Many of the world’s leading politicians and business owners have gathered on the small skiing village of Davos, Switzerland for the annual World Economic Forum. This event is notable every year due to the sheer number of influential people that are all gathered in one place. This year, reportedly 119 different billionaires are attending the festivities.
For the 2020 edition, the climate situation has taken on major importance. The conference invited climate activist Greta Thunberg to speak, which she did alongside President Donald Trump and other world movers and shakers. With climate events in the news, such as the devastating Australian wildfires, there’s a great deal of attention on energy policy, and it will have an impact on numerous investments.
In addition, Big Tech is in the spotlight as politicians on both sides of the pond are cracking down on the tech giants. President Trump also made some off-the-cuff remarks about a few leading American firms Wednesday during a Davos interview. Here’s what you need to know about these seven stocks in the news at the World Economic Forum.
Alphabet (GOOGL, GOOG)
Many of the big tech companies should be watching Davos closely. Arguably Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) is the single most important one. That’s because regulators have been going after the search giant in both Europe and the U.S. with aggression.
Google has paid some of the largest fines ever levied by anti-trust regulators in Europe thanks to the tactics it has used to maintain its dominant market share.
Meanwhile, in the U.S., the Federal Trade Commission and other regulatory bodies have launched wide-reaching investigations into big tech leaders, including Google.
The upcoming presidential election will cast more light onto Google’s practices as well. After all the scandals in 2016, is Google up to the task of keeping user data safe and protecting its platform from nefarious actors? With the controversial implementation of the General Data Protection Regulation “GDPR” in Europe — which has caused numerous problems for advertisers — we should be watching closely to see if international leaders come to any consensus on regulating Google and other big tech firms this week at Davos.
Speaking of big tech, in his interview with CNBC from Davos, President Trump weighed in on Facebook (NASDAQ:FB) and its controversial founder. Trump praised Zuckerberg personally but was less kind toward Facebook, saying:
[Zuckerberg has] done a hell of a job, when you think of it. And he’s going to do what he has to do. I heard he was going to run for president. That wouldn’t be too frightening, I don’t think. But he does have that monster [Facebook] behind him.
It seems that the Trump Administration doesn’t have quite the same animosity toward Facebook that it does toward Alphabet, or Jeff Bezo’s Amazon (NASDAQ:AMZN). Still, investors should watch closely. Facebook is clearly on Trump’s mind heading into November, and its handling of the election could turn into a major issue for FB stock in coming months.
Tesla’s (NASDAQ:TSLA) short-sellers have had a miserable month, as Elon Musk’s electric vehicle company has taken flight. On Wednesday, the Tesla skeptics crowd got hit with another blow. And traders hadn’t been expecting this one either. President Trump decided to lavish Mr. Musk with praise, sparking another huge run-up in TSLA stock:
Well, you have to give him credit […] I was worried about him, because he’s one of our great geniuses, and we have to protect our genius. You know, we have to protect Thomas Edison and we have to protect all of these people that came up with [inventions]. [Musk is] one of our very smart people and we want to cherish those people …
[It has] come so fast. I mean you go back a year and they were talking about the end of the company [Tesla]. And now all of a sudden they’re talking about these great things. He’s going to be building a very big plant in the United States. He has to, because we help him, so he has to help us.
What does all this mean for Tesla stock? It’s surely bad news if you’re betting against Tesla. The government has taken an interest in Tesla’s affairs and may even have helped the firm survive during its down period last year. On the other hand, what sort of favors is the Trump administration expecting from Musk and Tesla in coming years?
With the world gathered together and focused on climate, Musk, Trump and other Tesla backers could use the occasion to help drive more demand for electric vehicles. With the company’s financial problems diminishing and its outlook shining brighter, Tesla may be able to use this moment to secure a lot more orders going forward.
First Solar (FSLR)
This Davos meeting, more than others in recent history, is shining the spotlight on clean energy. That’s because teenage climate activist Greta Thunberg has become a global phenomenon recently, and she’s used that attention to earn a Davos speaking invite. She spoke right next to international leaders and has drawn the world’s focus.
Older politicians are realizing the Thunberg’s message resonates with youth around the world. Young voters are frustrated at the climate situation that the previous generations are leaving behind. And it’s clear that politicians will need to respond to this public outcry. One of the easiest ways to do that would be to boost investments in green energy.
I’m skeptical that solar is the best solution to climate problems in 2020; a push toward less dirty fuels such as natural gas along with a Manhattan project for fourth-generation nuclear power arguably makes the most sense scientifically. But as investors, we make money focusing on what will happen, not what might happen in an ideal world.
