Wall Street Breakfast: Corporate Activism

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Corporate activism

Back in March, we reported on the Nasdaq's (NASDAQ:NDAQ) board diversity plan, which created tensions between those advocating for greater corporate diversity and those seeing it as an industry quota system. The same argument played out this week in other areas of Corporate America, which is increasingly becoming a dominant political force. Once upon a time, the business world sought to maximize profits of shareholders in the political sphere via lobbying or marketing efforts, but their newfound power is developing into a kind of governance system, while many investors are buying into the vision.

One doesn't have to look far to the permanent suspension of President Trump on Twitter (NYSE:TWTR), whose stock is up 30% since the ban in January, as well as Parler's removal from the Apple (AAPL) and Google (GOOG) app stores and web hosting by Amazon (AMZN). The corporate world has also brought in activists to their success, like Colin Kaepernick, who has been a prominent endorser for Nike (NYSE:NKE) - the stock of the sneaker giant is up 175% since the partnership first began in late 2018. Kaepernick has also gone on to work with global brands like Netflix (NASDAQ:NFLX), Beats by Dre, Medium, Electronic Arts (NASDAQ:EA), Audible and Ben & Jerry's (NYSE:UL).

Down to Georgia... The state made changes to its voting laws this week, including new ID requirements for absentee voters, shortened absentee voting, guaranteed (but limited) drop boxes, expanded early voting and bans on handouts for people waiting in line to vote. GOP lawmakers said the bill was necessary to restore election confidence, though Democrats feel the measure will restrict voting rights, and some have even called it "Jim Crow 2.0." Soon after the decision, the MLB announced it would no longer hold the 2021 All-Star Game in Atlanta, and other corporations were quick to jump on board. Dozens of executives have come out to blast the new law, including leaders at Apple, American Express (NYSE:AXP), Coca-Cola (NYSE:KO), Delta (NYSE:DAL), Merck (NYSE:MRK) and Microsoft (NASDAQ:MSFT).

Thought bubble: While companies have long sought to influence policies that directly impact their business, recent trends suggest CEOs are now injecting themselves into political debates or activism that could indirectly affect their bottom line. In an age of cancel culture, and where ideas are carried on social media within minutes, they may have to, though others warn of potential risks and consequences of picking sides. On that note, JPMorgan (NYSE:JPM) CEO Jamie Dimon will release his annual shareholder letter today, which is expected to outline ideas for tax and social policies, a day after Amazon (NASDAQ:AMZN) CEO Jeff Bezos came out in support of President Biden's corporate tax hike and infrastructure plan. (121 comments)

Hovering near records

U.S. stock index futures wavered between slight gains and losses overnight, with the Dow Jones and S&P 500 drifting near record highs, and the Nasdaq not far behind. Wall Street took a breather on Tuesday, and could be in for some more restful days, according to DataTrek Research co-founder Nick Colas.

Quote: "We've had such a strong start to the second quarter that it's totally reasonable to think that we're going to basically hang out here as markets digest what has happened. Earnings season is coming, which has to be strong and forecasts need to get bumped up. We're also going to see GDP number for Q1 later this month. All those things are going to factor into whether or not this latest rally is really sustainable."

Bullish economic news wasn't enough to energize the market on Tuesday despite some great figures. Job openings rose by more than expected in February, hitting a two-year high at 7.4M. The IMF also raised its global growth forecast to 6% this year from 5.5%, a rate not seen since the 1970s.

On tap: Minutes will be released from the Fed's last meeting in March, when the central bank upwardly revised its economic projections and telegraphed that interest rates would likely remain at near-zero levels through 2023. The minutes could provide some clarity as to how committed the FOMC is to keeping rates low or how members might change their policy rate views if their upbeat forecasts for growth, jobs and inflation come to fruition. While the meeting will be of particular note to investors, remarks from Jay Powell tomorrow may offer a more timely view of the central bank's policy thinking.

