Here’s Why the Best is Yet to Come for Skyworks Solutions, Inc.

It’s been a great year for Skyworks Solutions (NASDAQ: SWKS), which supplies power amplifiers, front-end modules, and RF chips to a wide variety of markets. The company has soundly beat top and bottom line expectations for four straight quarters, and its stock has rallied more than 60% over the past 12 months. But looking ahead, Skyworks could still have room to run for five simple reasons.

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1. Apple’s upcoming iPhone

Skyworks supplies its chips to the mobile, automotive, broadband, wireless infrastructure, home automation, industrial, and military markets. But its biggest customer by far is Apple (NASDAQ: AAPL), which contributed 40% ofits revenues in fiscal 2016.

Image source: Apple.

This makes Skyworks a great supply chain play on the upcoming iPhone 8. Stifel Nicolaus analyst Aaron Rakers estimates thatApple will sell 224.7 million iPhones this year and 250.6 million units in 2018 — which would represent an impressive rebound from its first annual decline in 2016.

2. Content share gains in newer smartphones

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As the technology in smartphones improves, the number of power amplifiers, front-end modules, and RF chips per device increases. For example, an iFixit teardown of the iPhone 6s revealed twoSkyworks components inside, while the iPhone 7 teardown found fourcomponents.

Just over a year ago, Skyworks reported that it had a content share of $1 to $2 per 3G device, more than $3 per 4G device, and over $5 per “advanced” 4G device. But during lastquarter’s conference call, CEO Liam Griffin declared that certain high-end 4G devices were “approaching $8 to $10 in value,” spurred by the growing use of its SkyOne, DRx technology, and DC/DC technologies. Huawei, in particular, notably packed tenSkyworks modules into its latest Honor smartphones:

Image source: Skyworks’ Investor Presentation.

3. Better connections equal bigger content share gains

The main theme here is that fancier smartphones on faster networks will constantly boost Skyworks’ average content share per device. The smartphone market may seem saturated today, but Ericsson (NASDAQ: ERIC) Mobility estimates that thetotal number of mobile smartphone subscriptions worldwide will still rise from 3.9 billion in 2016 to 6.8 billion in 2022.

Within that total, Ericsson expects 4G/LTE subscriptions to rise from 1.9 billion to 4.6 billion, and for 5G subscriptions to grow from nothing today to 540 million. This represents a huge long-term growth opportunity for Skyworks, as smartphone volumes grow and its content share per device increases.

4. The Internet of Things is expanding

But over the next few years, Skyworks expects its dependence on Apple and other smartphone makers to wane as the total number of connected devices across the Internet of Things (IoT) surges. Skyworks believes that there will be over 25 billion connected devices worldwide by 2020 — a figure which would easily dwarf the smartphone market.

That growing market includes wearable devices, connected cars, drones, smart speakers, home automation devices, and headsets for augmented and virtual reality applications. Its modules are already used in stand-alone 4G smartwatches like Samsung‘s Galaxy Gear 3, connected cars like the new Jaguar F-Type, and Alphabet‘s Google OnHub router and smart home hub.

Image source: Skyworks Investor Presentation.

5. Growing margins, profits, and revenues

The RF module market generally isn’t considered a high-margin one, but Skyworks’ gross margins have gradually expanded over the past few years as it scaled up its operations.


That margin expansion, along with robust gains in shipment volumes and content share, are expected to boost the company’s top and bottom lines for the foreseeable future. Analysts expect Skyworks’ revenue torise 11% this year and another 10% next year. On the bottom line, its earnings are expected to rise 13% this year and another 14% in fiscal 2018.

Should you buy Skyworks today?

I previously highlighted Skyworks as one of the best Apple supplier plays on the market, and I still stand by that assessment. It’s also a solid long-term play on the Internet of Things market.To top it off, Skyworks’ current P/E of 22 is lower than the industry average of 26 for semiconductor makers, and it pays a forward dividend yield of 1.1%.

I believe those facts make Skyworks a compelling buy at current prices, but investors should still fully evaluate the risks — like an unexpected drop in iPhone sales or emerging competitors in the RF space — before buying any shares.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Skyworks Solutions. The Motley Fool has the following options: short November 2017 $95 calls on Skyworks Solutions and short November 2017 $92 puts on Skyworks Solutions. The Motley Fool has a disclosure policy.