It’s a pretty safe bet that politicians will direct more money at solutions that are popular and have little perceived downside. Solar energy is not yet ready to be the backbone of the global power grid, but it is getting cheaper in a hurry, and that keeps a strong investment tide behind the sector.
When you want to profit off a long-term technological trend, it’s hard to go wrong buying the industry leader particularly if it has a pristine balance sheet. First Solar (NASDAQ:FSLR) has strong finances and great technology within its sector, making it a sound choice for investors wanting to profit off of the inevitable push toward more green energy as world leaders get back to work.
If you are a believer in the “buy the rumor, sell the news” school of thinking, this might be a good time to start taking counter-intuitive positions in fossil fuel stocks.
There is historical precedent for climate activism losing steam popularly after it picks up official validation. Look at Rio 1992 or the Kyoto Protocol for past examples; oil stocks did well in both cases once the initial public interest died down. The politicians direct more money at new technologies and introduce a few high-profile green projects. Then, business tends to go back to normal for the established energy companies.
The same may happen here. And Suncor (NYSE:SU) is best-positioned to benefit. Why Suncor? It has projects — the oil sands — that are vital to the global energy market but that politicians and activists have made a focal point for criticism.
Formerly called “the tar sands,” these heavy oil fields have a reputation for despoiling their surrounding environment, consuming large quantities of freshwater, and being the catalyst for the construction of controversial pipeline projects such as Keystone XL. Additionally, Canada’s liberal government has thrown all sorts of obstacles at oil sands firms in recent years, which has hampered production and crushed profit margins.
Despite it all, Suncor has managed to thrive. It is strongly profitable down to $40/barrel oil, and is producing eye-catching profits up here at $60. In fact, it is producing a more than 10% free cash flow yield at current oil prices, allowing it to pay a 4% dividend yield, buy back lots of stock, and pay down debt at the same time. Suncor will be a big winner once the next oil bull market takes flight.
If you were a representative of the U.S. Delegation at Davos this week, Boeing (NYSE:BA) would surely be on your mind. That’s because America’s pre-eminent aerospace company has run into increasingly turbulent terrain in recent weeks.
New revelations keep on coming about the company’s troubled 737 MAX program and the firm’s culture more generally. Boeing is also asking for massive loans to keep its cash flow situation stable. The company tried to calm down fears with a statement Wednesday but it didn’t work; shares fell to fresh 52-week lows.
Even President Trump has seemingly grown concerned about Boeing. He recently praised arch-rival Airbus for creating high-paying jobs in Alabama and other states. This raises the question: Will the U.S. delegation at Davos urge countries to be patient with Boeing? Or will Trump’s praise of Airbus be a sign that the government isn’t willing to sacrifice goodwill to prop up the struggling aerospace firm? Trump weighed in personally on the matter Wednesday, slamming Boeing’s management:
Very disappointing company. This is one of the great companies of the world, let’s say as of a year ago, and then all of a sudden things happen. I am so disappointed in Boeing — had a tremendous impact.
Boeing stock sits at a crucial level. It just broke below long-standing support at the $320 level, and there’s essentially no technical levels from here down to at least $200. Boeing went straight up once it broke out in 2016, and it could give back all those gains in a flash if Trump or other leaders continue to slam the troubled company.
Brown-Forman (BF.A) (BF.B)
Liquor stocks are another sector to watch at Davos. These companies tend to be some of the most multinational firms out there, generating sales in every corner of the world. This is normally a plus, as it diversifies a company’s revenue streams and protects it from a shock in any one currency or market.
However, in the event of a global trade war, this becomes a clear negative. Take Brown-Forman (NYSE:BF.A) (NYSE:BF.B) for example. It suffered a serious shortfall on last year’s earnings due to decreased demand in various emerging markets, along with negative tariffs on its sector out of Europe. Brown-Forman is known for Jack Daniels Whiskey and various tequila brands, among other products. Thus, when Europe slaps tariffs on American goods and Asian demand falls off due to the trade war, it knocks Brown-Forman’s earnings growth for the year down from the usual high single digits annually to almost nothing.
There could a big catch-up year in 2020 or 2021, however, as global trade routes return to normal and trade relations improve. Also, keep in mind that a large amount of world-famous beer and liquor is produced in England, Ireland, and Scotland. Spirits producers — particularly UK-based Diageo (NYSE:DEO) — have been operating under the Brexit cloud for the past four years. Any headlines on the trade war, Brexit, and a potential change in Europe-U.S. Trade relations could trigger a big move in the beer, wine, and spirits stocks.
At the time of this writing, Ian Bezek owned shares of FB, DEO, BF.A, BF.B, and SU. You can reach him on Twitter at @irbezek.