Biggest deal ever

Southeast Asia's most valuable startup is ready to go public, making its debut in the SPACsphere. Grab (GRAB) was founded as a ride-hailing company in 2012, before expanding into payments in 2016 and food delivery in 2018. It also offers loans, insurance and has been granted a digital banking license in Singapore.

Reports previously suggested the company was in talks to list in New York via one of Altimeter Capital's special purpose acquisition companies, and the FT says that will happen as soon as this week. The investment firm has raised a total of $850M for Altimeter Growth (NASDAQ:AGC) and Altimeter Growth 2 (NYSE:AGCB), which are up 20% and 12% premarket, respectively. The merger would be the largest between a private business and a blank check company, in a deal that will value SoftBank-backed (OTCPK:SFTBF) Grab at about $35B.

By the numbers: According to a business update in January, Grab's revenue grew 70% in 2020 compared with 2019, though the company is still not profitable. However, Grab did add that its ride-hailing business was breaking even in all of its operating markets. "We've continued to be disciplined with spending and prudent in stewarding our shareholder capital, with monthly EBITDA spend being reduced by approximately 80% over the last 12 months," said Grab President Ming Maa.

Go deeper: A public debut from Grab will offer investors access to a regional consumer market of more than 655M people across countries including Indonesia, Thailand and Vietnam. It's especially noteworthy because the "deal is coming from Asia and furthermore, from Southeast Asia, a region totally underrepresented on U.S. stock markets," a banker told the FT. It'll also be a key test for other Southeast Asian unicorns that are preparing to go public this year. (10 comments)

Vaccine eligibility

President Biden announced Tuesday that all U.S. adults will qualify for coronavirus vaccines by April 19, moving up his eligibility timeline for the general population by about two weeks. In addition, there will be vaccination sites within five miles of where people live, while the number of pharmacies contributing to the federal pharmacy vaccination program would increase from the current 17,000 locations to 40,000. So far, COVID-19 has killed more than 555,000 people in the U.S. - the world's highest recorded coronavirus death toll.

"There is a lot of good news. But there’s also some bad news," he said during a visit to vaccination site at Virginia Theological Seminary in Alexandria, Virginia. "The virus is spreading because we have too many people who’ve seen the end in sight, think we’re at the finish line already. Let me be deadly earnest with you…We’re still in a life and death race against this virus."

Bigger picture: The U.S. has been outpacing most of the world in its vaccine rollout, especially given the size of its population, placing itself in the best position for a reopening of the economy. The pace of vaccinations has even increased to an average of 3.1M doses a day administered over the past week, from about 1M doses a day when Biden took office. At that rate, it will take an additional three months to cover 75% of the population, also known as the herd immunity number.

Outlook: Pricing in the vaccine rollout, along with market stimulus, investors are adjusting their portfolios for Q2 and beyond. The consistent theme echoed in the investment community has been the transition to cyclical names, while value has been consistently outperforming growth names YTD. With rates set to rise and a back-to-normal economy looking more optimistic, UBS, Russell Investments and BlackRock are among institutions that favor value looking into the future. (133 comments)

New pandemic shortage item

Forget about toilet paper, hand sanitizer and semiconductors, restaurants are having trouble securing enough ketchup. With the COVID-19 pandemic turning many sit-down restaurants into takeout businesses, packet prices have risen 13% since January 2020, according to restaurant platform Plate IQ. Some stores can't even get their hands on enough of the condiment, WSJ reports, with managers using generic versions, dishing out bulk ketchup into single-serve cups or seeking secondary suppliers due to the demand.

Backdrop: Ketchup is the most used table sauce in the U.S., logging over $1B in U.S. retail sales during 2020, about 15% higher than 2019. Around 300K tons of the tomato condiment were sold to restaurants last year, and recent CDC directives could be exacerbating the situation. "As restaurants and bars resume and continue operations, avoid using or sharing items that are reusable, such as menus, condiments, and any other food containers," reads the guidelines. "Instead, use disposable or digital menus (menus viewed on cellphones), single serving condiments, and no-touch trash cans and doors."