Trump’s trip: Conventional images and unconventional talk

As he dashed through the Middle East and Europe, Donald Trump looked like a conventional American leader abroad. He solemnly laid a wreath at a Holocaust memorial in Jerusalem, had an audience with the pope at the Vatican and stood center stage with Western allies at the annual summits that dominate the diplomatic calendar.

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But when Trump spoke, he sounded like anything but a typical U.S. president.

On his first overseas tour, the new president made no attempt to publicly promote democracy and human rights in Saudi Arabia, instead declaring that he wasn’t there to lecture. In Israel and the West Bank, he pointedly did not back America’s long-standing support for a two-state solution to the intractable peace process. And in the heart of Europe, Trump berated NATO allies over their financial commitments and would not explicitly endorse the “one for all, all for one” defense doctrine that has been the cornerstone of trans-Atlantic security for decades.

To the White House, Trump’s first trip abroad was an embodiment of the promises he made as a candidate to put America’s interests first and break through the guardrails that have long defined U.S. foreign policy. Trump advisers repeatedly described the trip as historic and groundbreaking, including one senior official who brashly said without evidence that Trump had “united the entire Muslim world.”

Addressing U.S. troops Saturday at a Sicilian air base moments before departing for Washington, Trump himself declared: “I think we hit a home run.”

Trump boarded Air Force One without having held a single news conference on the trip — a break in presidential precedent that allowed him to avoid facing tough questions about his foreign policy or the raging controversies involving the investigations into his campaign’s possible ties to Russia. Instead, the White House hoped to let the images of Trump in statesman-like settings tell the story of his first trip abroad, and perhaps ease questions about his preparedness for the delicate world of international diplomacy.

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Yet those questions are sure to persist, particularly given Trump’s remarkable lashing of NATO allies in Brussels. Standing alongside his counterparts, the president effectively accused countries who do not meet NATO’s goal of spending 2 percent of their gross domestic product of sponging off American taxpayers. He left some allies, already nervous about Russia’s saber-rattling and Trump’s public affection for Russian President Vladimir Putin, further flummoxed when he ended his remarks without making an explicit statement of support for Article 5, the common defense clause that underpins the 68-year-old military alliance.

“The mood of Article 5, the idea that we are all in this together, is not the mood he conveyed,” said Jon Alterman, a senior vice president at the Center for Strategic and International Studies in Washington. “The mood he conveyed is you guys are a bunch of freeloaders.”

Some European leaders believe Trump can still be coaxed away from his controversial campaign positions. At the Group of 7 summit in the coastal town of Taormina, leaders launched an aggressive, behind-the-scenes campaign to get him to stay in the Paris climate accord.

While Trump emerged from the summit without a final decision on the Paris pact, he declared in a tweet Saturday that he will make a final decision next week.

Trump’s return home also shifts attention back to the storm clouds of scandal hovering over the White House. In a briefing with reporters Saturday, White House officials shifted uncomfortably and refused to comment when asked about reports that Jared Kushner, Trump’s son-in-law and senior adviser, tried to set up secret communications with Russia after the election.

Trump’s nine-day, five-stop international tour resulted in few tangible policy achievements. The U.S. inked a $110 billion arms sale to Saudi Arabia and unveiled numerous business commitments in the region, though the White House never provided specific details about the scope of the agreements. At NATO, the White House touted the alliance’s commitment to boosting defense spending, though the resolution was essentially a continuation of a pact agreed to two years earlier.

Still, the trip offered the clearest picture to date of how Trump plans to put his imprint on America’s relationship with the world.

From the start, he set a new direction. Instead of following presidential tradition by making his international debut in a neighboring democracy like Canada or Mexico, Trump flew to Saudi Arabia, the repressive desert kingdom.

He appeared particularly comfortable in the setting. In Riyadh, he received a lavish, gold-plated welcome: His image was projected across the facade of the luxury hotel where he stayed, horses flanked his motorcade as it moved to one of the king’s desert palaces and an extravagant celebration was held in his honor, complete with a traditional Saudi sword dance.

