-year basis, which would generally be good news for the U.S. economy. In aggregate, M2 is still 2.31% below its all-time high.

Second, this peak-to-trough drop in U.S. M2 money supply followed a historic year-over-year expansion of more than 26% during the height of the pandemic. Fiscal stimulus and historically low interest rates flooded the U.S. economy with capital. In other words, it’s possible this first-in-90-years decline in M2 is a benign reversion to the mean following a never-before-seen expansion of the money supply.

However, more than a century of history suggests this decline may have more ominous implications.

In March 2023, Nick Gerli, the CEO of Reventure Consulting, released the post you see above on the social media platform X (formerly known as Twitter). Using data from the Federal Reserve and U.S. Census Bureau, Gerli was able to back-test M2 growth and contraction over more than 150 years.

Although this post is more than a year old, it highlights key correlations between rare year-over-year declines in U.S. M2 money supply and big-time weakness in the U.S. economy.

Since 1870, there have been only five instances where M2 fell by at least 2% on a year-over-year basis: 1878, 1893, 1921, 1931-1933, and 2023. All four prior occurrences correlate with a U.S. depression and double-digit unemployment rate.

Once again, there is a caveat to this data. Specifically, the Federal Reserve didn’t exist in 1878 or 1893, and the fiscal and monetary-policy tools and knowledge available today far exceeds what was known and understood in 1921 and during the Great Depression. In short, a U.S. depression would be incredibly unlikely to occur in modern times.

Nevertheless, the biggest peak-to-trough decline in M2 since the Great Depression signals the possibility of consumers having to reduce their discretionary spending. Traditionally, this is a key ingredient for an economic downturn.

Based on research from Bank of America, roughly two-thirds of the S&P 500’s peak-to-trough downturns occur after, not prior to, a recession being declared.

But while history foreshadows trouble for Wall Street in the quarters to come, time continues to be an undeniable ally of investors willing to take a step back and look to the horizon.

As much as workers and investors might dislike economic downturns, they are — just like stock market corrections and bear markets — an inevitable part of the economic cycle. Yet what’s important to recognize is that upswings and downturns within the economic cycle aren’t mirror images of each other.

Since the end of World War II in September 1945, the U.S. economy has navigated its way through a dozen recessions. Out of these 12 recessions, nine resolved in less than a year, and the remaining three wrapped up in 18 months or less.

On the other end of the spectrum, the overwhelming majority of economic expansions stuck around for multiple years, including two periods of growth that surpassed the 10-year mark. Investors counting on the U.S. economy to expand over the long run have been handsomely rewarded — and the same can be said for those who are wagering on the stock market to head higher over time.

In June 2023, shortly after the S&P 500 was confirmed to be in a bull market following its 2022 bear market low, the researchers at Bespoke Investment Group released the post you see above on X. Bespoke calculated the calendar-day length of every bear and bull market in the S&P 500 dating back to the start of the Great Depression in September 1929.

Bespoke’s data set found the average S&P 500 bear market lasts just 286 calendar days, or roughly 9.5 months. Comparatively, the typical S&P 500 bull market over 94 years endured for 1,011 calendar days, or approximately 3.5 times longer than the average bear market.

To boot, 14 of the 27 bull markets — including the current one — have lasted longer than the lengthiest S&P 500 bear market on record.

Regardless of the sophisticated software you use or the historic data points you rely on, you’ll never be able to concretely determine which direction the Dow, S&P 500, and Nasdaq Composite will head over the short term.

But history is quite clear that Wall Street’s major indexes, and the stock market’s most-influential businesses, will increase in value over time. Allowing time to work its magic makes even the most frightening of historic data points appear benign.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

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*Stock Advisor returns as of October 28, 2024

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.

U.S. Money Supply Recently Did Something That Hasn’t Occurred Since the Great Depression — and It May Foreshadow Trouble for Wall Street was originally published by The Motley Fool

There are lots of ways to put your money to work on Wall Street, but none are as reliable as investing in dividend-paying stocks. That’s because companies rarely commit to distributing a portion of their profits to shareholders unless they’re already profitable and likely to stay that way.

Dividend-paying businesses have to be extra careful with their cash flows, which tends to benefit investors. These increased returns that come with regular distributions are measurable and stronger than you might expect.

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During the 50-year period between 1973 and 2023, non-dividend-paying stocks in the S&P 500 index delivered a 4.27% average annual return. Their dividend-paying cousins performed more than twice as well with an average annual return of 9.17% over the same time frame.