How is the ketchup king handling the situation? Kraft Heinz (NASDAQ:KHC) holds nearly 70% of the U.S. retail market for the condiment, but it was caught off guard by the pandemic. "Restaurants need patience" while the company ramps up supply, said Steve Cornell, President of Enhancers, Specialty and Away from Home Business Unit. "We're busy doing everything we can."

Go deeper: To deal with the shortage, Heinz is planning new manufacturing lines, including two this month and more after that. The goal is increasing production by 25% to bring the total of ketchup packets produced per year to 12B. The firm is already running extra shifts at plants, and cut back on some sauce varieties to focus on single-serve packets. Heinz also came up with a no-touch ketchup dispenser to help meet demand for alternatives to shared bottles. (31 comments)

What else is happening...

Cold War flashbacks... U.S. weighs boycott of Beijing Olympics.

Morgan Stanley (MS) dumped $5B in Archegos stocks before fire sales.

GM (GM) confirms all-electric Chevy Silverado is in the works.

Oxford pauses AstraZeneca (AZN) vaccine study on children.

Coinbase (COIN) provides some financials ahead of direct listing.

How's the cruise industry? Carnival (CCL) to provide business update.

PG&E (PCG) hit with criminal charges over 2019 Kincade fire.

Samsung (OTCPK:SSNLF) forecasts operating profit rose 44% in Q1.

Toshiba (OTCPK:TOSBF) gets buyout deal that could be worth $18B.

Today's Markets

In Asia, Japan +0.1%. Hong Kong -1.2%. China -0.1%. India +0.9%.
In Europe, at midday, London +0.8%. Paris +0.2%. Frankfurt +0.1%.
Futures at 6:20, flat. S&P +0.1%. Nasdaq +0.1%. Crude +0.7% to $59.77. Gold -0.3% at $1737.60. Bitcoin -2.4% to $57300.
Ten-year Treasury Yield flat at 1.65%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 International Trade
9:00 Fed's Evans Speech
10:30 EIA Petroleum Inventories
11:00 Fed's Kaplan Speech
12:00 PM Fed's Barkin: Economic Outlook and Monetary Policy
1:00 PM Fed's Daly Speech
2:00 PM FOMC Minutes
3:00 PM Consumer Credit

Companies reporting earnings today »

Comments

[VoiceofSanitySometimes]

Biden already caving on the 28% corp tax rate, as was obvious had to happen. My guess is that he'll draw a line in the sand at 25%, and end up around 23.5% with lots of new exclusions.

www.cnbc.com/...

Whatever Bezos and Dimon and others really said to the people who are part of the decision process wasn't "I'm all for it".

[ransim7222]

@VoiceofSanitySometimes I cannot believe it, Bezos and Dimon are known to be Bernie Sanders BFFs.

[john boy]

@VoiceofSanitySometimes
With respect to where we stand now just upper middle in tax i don't se it moving much right noe we are at 21 + 5 state = 26% if we go to 25 with state corp. tax = 30% back to highest in the world

[john boy]

When CEO's inject themselves into the political they better have the same security has the president and senators as they become political public figures available to any nutjob that disagrees with them this will rise to a head then stuff will happen then it will die down to nothing in A FEW YEARS I just hope the CEO's of my company's keep their mouth shut

[VoiceofSanitySometimes]

@john boy

Politics and sex make smart people stupid. The difference is that sometimes sex can be worth it...

[ransim7222]

@VoiceofSanitySometimes How true!

[john boy]

@VoiceofSanitySometimes
HAHA HA good one

[VoiceofSanitySometimes]

Fed releases minutes from last meeting.

Don't tell me, they say:
-- we see strong growth in the near and medium term
-- we trust that Congress will use good judgement in finding the proper balance of stimulus, tax mgmt, and spending
-- we will do whatever is necessary to keep the party going.

Oh, and someone dissented because he/she thought there should be one more or one less "very" in the comments.

I haven't read the minutes yet. Am I close?

