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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

(Reuters) – U.S. health insurer Cigna Group has revived efforts to merge with smaller rival Humana after abandoning the pursuit late last year, Bloomberg News reported on Friday, citing people familiar with the matter.

The companies have held informal, early discussions recently about a potential deal, the report said.

Shares of Humana, which has a market capitalization of about $32 billion, were up about 6% in after-hours trading on Friday, while those of Cigna were down about 5%. Cigna was valued at about $94 billion, according to data compiled by LSEG.

Cigna and Humana declined to comment.

Last year, Reuters reported that Cigna ended its attempt to negotiate an acquisition of Humana after the pair failed to agree on a price and announced a $10 billion worth of shares buyback.

No decision has been made and Cigna or Humana could opt to push any deal past the new year or decide against pursuing one altogether, the Bloomberg report said.

Cigna, which primarily deals with employer-sponsored healthcare plans, is in the process of selling its Medicare Advantage (MA) business that manages government-backed health insurance for people aged 65 and older.

It struck a $3.3 billion deal with insurer Health Care Service Corp earlier this year to sell its MA business.

Humana has lost nearly 40% of its value this year as it faces multiple challenges, including declining enrollments in its top-rated Medicare plans, elevated costs due to higher demand for medical care and lower-than-expected reimbursement rates from the government.

By the time the deal talks ended, sources had told Reuters that there was still a possibility of a tie-up in the future.

A fierce antitrust scrutiny was also looming at the time due to potential consolidation in the U.S. health insurance sector.

(Reporting by Mariam Sunny in Bengaluru; Editing by Alan Barona)

Oil markets have been very volatile in recent years. In 2020, the price per barrel fell below $25, only to zoom past the $100 market two years later. Today, oil prices are hovering around $70 per barrel. If you’re looking for oil stocks that can thrive in varying conditions, the two companies below are for you.

Trust in superior capital allocation

Capital allocation in the oil space can be difficult because a company’s survival is often prioritized over shareholder profits. For instance, a company might get lucky on a particular reservoir and generate hundreds of millions of dollars in free cash flow over the well’s lifespan. While the best thing to do might be to send this free cash flow back to investors, management often gets involved in empire-building. That is, they acquire all sorts of additional assets that may not have the same return profile as the original well — potentially squandering the original golden goose.

All this is to say that capital allocation is key when it comes to identifying profitable oil stocks. How can we tell how good a company has done at investing shareholder wealth? Return on equity (ROE) gives us an idea of how much a company earns for shareholders, while return on invested capital (ROIC) captures value creation for debt and equity holders. On this front, Chevron (NYSE: CVX) — one of the world’s most recognizable oil brands — comes out looking pretty good, with long-term ROE and ROIC averages in the double digits.

It hasn’t always been a smooth ride. Even Chevron has struggled to maintain its average return profile during recent volatility. But as the past year or two has proven, Chevron has the financial might and long-term vision to bounce back from operational challenges. And it’s not like the stock is overly expensive. Shares trade at just 15 times earnings — roughly half the market average — and sport a free cash flow yield above 6%.

It’s not the flashiest pick, but there’s a reason Chevron shares have attracted the eye of Warren Buffett, who owns around 6.5% of the company. Buffett likes companies that put shareholder interests first. And while it hasn’t always been perfect, Chevron has a multidecade track record of success.

Get more growth with this oil stock

Warren Buffett isn’t only a fan of Chevron’s capital allocation. He also loves Occidental Petroleum‘s (NYSE: OXY) CEO, Vicki Hollub, who he believes is “running the company the right way.” By that, he likely means she’s prioritizing profits over production — which, as mentioned, can be difficult to accomplish when it comes to capital allocation.

Comparing Occidental’s ROE and ROIC metrics against Chevron gives you an instant assessment of how each business is run. Chevron benefits hugely from allocating capital to midstream and downstream segments, including pipelines, refining, and distribution.