At recent prices, Ares Capital (NASDAQ: ARCC), PennantPark Floating Rate Capital (NYSE: PFLT), and Rithm Capital (NYSE: RITM) offer dividend yields of 9.1% and better. Generally, stocks don’t offer yields this high unless investors have concerns about their underlying businesses. These three stand out because they are on better financial footing than their ultra-high yields suggest.

Ares Capital is the world’s largest publicly traded business development company (BDC). These specialized entities fill the gap left by big banks that no longer lend directly to most businesses. They’re also popular among income-seeking investors because they can legally avoid paying income taxes by distributing at least 90% of their earnings as dividend payments.

At recent prices, Ares Capital offers investors a 9.1% yield and confidence that comes with a highly diversified portfolio. At the end of September, it had investments worth $25.9 billion spread out among 535 borrowers. Its single-largest borrower is responsible for just 1.7% of the portfolio.

Ares Capital’s dividend hasn’t risen in a straight line, but it is up by 26% over the past decade. The odds of a dividend cut in the quarters ahead seem extremely slim. Loans representing just 1.3% of total investments at cost were on non-accrual status at the end of September.

PennantPark Floating Rate Capital is another lender for mid-sized companies that can’t get banks to return their calls. As its name implies, this BDC isn’t very sensitive to interest rate adjustments because the loans it originates collect interest at variable rates.

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Between March 2022 and July 2023, the Federal Reserve raised its benchmark rate 11 times. As a result, money market account (MMA) interest rates rose sharply.

However, the Fed slashed the federal funds rate by 50 basis points in September. So deposit rates — including money market account rates — have started falling. It’s more important than ever to compare MMA rates and ensure you earn as much as possible on your balance.

The national average money market account rate stands at 0.64%, according to the FDIC. This might not seem like much, but consider that just two years ago, it was just 0.23%, reflecting a sharp rise in a short period of time.

This is largely due to monetary policy decisions by the Fed, which began raising its benchmark rate in March 2022 to combat skyrocketing inflation. In fact, the Fed increased rates 11 times. But it finally cut its benchmark rate in September, causing deposit account rates to start dropping

Even so, some of the top accounts are currently offering upwards of 5% APY. Since these rates may not be around much longer, consider opening a money market account now to take advantage of today’s high rates.

Here’s a look at some of the top MMA rates available today:

See our picks for the 10 best money market accounts available today>>

Additionally, the table below features some of the best savings and money market account rates available today from our verified partners.

The amount of interest you can earn from a money market account depends on the annual percentage rate (APY). This is a measure of your total earnings after one year when considering the base interest rate and how often interest compounds (money market account interest typically compounds daily).

Say you put $1,000 in an MMA at the average interest rate of 0.64% with daily compounding. At the end of one year, your balance would grow to $1,006.42 — your initial $1,000 deposit, plus just $6.42 in interest.

Now let’s say you choose a high-yield money market account that offers 5% APY instead. In this case, your balance would grow to $1,051.27 over the same period, which includes $51.27 in interest.

The more you deposit in a money market account, the more you stand to earn. If we took our same example of a money market account at 5% APY, but deposit $10,000, your total balance after one year would be $10,512.67, meaning you’d earn $512.67 in interest. ​​

Speaking privately, nine bankers, including at some of the company’s key lenders, said they were astounded by the size of the potential loss, and want to know how Trafigura will prevent it happening again. Still, the loss is unlikely to affect the company’s ability to borrow money, several of them said.

“The key question, as always, is how quickly and effectively one learns from mistakes and implements corrective measures,” said Jean-Francois Lambert, a consultant and former commodity banker. “Not merely by reshuffling or dismissing staff and launching a lengthy recovery process, but by strengthening the company’s governance, internal processes, and controls.”

Profitable Niche

For years, Trafigura had enjoyed a profitable niche in Mongolia, which relies entirely on imports for its gasoline and diesel — largely by rail from Russia, as well as sometimes from China.

The company supplied about a third of Mongolia’s oil products, with a particularly large position in diesel. Rosneft PJSC and Gunvor Group were its main competitors. The operation turned over a few hundred million dollars every year, with profits typically in the tens of millions, according to people with knowledge of the matter.

It was a small but sweet business for the world of commodity trading, where razor-thin margins are often 1% or less.

