Latest news with #Smead
Business Insider
20 hours ago
- Business
- Business Insider
Stocks just hit a 'line of death' last reached at the peak of the dot-com bubble, veteran investor Bill Smead warns
Bill Smead warns the stock-market rally is vulnerable to a reversal. Smead shared a chart showing the S&P 500 hitting a resistance trend line. Smead also cites Warren Buffett's cautious cash position as a sign of potential market trouble. Bill Smead doesn't know how long the current stock-market rally can continue, but the veteran investor does think it's in a particularly vulnerable spot. In his Q2 letter to investors on July 15, Smead — whose Smead Value Fund (SMVLX) has beaten 96% of peers over the last 15 years, Morningstar data shows — shared a chart displaying inflation-adjusted S&P 500 returns since the 1960s. An upward trend line shows resistance at two major market peaks, in 1966 and in 2000, is also shown. In both of those instances when S&P 500 inflation-adjusted returns hit the trend line, a significant correction followed. In recent weeks, the market has touched the line for the third time since 1960 as the S&P 500 has surged to all-time highs around 6,300. There's no rule that says the market's rally can't break higher, especially if economic fundamentals, like inflation, consumer spending, and the unemployment rate, remain solid. But to be sure, it's a foreboding reminder about how frothy the current environment is, and Smead thinks the market is set up for disaster where the S&P 500 delivers exceptionally poor returns over the decade ahead. "That doesn't tell you when, but it does tell you a lot about the magnitude and the duration of what's going to happen," Smead told Business Insider. "You can't hold your breath until it breaks," he continued. "It's not a question of whether, it's a question of when." The market's impressive returns recently have been driven by growth stocks, particularly the Magnificent Seven mega-cap tech companies. So it's not necessarily surprising that Smead, a value investor, is bearish on growth stocks' prospects. A shift toward value outperformance would benefit Smead's fund, which is down 10.6% over the last 12 months. The Smead Value Fund's holdings are most heavily concentrated in the energy, consumer cyclical, and financials sectors. Still, Smead's impressive long-term track record shows he could be onto something. Other popular measures of investor euphoria also show the market is at historically rich levels. For example, the Shiller cyclically-adjusted price-to-earnings ratio is near all-time highs. Smead also cited Warren Buffett's seemingly cautious approach in recent years, holding a record cash position, as a warning sign that things could go awry in the market. Buffett warned of froth in the market leading up to the dot-com bubble, leading him to take a more conservative stance in his portfolio. As a result, his performance suffered in the year leading up to the bubble's peak, but Buffett later smashed the S&P 500's returns when the market crashed over the course of a few years.
Business Insider
7 days ago
- Business
- Business Insider
We asked Warren Buffett gurus whether his exit is what's bringing Berkshire Hathaway's stock down
Berkshire Hathaway's investors may be looking at the stock and wondering if the " Buffett premium" is real — and disappearing before their eyes. The "premium" refers to the long-standing view that Berkshire stock trades at a premium because of Warren Buffett's legendary stock-picking skills, dealmaking prowess, and shrewd management, which saw him transform a failing textile mill into a world-beating conglomerate over six decades. Going into the annual shareholder meeting in Omaha in early May, Berkshire was up 19% year-to-date, while the benchmark S&P 500 index was down 3%. At the end of his Q&A, Buffett rocked the financial world by announcing he would step down as CEO in December. Berkshire stock has since fallen 11% while the S&P has climbed 10%. Berkshire Hathaway didn't respond to a request for comment from BI. The sell-off might seem like a reaction to the legendary investor's impending departure. But, when they spoke to Business Insider, six of the company's keenest observers were divided over whether this was the famous "Buffett premium" disappearing. Paying up for Buffett "I believe there is a 'Buffett premium' although I think it is difficult to quantify," John Longo — a finance professor, investment chief, and author of "Buffett's Tips: A Guide to Financial Literacy and Life" — said. Long said that fewer people might be willing to sell their businesses to a Buffett-less Berkshire, nodding to the investor's reputation for offering clean and simple transactions, hands-off ownership, and a permanent home for companies. Bill Smead, the founder and chief investor of Smead Capital Management, told BI that Berkshire, which has a $1 trillion market capitalization, commands an above-market valuation multiple