Trump betrayed no awkwardness at relishing the warm embrace of one of the world’s most oppressive governments. Instead, he reciprocated with a pledge to not publicly chastise the ruling royal family for its crackdown on political dissent.

“We are not here to lecture — we are not here to tell other people how to live, what to do, who to be, or how to worship,” Trump said.

Trump was lavishly feted in Israel as well, embraced by a prime minister who despised his predecessor and was eager to flatter the new president. Trump received multiple standing ovations — one of his favorite measures of success — during a speech on U.S. relations with Israel. The photo of his solemn visit to the Western Wall was splashed across the front pages of Israel’s newspapers.

Like many of his predecessors, Trump made a personal appeal for peace between Israelis and Palestinians. But he never uttered the words “two-state solution,” the longtime U.S. policy plan that would create a separate homeland for Palestinians. He also made no mention of new Jewish settlements in the West Bank, a major point of contention for the Palestinians.

The smaller moments of the president’s trip were endlessly dissected as well, from first lady Melania Trump’s apparent reluctance to hold her husband’s hand on occasion to his shoving aside of Montenegro’s prime minister to get to the front of a pack of leaders at a NATO photo opportunity. At the G-7, it was Trump’s interactions with other leaders that commanded attention.

The six other heads of state took a short walk from one event to the next, chatting convivially as they strolled through the narrow Sicilian streets. Trump hung back, deciding against joining his peers.

Instead, he got in a golf cart and the American president’s mini-motorcade drove the route alone, Trump once more having charted his own course.


Follow Julie Pace at and Jonathan Lemire at

BA outage creates London travel chaos; power issue blamed

British Airways canceled all flights from London’s Heathrow and Gatwick airports on Saturday as a global IT failure upended the travel plans of tens of thousands of people on a busy U.K. holiday weekend.

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The airline said it was suffering a “major IT systems failure” around the world. Chief executive Alex Cruz said “we believe the root cause was a power-supply issue and we have no evidence of any cyberattack.”

He said the crash had affected “all of our check-in and operational systems.”

BA operates hundreds of flights from the two London airports on a typical day — and both are major hubs for worldwide travel.

Several hours after problems began cropping up Saturday morning, BA suspended flights up to 6 p.m. because the two airports had become severely congested. The airline later scrapped flights from Heathrow and Gatwick for the rest of the day.

The airline said it was working to restore services out of Heathrow and Gatwick beginning Sunday, although some disruptions are expected. It said it expected that London-bound long-haul flights would land on schedule Sunday.

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The problem comes on a bank holiday weekend, when tens of thousands of Britons and their families are travelling.

Passengers at Heathrow reported long lines at check-in counters and the failure of both the airline’s website and its mobile app. BA said the crash also affected its call centers.

Passenger Phillip Norton tweeted video of an announcement from a pilot to passengers at Rome’s Fiumicino airport, saying the problem affects the system that regulates what passengers and baggage go on which aircraft. The pilot said passengers on planes that have landed at Heathrow were unable to get off because there was nowhere to park.

One person posted a picture on Twitter of BA staff writing gate numbers on a white board.

“We’ve tried all of the self-check-in machines. None were working, apart from one,” said Terry Page, booked on a flight to Texas. “There was a huge queue for it and it later transpired that it didn’t actually work, but you didn’t discover that until you got to the front.”

Another traveler, PR executive Melissa Davis, said her BA plane was held for more than 90 minutes on the tarmac at Heathrow on a flight arriving from Belfast.

She said passengers had been told they could not transfer to other flights because “they can’t bring up our details.”

Some BA flights were still arriving at Heathrow on Saturday, although with delays.

American Airlines, which operates code-share flights with BA, said it was unaffected.

Air industry consultant John Strickland said Saturday’s problems would have “a massive knock-on effect” for several days.

“Manpower, dealing with the backlog of aircraft out of position, parking spaces for the aircraft —it’s a challenge and a choreographic nightmare,” he said.

Airlines depend on huge, overlapping and complex IT systems to do just about everything, from operating flights to handling ticketing, boarding, websites and mobile-phone apps. Some critics say complex airline technology systems have not always kept up with the times.