In Ulaanbaatar, Trafigura’s employees worked from the Landmark, a glass-clad building at the edge of the central business district that overlooks a new park built by mining giant Rio Tinto Group. Next door sits the Soviet-era Bayangol Hotel.

Trafigura’s main oil trader in Mongolia was Jononbayar Erdenesuren, who had been at the company since 2012. Jononbayar was known in Ulaanbaatar’s close-knit business world for his hard-charging approach to business and for the parties he threw for friends and contacts.

Being landlocked makes the Mongolian market vulnerable to disruptions, and in late 2023 the country was gripped by a fuel shortage. Citizens rushed to queue for petrol and diesel, and the government started to scrutinize the state of oil inventories in the country.

Some people familiar with the matter suggested that the crisis helped lead to the discovery of Trafigura’s financial hole in the country.

But the trading house was also going through its own period of scrutiny after the nickel fraud. And as the company looked more closely at its largest credit exposures, one tiny market stood out.

Fuel on Credit

Selling oil in Mongolia is complicated. International companies like Trafigura don’t have import licenses and so can’t supply the local market directly, instead relying on local distributors. For Trafigura, the main counterpart was a company called Lex Oil LLC.

The Mongolian company would take Trafigura’s oil products and sell them on to fuel retailers. Crucially, Trafigura supplied the oil on credit, with an agreement that Lex Oil would pay in the future after making deductions for customs and freight duties.

Further complicating the picture: the wholesaler itself also provided credit to its own customers, while hedging transactions added another layer of complexity. The result was an ever-changing exposure to Lex Oil and its network of buyers in Mongolia.

What Trafigura’s accountants in Singapore and Geneva had not properly understood was that those exposures had ballooned in size to many hundreds of millions of dollars even as the bills hadn’t been paid when they were due, a person familiar with the matter said.

A person who answered the phone at Lex Oil’s office said that no one was available to answer Bloomberg’s questions, and the company didn’t respond to an emailed request for comment.

The issue was finally identified late last year. Trafigura says that it found “deliberate concealment of overdue receivables” by its staff, but the alleged misconduct wasn’t limited to hiding the debt. The company also said its employees manipulated data and documents to misstate the calculations for charges like customs and freight. It believes this had been going on for approximately five years.

Trafigura didn’t name any employees in its statement, saying just that it was taking “appropriate disciplinary action.” Jononbayar is among employees who have been suspended, according to people familiar with the matter.

A representative for Jononbayar declined to comment, saying he is still an employee of Trafigura and is bound by a confidentiality agreement.

Eight Months

As the size of the problem became apparent, Trafigura’s board brought in forensic accountants. The company’s senior management got involved and Jose Larocca, one of the top executives, flew to Mongolia in February to meet with Lex Oil.

Bloomberg reported the same month that Trafigura had an issue in its Mongolian oil business and faced hundreds of millions of dollars in potential losses. The company said at the time it had recently agreed debt repayment schedules with oil products customers in Mongolia and that it had “a good track record of successfully recovering debts from counterparts in emerging markets.”

Even after the report, more than eight months would pass before Trafigura disclosed the full extent of the problem.

The response in Mongolia contrasts with its actions over the nickel fraud, when Trafigura moved to take legal action against the alleged fraudster, Prateek Gupta. It won a freezing order, but nearly two years later has yet to recover any funds. (Gupta has disputed Trafigura’s version of events, arguing that the trading house was complicit in his actions.) Meanwhile, the court case has shone a harsh light on Trafigura’s own processes and exposed internal communications that the company might have preferred to remain private.

Its head of nickel and cobalt trading left the company, and several other senior metals executives departed over the coming months, though Trafigura has said repeatedly it did not believe that anyone at the company was complicit in the nickel fraud.

One reason the company didn’t take immediate legal action with the Mongolian oil loss was that it had not yet got a clear account of the facts of the case, a person familiar with the matter said. Its investigation is still ongoing, the company says.

In June, when Trafigura published unaudited results for the half-year ended March, the word “Mongolia” wasn’t even mentioned. The company did report a sharp increase in overdue receivables, but incoming Chief Financial Officer Stephan Jansma explained that higher commodity prices and interest rates meant that “importing countries from time to time will have issues in their payment profile.”

The disclosures “reflected management’s estimate of potential losses at that time across a number of counterparties and countries,” a Trafigura spokesperson said on Thursday. “With an external investigation underway, we were not in a position to provide any commentary on Mongolia.”