for a conglomerate because Buffett is at the helm. Once the investor fully retires, "there'll be another part of the Buffett premium that goes away," he said. In his 2014 shareholder letter, Buffett said that, during his time as CEO, Berkshire stock fell about 50% from its high three times. Smead said the fact that Buffett remained CEO showed investors have an " unusual level of faith" in him. Smead added that there may be a higher risk of shareholder revolt if the same happens to Buffett's successor, Greg Abel. "In Buffett's case, confidence in him causes even the newcomers to stay put" when the stock is floundering, Smead said. "When he's no longer in the office, the people won't have that same backstop." Buffett isn't Berkshire Chris Bloomstran, president of Semper Augustus Investments, told BI, "I don't think a 'Buffett premium' has existed since 1998," when the investor used Berkshire shares trading at nearly three times book value to buy General Reinsurance. Bloomstran said strong underwriting earnings had propelled Berkshire shares to record highs ahead of May's fateful annual shareholder meeting. They then retreated along with the wider property-and-casualty insurance and reinsurance industry, Bloomstran added. Berkshire owns several insurance companies including Geico and National Indemnity. Berkshire is the result of "what Warren lovingly built over six decades," he continued. "It's no longer worth less if he's not running it," Bloomstran added. Steven Check, the CEO of Check Capital Management, agreed that the stock had surged to the point it was "arguably, slightly overpriced" and has since returned to a fairer valuation. "We think Buffett leading the company is a great thing, but the stock has also been underpriced for periods over the last five to 10 years with Buffett leading the company," Check said. Brett Gardner, an analyst and author of "Buffett's Early Investments," said two months of trading weren't enough to draw conclusions. "The magnitude since his retirement does surprise me, though," he said, adding that Buffett turns 95 this year and his departure "should have been priced in." Larry Cunningham, the author of several books about Buffett and Berkshire and the director of the University of Delaware's Weinberg Center, said he didn't attribute the stock's fall to the "evaporation" of a "Buffett premium." "Frankly, I've never seen a responsible valuation analysis that explicitly assigns such a premium to his presence," Cunningham told BI. "So I don't think this move reflects the loss of a rational premium, nor does it represent a justified discounting," he continued. Cunningham agreed with Bloomstran that Buffett's key contribution was building Berkshire Hathaway up, and now that it has matured, it requires his oversight less. "Today, his value is concentrated in rare, opportunistic acquisitions, which have been scarce in recent years," he said. "I don't think you can quantify Warren Buffett's value to Berkshire," Check said. "But part of his genius is he has built the company to do well after he is gone." Abel, who is due to take over as CEO on January 1, has been Berkshire Hathaway's vice chair of non-insurance operations since 2018. "Buffett is irreplaceable," Check said, adding he still expects Berkshire to "do quite well" under Abel.
Yahoo
24-05-2025
- Business
- Yahoo
Top investor Bill Smead: 'This is maybe the most dangerous market of my career'
Bill Smead advises against investing in the S&P 500 as momentum fuels the rally. "I don't trust the S&P 500 farther than I can throw it," Smead told BI. Smead's fund has underperformed recently, but he's enjoyed long-term success. Bill Smead was driving around Northern Alabama on Thursday, pitching potential clients on why it's an optimal time to buy into his Smead Value Fund (SMVLX). He knows it may not be an easy sell. His energy and homebuilder holdings have gotten hammered recently, and the fund has had a rough 12 months. Since May last year, it's down 11% while the S&P 500 has risen 10%. But to Smead, that's the point. Every investment discipline has its hard times, and it's during those periods when investors make money. The opposite is also true, he argues: When an investment is soaring, the likelihood that the outperformance continues decreases. That's why Smead is warning against investing in the S&P 500, which remains just below its all-time highs. "Even though the index has been a really good idea from 1981 to now in a rising market, every investment discipline goes through cold stretches," Smead said. "The longer it goes on making people rich, the more likely it is for a catch-up period." One would probably expect Smead, a value manager, to question the merits of investing in a growth-led index like the S&P 500. But he has the long-term track record to lend him credibility — over the last 15 years, he's beaten 94% of similar funds, according to Morningstar data. In 2021, Smead crushed the market by returning 