[john boy]

@VoiceofSanitySometimes
You must have a lot of patience to read all that drible i liken that to Michael Burry reading all the bonds in a bond traunch

[Billr331]

I live in a suburb of Atlanta Georgia. The media and somr companies have misrepresented what the Georgia law says. Look at Delaware and California for comparison. They have moved baseball out of Atlanta which is 51% black into Colorado which is 76% White. How is this strengthening racial relations? Although Delta is located in Atlanta I will do my best to avoid flying Delta even if I have to make a connection. I will never drink another Coca-Cola in my life. These knee-jerk reactions by executives who pop off without fully understanding the law but under pressure from left-wing Advocates which are very vocal, without full knowledge a what they're talkin about scare me and as an investor with a substantial portfolio I will be sure none of these companies are represented in my Investment Portfolio. Bill

[Phil Dumfee]

Sugary drinks are bad and should be taxed very heavily in Biden's infrastructure bill.

[User 49361592]

@Billr331 - assume you have signed up for NRCC reoccurring donations, confirming your support.

[Johann Galt]

Et tu, Seeking Alpha? The GA revisions are more lenient than voting restrictions in NY or WI, for examples. Are these cos leaving Wall St?

[paulhawk03]

The article has a small but material omission in the list of reasons for the uproar pertaining to the Georgia law. If allowed to proceed unfettered, the state legislature will be able to replace local election officials and, as a result, overturn local elections to agree with the legislature's preferred candidate. If this notion or act is allowed to pass, elections in the U.S. as we have known them will be over. I don't know how people in this country can allow that to happen and still say they believe in democracy. THIS is the red line in the proverbial sand. It just cannot be allowed to happen.

[Johann Galt]

@paulhawk03
No it doesn’t. Read the law instead of parroting a narrative.

[Billr331]

@paulhawk03 if local election facials are corrupt or doing a poor job they need to be replaced. To think otherwise is less than intelligent

[xmichaelx]

@Johann Galt Yes, it does. It's the whole reason for the law. In fact, the whole point of the law is that votes weren't "found" for Trump by the SoS in the last election, so this law strips the SoS of election powers.

This shit isn't rocket science, and the text of the law is easily avialable to you.

Shocking that someone named "Galt" can't form an educated thought. /s

[New Adams]

Bezos is the new Henry Ford. He realizes that if the Amazon consumers are hurt, they cannot buy his products. Smart. Very smart.

[john boy]

@New Adams
Plenty of other online places to shop he will have to raise prices anyway when cprporate taxes go up who knows maybe even his state taxeswill go up. Its not just amazon that is going to have to raise prices in my opinion

[SeekingRalph]

'Murica.. where a ketchup shortage beats out an Olympic boycott for headline news.

[john boy]

@SeekingRalph
Really a ketchup shortage call out the guard wait I'll substitute Honey mustard

[Glenelk]

Let's not forget 74 Million people think the election was not fair ! What if they started their own boycott against Coke (as my family of 47 has) and the other Ceo's of companies who are taking an anti "fair election" position. Remember, the people have the power and they are tired of Hollywood and corprate billionaires who want to control everything. Least of which is the Godzillas of everything, the Media.

[Invader from Earth]

@Glenelk mail-in voting should be illegal. Unsupervised counting behind closed doors should be illegal. Bipartisan supervised public counting of voter ID verified ballots should be the norm. No electronic voting. No mail-in voting.

[Phil Dumfee]

Biden's next stimulus check should only go to homeless people who get a Covid shot.

[john boy]

@Glenelk
I am with you Preach it

[ransim7222]

So we should become communists, look how well their stock market has done, that's the ticket.

[john boy]

@ransim7222
When I was in Airforce it was universaly known that the only good commie was a dead commie

[ransim7222]

@john boy And it was known they were aiming nukes at our cities. Go figure.

[VoiceofSanitySometimes]

One of those curious stories from CNBC, with the lead bullet point being:

"The Wharton School estimates that Biden’s infrastructure plan would reduce U.S. debt by 6.4% and GDP by 0.8% in 2050 versus current law."