Annual Accounts

By late September, Trafigura was preparing to close its annual accounts, as Weir announced he would hand over as CEO to gas boss Richard Holtum in January. It was time to decide what to do about the headache in Mongolia.

The company had already taken some action. It stopped new business in the country, suspended Jononbayar, and terminated the contract of its Singapore-based head of Mongolia, Mikhail Zeldovich. (Zeldovich declined to comment.)

And it still hopes to recover some money from Lex Oil, whose debt represents more than half of the $1.1 billion, according to a person familiar with the matter.

“A substantial proportion of the total exposure has been acknowledged as a debt owed to Trafigura by our principal counterparty in Mongolia. We intend to hold the counterparty to their repayment obligation,” Trafigura said.

Ultimately, the company decided to record a “conservative” provision of $1.1 billion in its financial results, and to publicly confirm the alleged misconduct.

After the provision, Trafigura is likely to report annual profit of around $2 billion or higher, Bloomberg reported last week. The company posted first-half earnings of $1.47 billion in June.

Some bankers heard about the prospect of a provision on Mongolia during informal conversations with Trafigura employees in September, according to people familiar with the matter. But even lenders who were expecting a charge were shocked by the $1.1 billion figure.

“In September 2024, no employee at Trafigura had the knowledge or the authority to discuss the quantum of a total provision in respect of our Mongolian oil business,” the company said.

It’s unlikely that any large lending relationships will be affected, said Orhan Gunes, a commodity financier who now runs trade finance platform TradeQraft.

“The critical issue is that after this and the nickel case they’ve used up their credits for such things, and I think they are aware of this,” he said. “Trafigura has very sound risk management tools and professionals so they will take serious precautions.”

–With assistance from Anna Shiryaevskaya.

(Updates with detail on full-year profit in ‘Annual Accounts’ section.)

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We’re now just days away from the ’24 elections, and what a race it’s been. Polls have been all over the place, and both parties can make legitimate claims to holding the advantage as we approach Tuesday’s vote.

Amidst the political drama, the stock market has remained robust, with the S&P 500 surging 20% year-to-date. Historically, the index tends to perform well in election years, but this year has been exceptional, making it the most bullish election-year market in decades. A mix of macroeconomic factors, especially expectations of further Fed rate cuts, has fueled strong investor confidence.

Morgan Stanley’s analysts are embracing this momentum, picking out stocks they believe are primed for gains regardless of the election outcome. They’ve zeroed in on two specific stocks poised for substantial growth in the coming year – including one with a potential upside as high as 670%.

As if that weren’t compelling enough, according to the TipRanks database, both stocks are also rated as Strong Buys by the analyst consensus. Let’s see what’s driving this optimism among market experts.

Tenaya Therapeutics (TNYA)

We’ll start with Tenaya Therapeutics, a research-oriented biopharmaceutical company that is focused on developing and producing new therapeutic drugs for the treatment of heart disease. Tenaya is targeting its approach on the underlying causes of heart disease, including rare genetic disorders. The company’s approach includes gene therapies, cellular regeneration, and precision medicines.

Heart disease is the world’s leading cause of death among adults, making its treatment an important niche. Tenaya currently has two primary drug candidates under investigation, TN-201 and TN-401, for the treatment of MYBPC3-associated hypertrophic cardiomyopathy and PKP2-associated arrhythmogenic right ventricular cardiomyopathy, respectively.

The leading candidate, TN-201, is currently undergoing a Phase 1b human clinical trial. The study is focused on safety and tolerability and will enroll up to 24 adults. Data from the first patient cohort in the study are expected to be released in December, presenting a significant milestone for the stock. Meanwhile, enrollment is ongoing for the second cohort.

The second candidate, TN-401, entered its Phase 1 RIDGE-1 trial earlier this year. This global, open-label, dose-escalation study, which will continue patient dosing through Q4 2024, aims to evaluate the safety, tolerability, and effectiveness of a single intravenous dose of TN-401.

Morgan Stanley analyst Michael Ulz views TNYA as a compelling investment, with TN-201 as the primary value driver. Ulz notes, “Interim Ph1b MyPEAK-1 data for TN-201 in nHCM are expected in [December] and represent a key catalyst for Tenaya’s lead program. We see a favorable risk/reward on initial data, which could provide early de-risking, followed by more robust data in 2025.”

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“We view favorable trends on cardiac biomarkers and uninterpretable protein expression data as the most likely scenario,” Ulz added. “We believe investors would view the data as positive and suggestive of benefit… Under this scenario we would expect TNYA shares to trade up +100%.”