40% by betting heavily on unloved economic reopening stocks and ignoring pandemic darling tech stocks. Valuations also support Smead's concerns. The Shiller cyclically adjusted price-to-earnings ratio, which measures the current price of stocks relative to a 10-year rolling average of earnings, is at one of its highest-ever levels. According to a March report from Invesco, from 1983 to 2015, the Shiller CAPE ratio has explained 78% of the S&P 500's forward 10-year returns. When valuations have been high, returns over the next decade have been low, and vice versa. Smead also points to the momentum factor as a source for his unease about the S&P 500. Lisa Shalett, the chief investment officer at Morgan Stanley Wealth Management, noted earlier this year that while the S&P 500 rose 23% in 2024, the momentum factor was up 58%. That shows that a FOMO attitude is driving the market, she said, and prices are surging at a pace well ahead of earnings growth. Steve Sosnick, the chief strategist at Interactive Brokers, said in a client note on Thursday that we've seen "one of the most powerful momentum surges that I can remember" in the weeks since Trump's "Liberation Day" tariffs were paused. But market conditions have more or less been momentum-driven since the Great Recession stock-market bottom in 2009, Smead said. Eventually, he warns, things will turn in the other direction. "The momentum of the last 15 years is the biggest momentum market in US history — bigger than the roaring '20s, bigger than the go-go '60s, and bigger than the dot-com bubble in a wide variety of ways in measuring it," he said. "I don't trust the S&P 500 farther than I can throw it." "This is maybe the most dangerous market of my career, and that includes 1987's crash, that includes the savings and loan debacle market of the early '90s, that includes the 1999 to 2009 lost decade in the S&P 500 in the dot-com bubble," he continued. "This is the most difficult market of my 45 years." Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
21-05-2025
- Business
- Yahoo
Target CEO Under Pressure as Boycott, Tariffs Hit Sales
(Bloomberg) -- Pressure is growing on Target Corp.'s chief executive officer after the retailer cut its sales forecast following a sharp pullback in consumer spending and a hit from tariffs and boycotts. Can Frank Gehry's 'Grand LA' Make Downtown Feel Like a Neighborhood? Chicago's O'Hare Airport Seeks Up to $4.3 Billion of Muni Debt NJ Transit Makes Deal With Engineers, Ending Three-Day Strike The report sent shares falling and raised questions over Brian Cornell's ability to recapture growth after two years of choppy results — especially as economic turbulence is growing. 'It's a great brand. It's actually a great company. It just looks to us like it needs a new leadership,' said Bill Smead, chief investment officer of Smead Capital Management, which has owned the stock since 2017. Target's current management has struggled to navigate through cultural and political landscapes, Smead said, referring to the backlash around its Pride collection in 2023 and boycott calls after the company decided to halt diversity initiatives this year. It hurts the business to alienate customers, Smead said. He thinks that Target needs to focus more on its strengths and execution during economically challenging times instead of getting caught up in social issues. In September 2022, Target said that Cornell would stay in his job for about three more years. The company said Wednesday that it expects net sales to decline by a low single digit this year, down from previous guidance for an increase of about 1%. In the quarter ended May 3, comparable sales dropped 3.8%, more than analysts had expected, on fewer shoppers. Consumers also spent less per visit. 'I want to be clear that we're not satisfied with these results,' Cornell said during a call with reporters. 'We've got to drive traffic back into our stores and visits to our site.' Target shares fell as much as 7.7% in New York trading. Through Tuesday, the company's stock was down about 27% compared with a 1% increase in the S&P 500. 'The question is how long are investors willing to wait for Target and how much confidence they have in management's strategy to turn around,' said Sheraz Mian, director of research at Zacks Investment Research. Target hasn't been as nimble as competitors in responding to fluctuations in demand. Revenue has declined in five of the past eight quarters. Pressure is growing on Cornell and his team to establish growth strategies, Mian said. Walmart Inc., Target's biggest rival, has been investing in low prices, sprucing up its assortment and remodeling stores. It's also gained market share among wealthier shoppers, who used to be Target's sweet spot. Target executives acknowledged that they're not hitting the mark. Sales jumps during major holidays and limited-time design collaborations help fuel growth and bring people into stores, but the company isn't seeing that same kind of everyday momentum. 