The Dow Jones Industrial Average is undergoing significant changes, with Nvidia replacing Intel and Sherwin-Williams replacing Dow, reflecting a shift from dividend-focused companies to those emphasizing growth and industry leadership. This evolution suggests a need to redefine 'blue chip' stocks, traditionally associated with stable dividends, to include companies that effectively allocate capital for growth, even if they don't prioritize dividends. The focus is now on industry leadership and maximizing shareholder value through various capital allocation strategies.
Analyst Amit Daryanani believes that Apple's stock could see a turnaround by leveraging AI on its devices, potentially driving a "supercycle" of device upgrades. With an anticipated AI announcement and the ability to incorporate on-device inference for improved user experience, Apple's unique position in controlling its chips and software ecosystem could lead to significant hardware updates and increased sales. Daryanani also suggests that Apple's approach to capital allocation and its acceleration in services revenue are underappreciated, expressing confidence in the company's stock despite a 10% decline this year.
Energy Transfer reported its Q4 2023 earnings, revealing a 5% increase in adjusted EBITDA to $13.7 billion for the full year 2023, a partnership record, and $3.6 billion in excess cash flow after distributions. The company also discussed its financial position, including credit rating upgrades and available liquidity, as well as its growth projects and 2024 guidance, expecting adjusted EBITDA between $14.5 billion and $14.8 billion. Additionally, Energy Transfer addressed its capital allocation priorities, emphasizing a disciplined approach to growth projects, distribution growth, and potential unit buybacks.
Tech giants like Meta and Amazon are shifting towards a more disciplined approach, focusing on doing more with less and prioritizing cash returns to shareholders. This marks a departure from their previous strategy of aggressive growth and reinvestment. The companies are also implementing significant job cuts and capital preservation measures, reflecting a new era of maturity and financial prudence in the tech industry. Despite strong stock performance, questions remain about where these companies can find significant future growth.
Berkshire Hathaway, led by Warren Buffett, reported a strong Q3 with a 41% growth in operating income. Despite the positive earnings, Buffett significantly reduced share buybacks compared to previous quarters, even though the company's cash reserves reached a record $157 billion. Buffett continues to favor investments in U.S. Treasuries over equities, as reflected in the company's capital allocation decisions. This decision aligns with the author's view of favoring fixed income investments amidst ongoing macro uncertainties.
McDonald's Corporation has announced a 10% increase in its quarterly cash dividend, reaffirming its commitment to shareholders. The company's new annualized dividend amounts to $6.68 per share, reflecting its confidence in its growth strategy. McDonald's has consecutively raised its dividend for 47 years and remains focused on reinvesting in the business for sustainable growth. The company plans to open over 1,900 restaurants globally in 2023, contributing to systemwide sales growth. Despite inflation challenges, McDonald's continues to enhance shareholder returns and expand its global footprint.
Sony has reduced its capital allocation for strategic investments, acquisitions, and share buybacks to $13.04 billion, freeing up more cash for its PlayStation games division and other segments. The move comes as Sony gears up for a record 25 million PS5 console production and shipment cycle, as well as major new first-party games across live services and dedicated console gaming. The spending spree is set to continue through FY23, reflecting continued spending on Sony's multi-platform games strategy, including live services, mobile games, and more PS5 titles, as well as continued payments for the Bungie acquisition and recognition of Sony's recent purchase of Firewalk studios.
