A survey of North American equities heading in both directions
On the rise
Vancouver-based Lithium Americas Corp. (LAC-T) soared 9.4 per cent after the U.S. Department of Energy finalized a US$2.26-billion to build its Nevada’s Thacker Pass lithium mine, one of Washington’s largest mining industry investments and part of a broader push to boost critical minerals production.
The loan, provisionally approved in March, is a key part of U.S. President Joe Biden’s efforts to reduce dependence on lithium supplies from China, the world’s largest processor of the electric vehicle battery metal. Biden officials permitted a similar lithium project under development by ioneer last week.
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The Thacker Pass project is slated to open later this decade and be a key supplier to General Motors, which earlier this month boosted its investment in the mine to nearly US$1-billion.
“The Biden-Harris Administration recognizes mineral security is essential to winning the global clean energy race,” said Ali Zaidi, the White House national climate advisor.
Former President Donald Trump had permitted the mine just before leaving office. Initial construction at the site, just south of Nevada’s border with Oregon, started last year after the company won a long-running and complex court case brought by conservationists, ranchers and Indigenous communities.
With the loan now closed, d Lithium Americas plans to start major construction, a process that could take three years or longer. The mine’s first phase is expected to produce 40,000 metric tons of battery-quality lithium carbonate per year, enough for up to 800,000 EVs.
The project is expected to employ about 1,800 people during construction, and provide 360 full-time jobs once the mine is operational. The loan will have a 24-year term, with interest rates based on the U.S. Treasury rate as each tranche is drawn.
“This essential loan helps us reduce dependence on foreign suppliers and secure America’s energy future,” said Lithium Americas CEO Jon Evans.
The mine’s cost had been increased from a previous estimate of US$2.27-billion to nearly US$2.93-billion due to higher engineering costs, an agreement to use union labor, and the company’s decision to build a housing facility for workers and their families in the remote region.
Alphabet (GOOGL-Q) was higher ahead of kicking off earnings season for the “Magnificent Seven” group of megacap technology stocks that have driven Wall Street to all-time highs this year.
The parent company of Google reports its results after the bell on Tuesday with Meta Platforms and Microsoft on Wednesday, followed by Apple and Amazon on Thursday.
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Alphabet will likely post its slowest revenue growth in four quarters on Tuesday, hurt by competition that weighed on its core Google Search business and dented YouTube ad spending.
The slowdown in its core business is expected to overshadow AI-driven gains at its cloud-computing business in the third quarter. This quarter was also the company’s first since Anat Ashkenazi took over as finance chief from Ruth Porat.
Alphabet’s long-established dominance of the digital ad market is under threat from the likes of Amazon and TikTok that have become popular with advertisers looking to tap a ready pool of buyers.
The other risk Alphabet faces is from regulators who are considering breaking up Google to loosen what they call its “illegal monopoly” on online search.
Analysts expect Google Search and other related revenue to grow 11.6 per cent in the third quarter, slower than the 13.8-per-cent increase in the second quarter, according to Visible Alpha.
“New entrants like Perplexity and ChatGPT are raising billions of dollars on the premise that search can now be disrupted; Google has been seen as slow, unprepared ... to the development of GenAI,” MoffettNathanson analysts said.
“Some of this negative narrative will be hard to disprove in the coming year,” the analysts said, adding that they expect significant changes in Google’s ability to maintain its exclusive search advantage on Apple and Android phones in the United States.
In a report earlier this month that raised alarm bells among investors, research firm eMarketer said Google’s share of U.S. search advertising revenue was set to fall below 50 per cent next year for the first time in at least 18 years.
Amazon’s search advertising revenue share in the U.S. is expected to grow to 24 per cent next year, while generative AI rivals such as Amazon founder Jeff Bezos-backed Perplexity AI are also snatching some ad dollars from Google.
Alphabet’s shares fell nearly 9 per cent in the three months to September, marking their largest quarterly drop since the third quarter of 2022. But they have risen 17 per cent so far this year.