To this end, Ulz rates TNYA shares an Overweight (i.e. Buy), while his $15 price target offers a whopping ~670% upside from current levels. (To watch Ulz’s track record, click here)

The consensus view here shows that Morgan Stanley’s bullish take is no outlier. TNYA stock has a unanimous Strong Buy consensus rating, based on 7 recent positive analyst reviews. The stock’s $1.94 trading price and $20.20 average target price together suggest an impressive upside of 941% on the 12-month horizon. (See TNYA stock forecast)

Royalty Pharma (RPRX)

The next Morgan Stanley pick we’ll look at is Royalty Pharma, a company that gives investors an interesting way to put money into the biotech sector. Royalty Pharma operates as a royalty company; that is, it purchases ownership rights in biopharmaceutical products and earns royalties on sales and profits. Royalty Pharma has built up a pipeline of such opportunities, designed to generate and maintain a steady stream of revenues.

This royalty strategy has led the company to put together a solid portfolio of assets. Royalty Pharma boasts rights in more than 35 approved products, and backs that up with rights in another 17 drug candidates still in the development stage. Of this total lineup, 15 products are considered ‘blockbusters,’ generating more than $1 billion in annual sales. And for the long term, the company’s portfolio has an average duration of 13 years. In the five-year period from 2018 to 2023, Royalty Pharma deployed an average annual capital of $2 billion, and in calendar year 2023, Royalty Pharma brought in $3 billion in total portfolio receipts.

In its last reported quarter (2Q24), Royalty Pharma reported portfolio receipts (revenue) of $608 million, marking a 12% year-over-year increase, though this came in $18 million below consensus. The company raised its 2024 portfolio receipts guidance to a range of $2.7 billion to $2.775 billion, up from a previous forecast of $2.6 to $2.7 billion. Additionally, the company posted an EPS of $0.96, reflecting a 13% increase year-over-year, slightly shy of the consensus estimate of $0.99.

Checking in with the Morgan Stanley view, we find analyst Terence Flynn taking an upbeat view of the company and its prospects for the long-term.

“RPRX has one of the highest top line growth rates in our coverage and is trading at a discount. In our view the company’s growth profile and diversified portfolio deserves at least an in-line multiple and hence our Overweight rating. We acknowledge that RPRX must continue to deploy capital towards new deals given patent/royalty expiries in order to sustain HSD growth, but management has a strong historical track record on this front. We see two areas of potential upside to estimates that could meaningfully move the needle – AMGN’s Olpasiran/ NOVN’s Pelacarsen for ACVD and JNJ’s Tremfya for psoriasis/IBD,” Flynn opined.

Flynn’s Overweight (i.e. Buy) rating is backed by a $51 price target, suggesting a potential one-year upside of 88%. (To watch Flynn’s track record, click here)

Morgan Stanley isn’t alone in this positive outlook. Royalty Pharma enjoys unanimous support, with 5 Buy ratings and a Strong Buy consensus. Currently priced at $27.10, the stock’s average price target of $44.40 implies a ~64% upside in the coming months. (See RPRX stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

ConocoPhillips (NYSE: COP) is firing on all cylinders these days. The oil giant’s legacy business is performing extremely well. Meanwhile, the company is about to get a big boost from closing its needle-moving acquisition of Marathon Oil (NYSE: MRO).

Those factors are giving the oil stock the confidence to return a lot more cash to its shareholders. It’s boosting its dividend and share repurchase program.

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ConocoPhillips recently reported its third-quarter results. The oil giant produced over 1.9 million barrels of oil equivalent per day (BOE/d) during the period, surpassing the high end of its production guidance. It achieved record production in the lower 48 states, with strong results across its Permian, Bakken, and Eagle Ford operating areas. Its production rose 3% year over year after adjusting for acquisitions and asset sales.

That strong production helped mute some of the impacts of lower oil and gas prices. ConocoPhillips realized an average of $54.18 per BOE in the period, 10% lower than the year-ago quarter. As a result, its adjusted earnings declined from $2.6 billion to $2.1 billion.

However, the company produced robust cash flows during the third quarter. It generated $4.7 billion in cash from operations. ConocoPhillips used $2.9 billion to fund capital expenses to maintain and expand its operations. Meanwhile, it distributed $2.1 billion to investors, including repurchasing $1.2 billion of shares and making $900 million in cash payments (dividends and its variable return of cash (VORC)). That left the company with $7.1 billion of cash on its balance sheet at the end of the third quarter, along with another $1 billion of long-term investments.