And after years of rapid consolidation in the business, these computer systems may be a hodgepodge of parts of varying ages and from different merger partners, all layered on top of each other.

A union official, meanwhile, blamed BA cost cutting for the travel chaos, saying the airline had laid off hundreds of IT staff last year and outsourced the work to India.

“This could have all been avoided,” said Mick Rix, national officer for aviation at the GMB union.

While not that frequent, when airline outages do happen, the effects are widespread, high-profile and can hit travelers across the globe.

BA passengers were hit with severe delays in July and September 2016 because of problems with the airline’s online check-in systems.

In August 2016, Delta planes around the world were grounded when an electrical component failed and led to a shutdown of the transformer that provides power to the airline’s data center. While the system moved to backup power, not all of the servers were connected to that source, which caused the cascading problem.

Delta said it lost $100 million in revenue as a result of the outage. In January it suffered another glitch that grounded flights in the U.S. That same month, United also grounded flights because of a computer problem.

In July, meanwhile, Southwest Airlines canceled more than 2,000 flights after an outage that it blamed on a failed network router.

After the recent outages, outside experts have questioned whether airlines have enough redundancy in their huge, complex IT systems and test them frequently enough.


AP Technology Writer Ortutay reported from New York.

Why I Won’t Go Near Brick-and-Mortar Apparel Stocks Right Now

Last week, investors experienced a violent sell-offfor many department-store apparel retailers after some companies posted earnings. Macy’s (NYSE: M), Kohl’s, Nordstrom (NYSE: JWN), J.C. Penney (NYSE: JCP), Sears, and Ascena Retail Group all took a beating, down between 10% and 30% in just one week.

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The catalysts were earnings reports from several names, although not every company mentioned reported. Still, almost any retailer primarily selling full-priced apparel was sold off, as investors concluded that these companies are all in secular decline. And while many value vultures may be looking at these names right now, I’d stay away for several reasons.

Image source: Getty Images.

Looks can be deceiving

A secular decline is dangerous, because it makes the stocks in question look cheap, with low price-to-earnings and price-to-book ratios, along with high dividend yields. But there is no telling how quick or severe the pain will be, as evidenced by continued same-store sales declines across the board.

For instance, activist investor Starboard Value LP took a position in Macy’s back in July of 2015, at around $65 per share. Its thesis was that Macy’s owned real estate that by itself was worth more than its market capitalization. Starboard proposed selling off Macy’s properties and leasing them back. Greenlight Capital, another prominent hedge fund run by David Einhorn, also took a position in 2016 at around $45 a share.

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The problem with this theory was that a) if Macy’s stayed in these locations it would have to pay rents, and b) even if Macy’s vacated, the locations were retail spaces that would have to be filled by someone else. Judging by the performance across the sector, it would difficult to find a dependable tenant when everyone was closing stores.

In March, Starboard exited its position, eating a 60% loss. Greenlight exited in January for a smaller, yet still unpleasant, 30% loss.

This is what happens when value investors mistake a turnaround for a secular decline: embarrassing losses. You might think that with Macy’s trading at around $23.60 and the yield over 6%, the bottom is in. But as Clint Eastwood said in Dirty Harry: “Do you feel lucky?”

Even good management can’t do anything

In 1988 Warren Buffett quipped: “With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”

Returning to Macy’s — my punching bag for this article, although my argument could apply to all the other names as well — new CEO Jeff Gennette seems to have an intelligent, well-thought-out, and appropriate strategy. The company reduced head count, is closing unprofitable stores, and is experimenting with new formats in women’s shoes and jewelry. Macy’s also opened up its own discounted format, Macy’s Backstage, which will feature off-price merchandise, and it is expanding e-commerce.

This seems prudent: People are buying fewer full-priced clothes, so the move to footwear and jewelry is wise. When they do buy clothes, they increasingly look for deals. This has given rise to off-price retailers such as TJX Companies‘ T.J. Maxx, Ross Stores, and Burlington Stores.

The problem is that all of these moves are easily replicated. What’s to stop Kohl’s or Nordstrom from also stocking more footwear and watches? Every retailer out there is developing more robust e-commerce initiatives (usually carrying lower margins), and as customers order more online, companies will suffer sales deleverage from fixed rent and labor costs.