Shares of former U.S. President Donald Trump’s media company (DJT-Q) continue to surge on Tuesday, extending a recent rally as betting odds favored the Republican candidate in the final stretch of his bid for reelection to the White House.
Shares of Trump Media & Technology Group have nearly quadrupled since sinking to an all-time low in late September. On Monday, it jumped jumped 21.6 per cent to US$47.36. and has been rallying since hitting a bottom of roughly US$12 in late September, though it’s still well below its perch above US$60 reached in March.
Trump’s social media company is now worth more than Musk’s X after recent surge in stock price
Since its listing, Trump Media has been popular with traders who view it as a speculative bet on Trump winning the Nov. 5 election. He owns 57 per cent of the company, making his stake now worth over $5 billion.
Trump Media’s revenue in the June quarter was US$837,000 and the company is burning cash. Strategists say its US$9-billion stock market value is detached from its day-to-day business.
With seven days to go before the election, betting odds reflect expectations Trump is likely to beat Vice President Kamala Harris, the Democratic candidate. However, opinion polls show a tight race in the seven battleground states that are expected to determine the winner.
On the decline
Ford Motor (F-N) shares fell on Tuesday after the automaker tempered its full-year profit forecast, blaming supplier disruptions and warranty costs amid a global price war fueled by overcapacity.
It expects 2024 adjusted earnings before interest and taxes (EBIT) of about US$10-billion, compared with its earlier projection of US$10-billion to US$12-billion.
In contrast, Detroit rival General Motors (GM-N) boosted its profit expectations last week.
Toyota, GM and Ford all reported weaker sales growth for the third quarter and remain under pressure to discount vehicles as consumers feeling the pinch of high inflation increasingly opt for cheaper options.
The U.S. auto industry is also expected to face further pricing pressures through the remainder of the year as significant U.S. operational errors at Stellantis have left the company working to clear its bloated inventories.
“We remain cautious over concerns about a deflationary pricing cycle across the industry,” RBC Capital Markets analyst Tom Narayan said in a note, adding that Ford’s forecast cut was expected and the guidance is now “more realistic.”
Though Ford reported third-quarter profit above estimates, its inventory was higher than its target range, as it ended the quarter with 91 days of gross stock and 68 days of dealer stock, CEO Jim Farley told analysts.
“During the call, we sensed a tactical turn in the focus of management as they try hard to get through the remainder of the year and look towards an increasingly uncertain 2025,” Bernstein analysts said.
Ford also warned of inflationary pressures in Turkey, which will increase the cost of Transit vans sold in Europe. It also experienced higher-than-expected warranty costs due to recalls and other fixes.
“We’ve made more progress on material costs but we’ve gone backwards on warranty costs,” CFO John Lawler said.
Ford shares have declined 5.4 per cent this year, giving it a price-to-earnings ratio of about 12, compared with GM’s 5.62.
McDonald’s (MCD-N) executives on Tuesday brushed off a potential sales hit from the deadly E. coli outbreak in the U.S., saying that the fast-food giant was past the incident and was looking to revive muted demand through promotions and value menu items.
Shares of the company were down in volatile trading after it reported a bigger-than-expected drop in global comparable sales but a quarterly profit beat.
Last week, McDonald’s temporarily paused serving Quarter Pounders in a fifth of its 14,000 U.S. restaurants due to an outbreak that has killed at least one person. Shares had declined nearly 7 per cent last week as infections rose to 75 people. Quarter Pounders were being added back to the menu this week.
CEO Chris Kempczinski apologized to customers for the outbreak on a post-earnings call on Tuesday, and said the situation appears to be contained and he was “confident in the safety of eating at McDonald’s.”
“The most significant events are behind us and the work to do right now is focused on restoring consumer confidence, getting our U.S. business back to that strong momentum,” McDonald’s CFO Ian Borden said on the call.
Slivered onions used in the hamburgers are the likely source of the infection, with the Colorado Department of Agriculture over the weekend ruling out beef patties as the cause.