ConocoPhillips expects the fourth quarter to be an active one. It anticipates closing its $22.5 billion merger with Marathon Oil. The deal will deepen its portfolio, adding high-quality, low-cost supply inventory near its existing positions throughout the lower 48 states.

The company also expects the transaction to be immediately accretive to its earnings, cash from operations, free cash flow, and return of capital per share. The company initially expected to capture at least $500 million in cost and capital synergies within the first year of closing the deal. However, it now anticipates significantly exceeding that tally.

On top of buying Marathon, ConocoPhillips also recently agreed to bulk up on its position in Alaska. It exercised its rights and signed agreements to buy additional working interests in the Kuparuk River and Prudhoe Bay units for $300 million. That deal will increase its earnings and cash flow from the state.

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Taiwan Semiconductor Manufacturing (NYSE: TSM) is the world’s largest chip foundry company. Without it, much of the technology we see today wouldn’t exist in the same capacity, and it could be argued that it is one of the world’s most important companies.

Recently, the company reported outstanding quarterly earnings, and the CEO said something unbelievable in the quarterly conference call. The results in one sector of the chip market have blown away expectations, and investors should consider loading up on more Taiwan Semi stock, if they haven’t already.

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Taiwan Semiconductor’s products are used in all sorts of devices, but most notably, some of its biggest clients are Apple and Nvidia, the world’s two largest companies. These two would grind to a halt without TSMC’s chips, which shows how critical TSMC is. Both of these companies are participating in the artificial intelligence (AI) arms race, which should boost TSMC’s sales in the AI chip space.

Taiwan Semiconductor saw this trend coming from a ways out and projected that AI chips would grow at a 50% compound annual rate for five years, when they would then make up around a low-teens percentage of revenue. Considering that AI chips made up about 6% of total revenue at that time, it seemed like an ambitious projection when they announced that guidance in Q2 2023.

However, we now know that management wasn’t ambitious enough. In its Q3 2024 conference call, CEO C.C. Wei had this to say about AI chip demand:

We now forecast the revenue contribution from several AI processors to more than triple this year and account for mid-teens percentage of our total revenue in 2024, supported by our technology leadership and broader customer base, we are well-positioned to capture the industry’s growth opportunities.

So, just a year-and-a-half after it gave the projection that AI chips would make up a “low-teens percentage” in five years, it is on track to make up a “mid-teens percentage.” This shows the incredible demand for AI chips that go into graphics processing units (GPUs), AI accelerators (custom chips that the big tech companies utilize for themselves), and CPUs.

Thanks to AI revenue tripling, management raised its full-year revenue forecast to rise by 30% year over year. AI chips are clearly having a huge effect on Taiwan Semiconductor, and it’s well-positioned to take advantage, but does that make the stock a buy right now?

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After this earnings report and call, TSMC’s stock price rose about 10% the following day. However, the stock has given up a lot of those gains since that report and is only up around 4% now. So, investors can have a bit more confidence in buying the stock now that the bump isn’t as high as it used to be. The market isn’t blind to Taiwan Semi’s success and has given it a premium price tag as a result.

The stock trades for 31 times trailing earnings and 22 times 2025 earnings. While the trailing earnings price tag is a bit steep, the forward-looking one isn’t so bad as it accounts for the massive growth TSMC is expected to undergo next year. So, if you have a long-term mindset, the price you have to pay today won’t be as expensive as you think as long as TSMC meets expectations.

For a more historical outlook, Taiwan Semi’s stock was priced rather high just once in the last decade.

In 2020 and 2021, TSMC sustained its high valuation because of a chip boom brought about by massive demand for consumer devices. The COVID pandemic heavily influenced this, and when demand was fulfilled, Taiwan Semiconductor’s stock crashed along with the rest of the market.

The demand for AI chips will likely be more sustainable over the long term, as we’re just scratching the surface of the computing power needed to make serious gains in this industry. As a result, I think it’s safe to say that Taiwan Semiconductor will likely trade at a premium price point for some time.

Taiwan Semiconductor is one of the best ways to invest in the chip industry and an ancillary way to invest in AI. It’s one of my top holdings, and I think investors would be smart to make it one of theirs as well.

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Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

You’ll Never Believe What Taiwan Semiconductor’s CEO Just Said About Artificial Intelligence (AI) Chip Demand was originally published by The Motley Fool