I would love to see their models that they think can predict GDP over the next 30 years based on corporate tax change to less than a 1% difference. They can't predict 2022 GDP growth to within 1%, but their 30-year models are even more accurate than that??

And the CNBC geniuses, instead of laughing at the hubris of these Wharton profs for thinking they can model 30 years of future growth to such incredible precision, think it is worthy of a headline.

Anybody ask what the margin of error is on this analysis; are they 2% confident it will be accurate plus or minus $500 trillion?

[Invader from Earth]

@VoiceofSanitySometimes The main issue is irresponsible uncontrolled spending. The large majority of expenditures are not even appropriated with definite amounts.

[dynx]

@VoiceofSanitySometimes doesn’t matter....it’s “science”. Computer models 30 years out are the best! You can do whatever the hell you want now based on them and nobody will know you’re wrong until it doesn’t matter anymore. Science baby!

[john boy]

@VoiceofSanitySometimes
Its that old say People that can't do preach bs

[claytonmonica]

IMO the synopsis of the Georgia voting law is misleading. For example "limiting but gauranteing drop boxes". Prior to this law there were no drop boxes. They were used in the last elections because of the pandemic. Their use had legally expired. Many other states e.g., Delaware don't have ballot boxes. The law continues their use and limits them to one per 100,000 people. The reason they are limited is so they can be located indoors and be supervised. This will prevent them from being abused (think ballot harvesting). Drop boxes aren't the only topic that I have issues with, the descriptions of voter ID requirements, and handing out refreshments IMO are also misleading. I encourage you to read the law or at least the "preamble". It is accessed easily on line (even I could do it).

[Dr.Think]

Democracy has worked well for capitalism. Corporations recognize the changes in demographics and want to be on the right side of history as non-whites and women expand their buying power. And yes even corporate executives and boards love America.

[summermonths14]

@Dr.Think I'm not sure democracy is needed for capitalism; China and Singapore are doing well at one, absent the other but Americans do like to cling to their traditions perhaps because they skew older?

[18214212]

True capitalism or completely free markets, something we haven't had a taste of in decades, is far more a "democracy" than anything we've ever experienced or will experience in the political sphere. And unlike the political form of democracy where as citizens we cast our votes only once every 2 or 4 years "if it's not raining" and without any real cost to us and "indirectly" voting for others to represent and make decisions for us, in the economic sphere as consumers we "vote" constantly, often multiple times every day, with our hard-earned dollars which cost us our time and labor and moreover these "votes" directly impact us. In that sense, free markets are far more accountable to popular will and consent than anything in the political system. That is, in the absence of tampering.

[john boy]

@summermonths14
I know about Singapore and yes they seem to be doing well, but how are you measuring China as doing well. Their GDP if so that coms with a hefty program of spending they are printing money at least as fast as us. I can't prove it cause I don't know the figures Just based on past leaks

[Jules2020]

With vaccine rollout and UK reopening next week, keep an eye on reopening companies like COTY, which is undergoing amazing transformation, still below precovid levels and is yet to reinstate dividends.

[john boy]

@Jules2020
Speaking of COTY ther is a company i am looking at Riley its a smallt financial institution 29 mil sh., PE of 7.5 eps of 4.50% divi of 3.5 % It does a lot of consulting and of course financing coming out of the pandemic I think this stock could double anyone have an opinion

[DABA13]

I see where the price of TWTR is indeed up a lot; it has more than doubled in the last 12 months, the trend actually pre-dating the ban of the former President. However, their 2021 earnings are projected to be only $0.92/share, as opposed to $2.37/share in 2019. Like many stocks these days, the price seems somewhat disconnected from reality.

[Seekingbetaguy]

I used to think political activism was something wily Mitch McConnell was reasonably proficient at.

[networks_insider]

@Seekingbetaguy Examples?

[Windy Hill]

@Seekingbetaguy -- Uhhh. Because he is actually in politics?