'We recognize that we've got to make sure each and every day, we deliver the right products, the right assortment, the right value that brings guests into our stores and our digital sites,' Cornell said. While that trend has hit retailers broadly, Target has been more vulnerable than some of its peers. That's because apparel, home goods and non-consumable items make up about 65% of its sales, while competitors such as Walmart rely on groceries for a larger percentage of revenue. Target has also had trouble with inventory management in recent years amid fluctuations in demand. 'We think it will be more difficult for Target in this environment given tariffs and Walmart's substantial market-share gains,' said Jefferies analyst Corey Tarlowe. Target announced a series of management changes on Wednesday that it said will improve performance. Chief Strategy and Growth Officer Christina Hennington, a Target veteran of more than 20 years and once seen as a potential successor to Cornell, will leave the company. Chief Operating Officer Michael Fiddelke will lead a newly formed group called the 'multiyear acceleration office,' aimed at positioning Target to move faster on growth priorities. The company will also double down on offering trendy, affordable products and convenient shopping experiences, executives said on a call with analysts. The Minneapolis-based company did well during the pandemic but has struggled since then as consumers spend less on clothes, home goods and other non-necessities following years of rising inflation. The worse the economic turbulence gets, the more pressure it puts on Cornell, who was once seen as a retail wunderkind after stints leading large divisions at companies such as Walmart and PepsiCo Inc. Cornell joined as the top executive of Target over a decade ago and streamlined the retailer's operations. He led the company through the pandemic and beefed up digital operations, but Target hasn't been able to generate substantive growth since then. While Target is one of many companies that have dialed back diversity programs following pressure from the Trump administration, it's experienced a bigger backlash than others because it had previously taken a strong public stance in favor of diversity and inclusion. Tariffs represent the latest obstacle. Higher levies on imported goods are expected to raise prices of goods in the near term, resulting in a decline in consumer sentiment and cautious shoppers. Executives signaled that challenges are expected to persist in the coming months. The company is adjusting prices in response to the volatile environment, executives said, without directly linking changes to tariffs — a departure from the company's more direct comments about the levies' effect in March. The retailer is moving to reduce its exposure to China. It's on track to source about 25% of its store brands from China by the end of next year, down from 60% in 2017. Target is also negotiating with suppliers on prices. Home Depot Inc. on Tuesday also struck a more conservative tone about tariffs after Walmart last week said that price increases are coming. Those remarks drew the ire of Trump over the weekend. Why Apple Still Hasn't Cracked AI Inside the First Stargate AI Data Center Anthropic Is Trying to Win the AI Race Without Losing Its Soul Microsoft's CEO on How AI Will Remake Every Company, Including His Cartoon Network's Last Gasp ©2025 Bloomberg L.P. Sign in to access your portfolio
Yahoo
21-05-2025
- Business
- Yahoo
Target CEO Under Pressure as Boycott, Tariffs Hit Sales
(Bloomberg) -- Pressure is growing on Target Corp.'s chief executive officer after the retailer cut its sales forecast following a sharp pullback in consumer spending and a hit from tariffs and boycotts. Can Frank Gehry's 'Grand LA' Make Downtown Feel Like a Neighborhood? Chicago's O'Hare Airport Seeks Up to $4.3 Billion of Muni Debt NJ Transit Makes Deal With Engineers, Ending Three-Day Strike The report sent shares falling and raised questions over Brian Cornell's ability to recapture growth after two years of choppy results — especially as economic turbulence is growing. 'It's a great brand. It's actually a great company. It just looks to us like it needs a new leadership,' said Bill Smead, chief investment officer of Smead Capital Management, which has owned the stock since 2017. Target's current management has struggled to navigate through cultural and political landscapes, Smead said, referring to the backlash around its Pride collection in 2023 and boycott calls after the company decided to halt diversity initiatives this year. It hurts the business to alienate customers, Smead said. He thinks that Target needs to focus more on its strengths and execution during economically challenging times instead of getting caught up in social issues. In September 2022, Target said that Cornell would stay in his job for about three more years. The company said Wednesday that it expects net sales to decline by a low single digit this year, down from previous guidance for an increase of about 1%. In the quarter ended May 3, comparable sales dropped 3.8%, more than analysts had expected, on fewer shoppers. Consumers also spent less per visit. 