McDonald’s reaffirmed most of its annual targets, assuming no material impact from the E. coli outbreak. The company, however, admitted that it was trying to reverse the daily negative guest count and sales since the beginning of the outbreak.
Customer visits in the U.S. fell 6.4 per cent, 9.1 per cent and 9.5 per cent year-over-year on October 23, 24 and 25, respectively, according to a Gordon Haskett note.
In the quarter ended Sept. 30, U.S. comparable sales grew 0.3 per cent, reversing the previous quarter’s drop, aided by promotions.
Weakness in the industry has prompted fast-food chains including McDonald’s, Wendy’s, Burger King and Taco Bell to lean into meal bundles and limited-time offers in a bid to revive traffic, especially among lower-income customers.
Sales in international markets, however, fell 2.1 per cent, driven by weakness in France and Britain, compared with estimates of a 1.21-per-cent drop.
Weaker consumer spending in China and impacts of the Middle East conflict have dented McDonald’s business segment where restaurants are operated by local partners, with sales dipping 3.5 per cent compared with a 10.5-per-cent rise a year earlier.
The Chicago-based company earned US$3.23 per share on an adjusted basis, above analysts’ estimates of US$3.20.
Pfizer (PFE-N) reported higher-than-expected profit on Tuesday due to strong sales of COVID treatment Paxlovid, an important win for Chief Executive Albert Bourla as he faces down activist investor Starboard.
The U.S. drugmaker has struggled with a sharp fall in sales of its COVID vaccine and antiviral Paxlovid from pandemic levels, prompting it to launch a cost-cutting program last year and focus on deals to bolster its business.
On Tuesday, the company said the better-than-expected rise in Paxlovid sales reflected higher infection rates during the quarter and strong commercial execution.
“The demand for Paxlovid seems to have stabilized at the current levels and appears to be closely correlated with each wave of COVID-19,” Bourla said in prepared remarks.
Shares were lower after the company also raised its annual profit and sales forecast. Pfizer shares are trading at roughly half of their pandemic peaks. Investors and analysts have said they want to see improved profitability from the cost cuts as well as revenue growth powered by its recent deals.
Activist hedge fund Starboard Value has argued that Pfizer’s board needs to hold management accountable for the company’s underperformance, particularly questioning its record for producing profitable new drugs from internal research and development or acquisition.
Pfizer said it was on track to deliver at least US$4-billion in savings from its cost cut program this year.
“Management is doing a lot of the things Starboard wants them to. Righting the ship takes time,” BMO analyst Evan Seigerman said. “It’s going to take more than one quarter for folks to gain full confidence. But this is definitely a step in the right direction.”
Paxlovid sales of US$2.7-billion in the quarter blew past analysts’ expectations of US$456.40-million. The U.S. experienced a late summer spike in COVID-19 cases this year.
COVID vaccine Comirnaty, which Pfizer makes with German partner BioNTech, brought in sales of US$1.42-billion, compared with expectations of US$870-million, according to estimates compiled by LSEG.
Pfizer raised both ends of its 2024 profit forecast range by 30 US cents and expects to earn US$2.75 to US$2.95 per share. On an adjusted basis, Pfizer earned US$1.06 per share in the third quarter, compared with analysts’ estimates of 62 US cents.
U.S.-listed shares of BP PLC (BP-N) slumped after it reported a 30-per-cent drop in third-quarter profit to US$2.3-billion, the lowest in almost four years, weighed down by weaker refining margins and oil trading results.
The decline was smaller than expected amid a slowdown in global economic activity and oil demand, particularly in China, but raises pressure on CEO Murray Auchincloss, who has vowed to boost BP’s performance in the face of investor concerns over its energy transition strategy.
“We’ve been making massive progress focusing and simplifying the business,” Auchincloss told Reuters.
BP shares have underperformed those of its rivals so far this year, falling 15 per cent compared with a 2-per-cent decline for Shell and a 19-per-cent gain for Exxon Mobil as investors question the company’s ability to generate profits. A 9-per-cent annual rise in BP’s debt levels has further worried investors.