[Arlie66]

Bezos is no longer working for his shareholders. If he agrees with redistribution and higher taxes. Donate to charity or start projects in challenged areas of the country. He is hurting his shareholders by saying higher taxes are ok. Ridiculous.

[Reel Ken]

@Arlie66

"Re-distribution" implies that there was "distribution" first.

The fact that long term polices distributed wealth to the "few" is not in dispute. Had it distributed it to the "many", in the first place, the "few" would support "re-distribution" now.

The fact is that everyone just wants more money.

As far as AMZN's shareholders. I don't see them crying over what Bezos accomplished. If they don't like it they can sell their stock and pay taxes on all the capital gains he provided them.

[VoiceofSanitySometimes]

@Arlie66

If you read what Bezos actually said, it was that he wants to participate in the discussions on infrastructure and corporate tax and is open to lots of alternatives.

I interpret that as him concluding that having a seat at the table during the negotiations will be a more effective position than being on the outside fighting it. He likely believes he has some "political capital" with the Dem leadership that he can use to make this bill advantageous for Amazon and disadvantageous for some or all competitors.

Whether that is the right strategy is open for debate, but I think saying he no longer cares about Amazon shares (he owns about 10% of them) is untrue.

[blueline]

@Reel Ken The government has no business distributing wealth to the "many". It should go to those that earn it.

[taxman100]

Strange world we live in where you advance your values more by buying products from foreign owned companies that domestic ones that have positioned themselves to benefit as part of the classic Fascist economic system we currently have.

[Ben Gee]

@taxman100 I love to buy local made products, but they are hard to find and at times impossible to find.

[john boy]

@taxman100
I have to ask do you guys even know what Fascism is you people never use it like you know what it means If you feel like your under the boot of fascist that is your fault

[taxman100]

@john boy My definition of fascism is where the economy is a semi-free market, but the government uses their influence over business to further the poltical objectives of those currently in power.

"Wokeness" is closer to the type of fascism practiced in Spain and Italy; not quite as brutal as National socialism, but "Covid relief" and "Infrastructure" are in reality giant slush funds used to reward corporate and political groups who do the bidding of those handing out the cash.

It is not consumer driven, but poltically driven "free" markets.

[blueline]

"President Biden announced Tuesday that all U.S. adults will qualify for coronavirus vaccines by April 19, moving up his eligibility timeline for the general population by about two weeks"

Talk about a day late and a dollar short... most of the country has already opened up the vaccines to everyone including 16 year olds.

[MRFORT23]

@blueline some haven’t and that’s what he’s trying to correct.

[blueline]

@MRFORT23
He got left behind and finally realized that if he didn't move it up two weeks there wouldn't be any one left. In fact by April 19th there probably won't be anyone left.

[Dr.Think]

@blueline Let's not be too harsh. He promises milestones that are deliverable and thereby building confidence that government can deliver. It's not like he's promising that the virus will be gone by memorial day. Delivering more than you say is better than disappointing.. Besides both Wall Street and Main Street are responding positively to this administration's handling of the economy and the pandemic. Latest polls show that more people believe that the country is moving in the right direction than have over the last several years,

[flufbom]

Look no further than Mussolini’s Italy to see what inevitably happens when government and corporations become entangled like this. If you think Bc they’re saying what you want them to say right now that they always will you’re wrong. This never ends well.

[Richard Carleton]

@flufbom Good old corporate activism by means of political contributions has long been lauded by Republicans. Nor do I remember objections to Republican appointees to the Supreme Court expanding corporation's rights to that of citizens whose freedom of speech could have no legal financial restraints. But, now, with Republican legislatures trying to influence votes towards Right (wing)people and limit the rights of others, and thus do a more sophisticated voter suppression, any corporate speech and actions supporting voting rights, and thus, democracy, is seen as objectionable. The irony of those poor souls bringing up people like Mussolini is that historically, businesses were all too willing to support foolish would be dictators for the good it would do their businesses and their social class. Would be right wing dictators, whether Mussolini, Hitler, Franco or Salazar, etc., were invariably anti Communist, and more appropriately, anti union.