'I want to be clear that we're not satisfied with these results,' Cornell said during a call with reporters. 'We've got to drive traffic back into our stores and visits to our site.' Target shares fell as much as 7.7% in New York trading. Through Tuesday, the company's stock was down about 27% compared with a 1% increase in the S&P 500. 'The question is how long are investors willing to wait for Target and how much confidence they have in management's strategy to turn around,' said Sheraz Mian, director of research at Zacks Investment Research. Target hasn't been as nimble as competitors in responding to fluctuations in demand. Revenue has declined in five of the past eight quarters. Pressure is growing on Cornell and his team to establish growth strategies, Mian said. Walmart Inc., Target's biggest rival, has been investing in low prices, sprucing up its assortment and remodeling stores. It's also gained market share among wealthier shoppers, who used to be Target's sweet spot. Target executives acknowledged that they're not hitting the mark. Sales jumps during major holidays and limited-time design collaborations help fuel growth and bring people into stores, but the company isn't seeing that same kind of everyday momentum. 'We recognize that we've got to make sure each and every day, we deliver the right products, the right assortment, the right value that brings guests into our stores and our digital sites,' Cornell said. While that trend has hit retailers broadly, Target has been more vulnerable than some of its peers. That's because apparel, home goods and non-consumable items make up about 65% of its sales, while competitors such as Walmart rely on groceries for a larger percentage of revenue. Target has also had trouble with inventory management in recent years amid fluctuations in demand. 'We think it will be more difficult for Target in this environment given tariffs and Walmart's substantial market-share gains,' said Jefferies analyst Corey Tarlowe. Target announced a series of management changes on Wednesday that it said will improve performance. Chief Strategy and Growth Officer Christina Hennington, a Target veteran of more than 20 years and once seen as a potential successor to Cornell, will leave the company. Chief Operating Officer Michael Fiddelke will lead a newly formed group called the 'multiyear acceleration office,' aimed at positioning Target to move faster on growth priorities. The company will also double down on offering trendy, affordable products and convenient shopping experiences, executives said on a call with analysts. The Minneapolis-based company did well during the pandemic but has struggled since then as consumers spend less on clothes, home goods and other non-necessities following years of rising inflation. The worse the economic turbulence gets, the more pressure it puts on Cornell, who was once seen as a retail wunderkind after stints leading large divisions at companies such as Walmart and PepsiCo Inc. Cornell joined as the top executive of Target over a decade ago and streamlined the retailer's operations. He led the company through the pandemic and beefed up digital operations, but Target hasn't been able to generate substantive growth since then. While Target is one of many companies that have dialed back diversity programs following pressure from the Trump administration, it's experienced a bigger backlash than others because it had previously taken a strong public stance in favor of diversity and inclusion. Tariffs represent the latest obstacle. Higher levies on imported goods are expected to raise prices of goods in the near term, resulting in a decline in consumer sentiment and cautious shoppers. Executives signaled that challenges are expected to persist in the coming months. The company is adjusting prices in response to the volatile environment, executives said, without directly linking changes to tariffs — a departure from the company's more direct comments about the levies' effect in March. The retailer is moving to reduce its exposure to China. It's on track to source about 25% of its store brands from China by the end of next year, down from 60% in 2017. Target is also negotiating with suppliers on prices. Home Depot Inc. on Tuesday also struck a more conservative tone about tariffs after Walmart last week said that price increases are coming. Those remarks drew the ire of Trump over the weekend. Why Apple Still Hasn't Cracked AI Inside the First Stargate AI Data Center Anthropic Is Trying to Win the AI Race Without Losing Its Soul Microsoft's CEO on How AI Will Remake Every Company, Including His Cartoon Network's Last Gasp ©2025 Bloomberg L.P.