These segments insulate Chevron from market swings, as the profits in one division can be used to offset losses in another. For that reason, its returns have been relatively steady. Occidental, meanwhile, has experienced huge fluctuations in ROE and ROIC, given that it’s heavily reliant on its upstream operations. That is, it’s more exposed to fluctuating oil prices than an integrated producer like Chevron.

If Chevron is a reliable bet if you’re unsure of where oil markets are headed next, Occidental makes a great investment if you believe oil prices are set to rise. After leveraging its balance sheet to acquire CrownRock — a shale producer with assets in the Permian Basin — the company is set to make around $260 million in additional cash flow for every $1 increase in oil prices. If oil prices hit 2022 levels, Occidental could generate more than $10 billion in additional cash flow — 20% of its current market cap.

Was the CrownRock acquisition an attempt to chase profits? Or was it a wise strategic decision, alongside the rest of Occidental’s capital allocation plan, that incorporates dividends, share buybacks, and debt repayments? The answer will depend on where oil prices head over the next few years. If you’re bullish, few investment options are superior to Occidental, given its direct leverage to rising prices.

Should you invest $1,000 in Occidental Petroleum right now?

Before you buy stock in Occidental Petroleum, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Occidental Petroleum wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $839,122!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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*Stock Advisor returns as of October 14, 2024

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.

2 No-Brainer Oil Stocks to Buy With $200 Right Now was originally published by The Motley Fool

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Billionaire Ken Griffin is the founder and CEO of Citadel Advisors, the most profitable hedge fund in history as measured by net gains, according to LCH Investments. That makes Griffin one of Wall Street’s most successful money managers, so investors should consider following his trades with quarterly Forms 13F.

In the second quarter, Griffin sold 9.2 million shares of Nvidia (NASDAQ: NVDA), reducing his exposure by 79%. Meanwhile, he bought 98,752 shares of Super Micro Computer (NASDAQ: SMCI), increasing his position by 96%. Currently, Citadel still has more capital invested in Nvidia than Supermcro, but the trades are noteworthy nevertheless because they may hint at a shift in sentiment.

Here’s what investors should know about each of these companies.

Nvidia

Nvidia is best known for its graphics processing units (GPUs), chips used to accelerate data center workloads like training large language models and running artificial intelligence (AI) applications. “Nvidia sets the pace for AI infrastructure worldwide. Without Nvidia GPUs, modern AI wouldn’t be possible,” according to analysts at Forrester Research.

Indeed, Nvidia has around 90% market share in AI chips, and analysts expect the same level of dominance for at least two or three years. That seems likely for two reasons.

First, developers prefer Nvidia GPUs because they are the fastest accelerators on the market, but also because they are backed by a more robust ecosystem of software development tools than competing products. Second, Nvidia provides adjacent data center hardware, including central processing units (CPUs) and network switches, designed for AI. The company also provides software and cloud services that support AI application development. That means Nvidia can innovate across the entire data center computing stack, which leads to better-performing systems with lower energy requirements, according to CEO Jensen Huang.

Importantly, when Ken Griffin was selling shares in the second quarter, Nvidia stock traded at an average valuation of 67 times earnings, which peaked around 79 times earnings. But Nvidia’s earnings more than doubled in the June quarter, which lowered its valuation multiple. The stock currently trades at 64 times earnings, a slight discount to where it was when Griffin was selling.

Additionally, Wall Street anticipates Nvidia’s earnings will grow at 37% annually over the next three years. That is an upward revision from the average consensus of 34% during the second quarter.

In other words, Nvidia shares are a bit cheaper, and earnings are expected to grow a bit faster versus when Ken Griffin was selling shares. Those changes make the stock more attractive, so Griffin may have added to Citadel’s position in Nvidia since the second quarter ended.

Story continues

Super Micro Computer

Super Micro Computer manufacturers servers, including complete server racks equipped with storage and networking, to provide a turnkey solution for data center infrastructure. The company’s internal engineering capabilities and modular approach to product design allow it to bring new technologies to market more quickly than its competitors. That advantage has helped Supermicro secure a leadership position in AI servers.

