🚁 Defense Companies Are Making a Fortune

MARKET UPDATE

Good Morning Investor! Shares of Packaging Corp Of America ($PKG) rallied over 3% on Monday after several brokerages award the company a “Hold” rating. Meanwhile, shares of the biggest AI winners Super Micro Computer ($SMCI) and Nvidia ($NVDA) sold off 7% and 5% respectively after news emerged of Nvidia CEO Jensen Huang has sold an additional $95 million worth of shares in the company.

TODAY’S BIG HEADLINES

Defense Companies Are Making a Fortune

Corporate Green Promises are Falling by the Wayside

Apple Could Be Fined 10% of its Revenue by the EU After Being Charged

DEFENSE & MILITARY

Defense Companies Are Making a Fortune🚁

Layoffs & Hiring Sprees: Given the current geopolitical climate, it should come as no shock that defense companies are making it rain profits and sitting on a backlog of orders not seen since the Cold War. This surge in demand is leading to a significant hiring spree.

• This is juxtaposed to the mass layoffs seen across both the tech and corporate sectors across America, thanks to the influx of orders for their vehicles, aircraft, and weaponry.

Defense Sector Delight: 2023 was a blockbuster year for the defense sector, with global defense spending hitting a jaw-dropping $2.4 trillion. This has led to record-breaking order books for many defense companies, prompting some to boost their workforce by as much as 10%.

• To put things in perspective, heavyweights like Lockheed Martin ($LMT), Northrop Grumman ($NOC), and General Dynamics ($GD) have around 6,000 open positions combined. Additionally, ten smaller firms in the industry are collectively looking to fill 37,000 jobs.

Investor’s Quandary: The million-dollar question: Will this surge in demand translate to stellar returns for shareholders? So far, the answer seems to be a resounding "meh." Despite all the positive news, the iShares US Aerospace & Defense ETF ($ITA)—an index tracking the sector—has only returned a modest 7% year-to-date, roughly half the return of the S&P 500.

• Boeing ($BA) and Northrop Grumman have both seen their stock prices dip this year, while Lockheed Martin is barely in the green.

• On the flip side, European defense companies are laughing all the way to the bank, posting some of the best returns worldwide, thanks to a surge in defense spending by European governments upping their budget allocations.

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CLIMATE CHANGE & ESG

Corporate Green Promises are Falling by the Wayside👋

From Promises to Fairy Tales: Corporate America’s climate pledges are starting to resemble a Pixar movie plot—heartwarming and inspiring, but far from reality. Despite grand promises to cut carbon emissions, many corporations seem to be heading in the opposite direction.

• Big names like Unilever ($UL), Bank of America ($BAC), and Shell ($SHEL) have either missed their environmental targets or abandoned them entirely, citing unrealistic goals.

• The main culprits? Sky-high transition costs, a lack of cutting-edge technologies, and the sheer difficulty of implementing such changes.

Numbers behind the Carbon: The data tells a dismal story. Out of 1,045 companies, 230 have failed to submit their promised targets.

• Even among 51 major companies that have pledged to reduce emissions by 30% by 2030, the effort falls short. The IPCC recommends a 43% global reduction to keep warming within 1.5°C above pre-industrial levels, making these corporate promises look like mere fairy tales in comparison.

MEGA CAPS & REGULATION

Apple Could Be Fined 10% of its Revenue by the EU After Being Charged💸

First Domino to Fall: Tech titan Apple ($AAPL) has officially become the first big tech company to be charged with violating the EU’s Digital Markets Act (DMA). The culprit? Its app store’s “steering” policies. Margrethe Vestager, the head of the EU’s competition policy, quipped, “Our preliminary position is that Apple does not fully allow steering.”

• Steering, a key concept in promoting competition, ensures that app developers are less shackled by gatekeepers’ app stores and that consumers can find better deals elsewhere.

• Apple’s under the microscope for its lackluster support of alternative iOS marketplaces in Europe and the hefty fees it charges developers.

Guard Rails Down: The essence of steering is simple: gatekeepers must let app developers direct consumers to offers outside their app stores, no strings attached. Apple isn’t alone in this hot seat. Tech giants Amazon ($AMZN), Alphabet ($GOOG), Meta ($META), Microsoft ($MSFT), and China’s ByteDance might soon find themselves in similar situations.

• Apple has a window to respond to the European Commission’s preliminary assessment before the final ruling in March 2025. A final infringement verdict could hit Apple with a fine of up to 10% of its annual global revenue—roughly $38 billion based on last year’s numbers. Stay tuned, this showdown is just getting started!

MORE NEWS

Additional market-moving events🌎

AI Arms Races: TikTok’s parent company ByteDance is reportedly working with chip maker Broadcom ($AVGO) to develop an advanced AI chip. The new 5 nanometre chip would be compliant with U.S. export restrictions. (CNBC)

Shein’s US IPO to be Canned: Seven months after filing for a US initial public offering (IPO), experts say the Chinese fashion titan shifted its public listing to London due to regulatory setbacks, abandoning its plans for a US IPO. (CNBC)

Iphone-Meta AI: Apple ($AAPL) and Meta ($META) are in talks over the potential integration of Meta’s Llama AI model into Apple Intelligence. (WSJ)

Target-Shopify partnership: Target ($TGT) has partnered with Shopify ($SHOP) to add new brands to its third-party marketplace. (TechCrunch)

OUR PICKS

Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500. Then on the 10th of June we released our next stock selection.

Here’s how the three stocks have performed since:

• Evolution AB: 1,109.00 SEK (📉-15.50%)

• Hims & Hers Health: $22.43 (📈+55.10%)

• PayPal: $59.63 (📉-7.94%)

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