The energy giant maintained its dividend at 8 US cents a share after raising it in the previous quarter. It also kept the rate of its share buyback programme at US$1.75-billion over the next three months and committed to do so again for the following three months. BP will update its financial framework in February.
Mr. Auchincloss, who took up the job in January, has vowed to focus on high-margin businesses, distancing himself from predecessor Bernard Looney’s strategy to rapidly expand renewables and reduce oil and gas output.
Reuters reported earlier this month, citing sources, that BP had abandoned a flagship target to cut oil and gas output by 2030.
Mr. Auchincloss told Reuters on Tuesday that BP will focus on value, not volume, for its operations. “Whenever in the past round we’ve chased volume, we’ve gotten it wrong,” he said.
BP’s underlying replacement cost profit, the company’s definition of net income, reached US$2.27-billion in the third quarter, exceeding forecasts of US$2.05-billion in a company-provided survey of analysts but down from US$2.8-billion in the previous quarter and US$3.3-billion a year earlier.
The results were the weakest since the fourth quarter of 2020, when profits collapsed during the pandemic.
PayPal (PYPL-Q) forecast fourth-quarter revenue below estimates on Tuesday as the digital payments company shifts its focus to higher-margin businesses from aggressive expansion, sending its shares down.
Efficiency has been a focal point for PayPal as CEO Alex Chriss, who took the helm last year, pushes for cost discipline through job cuts and higher investments in automation and artificial intelligence.
The company lifted its 2024 profit forecast for the third time this year, also benefiting from higher consumer spending in a sign of U.S. economic resilience. “We are making solid progress in our transformation as we bring new innovations to market, forge important partnerships with leading commerce players, and drive awareness and engagement through new marketing campaigns,” CEO Chriss said.
PayPal is moderating growth in low-margin units such as Braintree that provides payments technology to businesses, and instead focusing on lucrative segments like branded checkout.
The company expects revenue in the fourth quarter to grow by a “low single-digit” percentage compared with the 5.4-per-cent growth analysts polled by LSEG had expected.
Third-quarter revenue jumped 6 per cent to US$7.85-billion but missed estimate of US$7.89-billion.
Still, PayPal expects earnings per share, excluding one-time costs, to grow in the “high-teens” percentage range in 2024 - an increase from its prior forecast of “low to mid-teens.”
Adjusted profit grew 14 per cent to US$1.23-billion in the third quarter. On a per-share basis, PayPal earned US$1.20 versus 98 US cents a year ago.
D.R. Horton (DHI-N) Forecast 2025 revenue and home deliveries below estimates on Thursday, as mortgage rate volatility kept some home buyers on the sidelines and the builder retained discounts to whip up demand.
Shares of the largest U.S. homebuilder fell after it also missed estimates for fourth-quarter profit and revenue. The results pulled down shares of other homebuilders, with Lennar (LEN-N) and PulteGroup (PHM-N) also down.
Both those companies had, however, beat quarterly estimates on strong sales despite discounts.
After the U.S. Federal Reserve began its monetary easing cycle with a 50-basis-point interest rate cut in September, some prospective buyers are waiting for rates to potentially go lower in 2025, D.R. Horton said.
An affordability crisis also persists as median prices remain elevated due to a chronic shortage of homes in the United States.
This has forced large homebuilders to give more discounts despite elevated land and material costs.
Among the most popular discounts are mortgage rate buydowns, which function as a temporary or permanent reduction in the home loan rate.
D.R. Horton has also continued to build homes with smaller floor plans to keep prices stable.
For the fiscal year ending in September 2025, the company expects to deliver 90,000 to 92,000 homes. Analysts on average were expecting more than 94,000 home deliveries, according to data compiled by LSEG.
The Arlington, Texas-based builder also expects full-year revenue of US$36.0-billion to US$37.5-billion, below estimates of $39.41 billion.
For the fourth quarter ended September, the company reported earnings per share of US$3.92, below estimates of US$4.17 and last year’s US$4.45, despite selling more homes than in the previous year.
With files from staff and wires