Importantly, while the market will likely become more competitive as Dell Technologies and other equipment manufacturers lean into demand for AI infrastructure, Supermicro’s leadership in direct liquid cooling (DLC) technology may defend its position in AI servers. DLC can reduce data center power consumption by 40% versus traditional air cooling, so the percentage of liquid-cooled installations is expected to soar alongside AI server deployments.

Supermicro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 30). Revenue rose 143% to $5.3 billion. But gross margin fell nearly 6 percentage points to 11.2%, such that non-GAAP (generally accepted accounting principles) earnings increased only 78%, growing much slower than sales. That may signal waning pricing power amid increased competition, but management said gross margin will return to normal (14% to 17%) by the end of fiscal 2025.

Importantly, Ken Griffin was buying Supermicro stock in the second quarter, but his stance on the company may have changed since short-seller Hindenburg Research accused Supermicro of accounting manipulation in August. CEO Charles Liang said the accusations were “false or inaccurate statements.” But the company delayed filing its Form 10-K for fiscal 2024 and has yet to correct the problem.

For readers with déjà vu, Supermicro was fined $17.5 million in 2020 for infractions similar to those outlined by Hindenburg, including recognizing revenue prematurely and understating expenses. The incidents occurred between 2014 and 2017, and caused the company to file its 10-K for fiscal 2017 nearly two years after it was due, which resulted in the stock being temporarily delisted from the Nasdaq Stock Exchange.

In September, The Wall Street Journal reported that the Justice Department was investigating Supermicro based on allegations made by a former employee. The allegations are similar to those made by Hindenburg, but the probe is in its early stages, and details are scant. Nevertheless, investors should be aware of the risk.

Looking ahead, Statista estimates AI server sales will increase at 30% annually through 2033, and Wall Street anticipates Supermicro’s adjusted earnings will grow 54% over the next 12 months. Those estimates make the current valuation of 22 times adjusted earnings look cheap. However, given the overhanging regulatory issues, I would not be surprised if Ken Griffin has trimmed his position in Supermicro since the second quarter.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $839,122!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 14, 2024

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Billionaire Ken Griffin Sold Most of Citadel’s Nvidia Stock and Is Buying This Stock-Split AI Stock Instead was originally published by The Motley Fool

(Bloomberg) — The US debt interest-cost burden climbed to the highest since the 1990s in the financial year that’s just ended, escalating the risk that fiscal worries limit the policy options for the next administration in Washington.

Most Read from Bloomberg

The Treasury spent $882 billion on net interest payments in the fiscal year through September — an average of roughly $2.4 billion a day, according to data the department released Friday. The cost was the equivalent of 3.06% as a share of gross domestic product, the highest ratio since 1996.

Historically high budget deficits, which caused total debt outstanding to soar in recent years, are a key reason for the increase. Those deficits reflect a steady rise in spending on Social Security and Medicare, as well as the extraordinary spending the US unleashed to battle Covid and constraints on revenue from sweeping 2017 tax cuts. Another big driver: the inflation-driven surge in interest rates.

“The higher interest costs are, the more politically salient these issues are,” said Wendy Edelberg, director of the Brookings Institution’s Hamilton Project. It raises the chance of politicians recognizing that “funding our spending priorities through borrowing is not costless,” she said.

While neither former President Donald Trump nor Vice President Kamala Harris has made deficit reduction a central element of their campaign, the debt issue looms over the next administration nonetheless. With Congress heading for a narrow partisan split, it could only take a handful, or potentially lone, deficit-wary legislator to stymie tax and spending plans.

That scenario was already seen in the outgoing Biden administration, when then-Democrat Joe Manchin forced a scaling back of spending items the White House favored as the price for passing signature legislative packages in 2021 and 2022.

Even if Republicans take control of both chambers, and Trump takes the White House, the likely narrowness of the majority could leave GOP fiscal hawks with the power to demand changes to sweeping tax cuts.

“It would just be remarkable if what came out of the tax debate next year was a whole group of policymakers looking at our debt trajectory and deciding just to make it worse,” said Edelberg, a former chief economist at the Congressional Budget Office.

Story continues

The net interest bill exceeded the Defense Department’s spending on military programs for the first time, according to data from the Treasury Department and the Office of Management and Budget. It also amounted to about 18% of federal revenues — almost double the ratio from two years ago.

The Federal Reserve’s shift to lowering rates is offering some relief to the Treasury. The weighted average interest on outstanding US debt was 3.32% at the end of September, marking the first monthly decline in nearly three years.

Even so, the scale of the interest costs is now so large that they are by themselves adding to the overall debt load held by the public, which stands at $27.7 trillion — approaching 100% of GDP. Debt servicing was among the fastest growing parts of the budget last year. Spending on interest also risks weighing on economic growth by crowding out private investment.

The nonpartisan CBO estimates that every additional dollar of deficit-financed spending reduces private investment by 33 cents.

“From a variety of standpoints, the fact that the interest costs are growing the debt and causing other economic ramifications is a problem for our economy,” said Shai Akabas, executive director of the Bipartisan Policy Center’s Economic Policy Program.

Treasury Secretary Janet Yellen has played down concerns, saying that the key metric to track in assessing US fiscal sustainability is inflation-adjusted interest payments compared with GDP. That ratio has jumped the past year, but the White House sees it stabilizing at about 1.3% over the coming decade. Yellen has said it’s important to stay below 2%, a level seen by some as a key threshold for sustainability.

The White House projections, however, assume passage of revenue-raising measures that the outgoing Biden administration proposed. Harris, too, has called for raising taxes on the wealthiest Americans and on corporations.

Trump says the key to addressing the fiscal outlook is yet more tax cuts, which he argues will boost economic growth, offsetting the hit to the government’s bottom line.

Most economists see debt continuing to climb under either candidate. The Committee for a Responsible Federal Budget estimates the Harris economic plan would increase the debt by $3.5 trillion over a decade, while Trump’s would sending it soaring by $7.5 trillion.

Besides the election outcome, the magnitude of Fed rate cuts will affect the fiscal outlook. While rate hikes were quickly reflected in the Treasury’s interest bill after policymakers kicked them off in March 2022, rate cuts may take more time to bring down the government’s borrowing costs.

That’s in part because a swath of the US debt maturing in coming years carries particularly low rates, which preceded the Fed’s tightening cycle. Many securities will be replaced by Treasuries that will be costlier to service. And that may prove to be the case for years to come — especially if the Fed halts rate cuts at a higher level than pre-Covid. The Fed’s short-term benchmark rate averaged less than 0.75% over the decade through 2019; policymakers in September projected the rate would settle around 2.9% in time.

In the meantime, costs tied to Social Security and Medicare will keep rising as the US population ages, contributing to outsize budget deficits for decades ahead unless reforms are made. That pressure, and an aversion of politicians to take on changing the popular programs, has put pressure on the remaining areas of federal spending, known as discretionary.

Back in the 1960s, discretionary spending made up about 70% of the federal total, but now the ratio is just 30%, according to analysis by Torsten Slok, chief economist at Apollo Global Management.

For now, investors are showing little sign of concern about US fiscal challenges, with the Fed’s easing cycle and concerns about a weakening job market continuing to support demand for Treasuries. But if and when they do, that could prove decisive for Washington, said Gary Schlossberg, global strategist at Wells Fargo Investment Institute.

“The landscape has changed,” Schlossberg said. “Before, we had more of a free ride — with rates low. You could run up the debt and it didn’t really show up much in interest expenses. That’s obviously not there now.”

–With assistance from Ben Holland and Liz Capo McCormick.

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Market News and Data brought to you by Benzinga APIs

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

Market News and Data brought to you by Benzinga APIs

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.