Also, Macy’s is late to the off-price game, a few years behind Nordstrom, which unveiled Nordstrom Rack years ago. Off-price stores can also possibly diminish the larger, more profitable division, so there is cannibalization risk. Finally, if everyone is discounting, why wouldn’t customers go to the stores known for the biggest discounts: Wal-Mart or Amazon?

The big problem

Keep in mind: The terrible results are happening in an economy that is nearing full employment and where consumer spending is actually good — U.S. retail sales actually grew 0.1% in March and 0.4% in April. Imagine what would happen in a recession.

It’s perhaps fitting that Amazon CEO Jeff Bezos summed up the problem well: “All businesses need to be young forever. If your customer base ages with you, you’re Woolworth’s.” Department stores have been late to adjust to a population that increasingly seeks discounts, and a millennial generation that craves “experiences” and the convenience of shopping online.

Bottom line: Some of these retailers will survive, but it’s hard to pick any winners, and even the survivors are likely to be much smaller companies than they are today. Why play with fire?

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Billy Duberstein owns shares of, and The Motley Fool owns shares of and recommends, Amazon. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.

Jet owned by Elvis auctioned after sitting 30 years

A private jet once owned by Elvis Presley has been auctioned after sitting on a runway in New Mexico for 30 years.

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The plane sold for $430,000 on Saturday at an Agoura Hills, California, event featuring celebrity memorabilia, GWS Auctions Inc. said.

The buyer was not disclosed in the sold note posted on the firm’s website. GWS Auctions managing member and lead auctioneer Brigitte Kruse did not immediately return a call for additional information.

The auction house says Elvis designed the interior that has gold-tone woodwork, red velvet seats and red shag carpet. But the red 1962 Lockheed Jetstar has no engine and needs a restoration of its cockpit.

The 1962 red Lockheed JetStar was owned by Elvis and his father, Vernon Presley, says.

It has been privately owned for 35 years and sitting on a tarmac in Roswell, New Mexico.

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Photos of the plane show the exterior in need of restoration and seats of the cockpit torn.

A previous owner of the private jet disputed the auction house’s claim the king of rock ‘n’ roll designed its red velvet interior.

Roy McKay told KOB-TV in Albuquerque on Tuesday he designed the interior himself. McKay said that when he purchased the red 1962 Lockheed Jetstar, it had a two-toned gray interior and “kind of looked like a casket.”

But then-GWS spokesman Carl Carter told The Associated Press the auction house is confident Elvis designed the interior, which photos show has red velvet seats and red shag carpet.

Federal Aviation Administration records show no interior changes were ever made to the jet, Carter said.

Presley was born in Tupelo on Jan. 8, 1935, and moved to Memphis with his parents at age 13. He became a leading figure in the fledgling rockabilly scene by covering songs originally performed by African-American artists like Big Mama Thornton (“Hound Dog”) and Arthur Crudup (“That’s All Right”).

His provocative dancing and hit records turned him into one of the 20th century’s most recognizable icons. Historians say his music also helped usher in the fall of racial segregation.

Elvis was 42 when he died on Aug. 16, 1977, in Memphis.

Slim seeks to sell minority stake in tower company Telesites: sources

Billionaire Carlos Slim is looking to sell a minority stake in Telesites SAB de CV (SITESB1.MX), the Mexican wireless tower company that he controls, people familiar with the matter said on Friday.

The move comes 18 months after sweeping regulatory reforms forced Slim to spin off Telesites from telecommunications company America Movil SAB de CV (AMXL.MX). Telesites shares have risen only slightly since then, as the company struggles to diversify beyond America Movil as its main client.

Slim and family members own about 61 percent of the shares, according to Telesites’ annual report.

Slim is speaking to private equity firms, sovereign wealth funds and infrastructure funds about selling the stake without giving up control of Telesites, the people said this week.

The sources requested anonymity because the talks are confidential and cautioned that a deal was not certain.

Telesites declined to comment. A representative for Slim, whose net worth is pegged by Forbes at $65 billion, also declined to comment.

Since its spin-off in December 2015, Telesites has been unable to attract many tenants to the towers besides America Movil and its mobile unit, Telcel. It competes with American Tower Corporation (AMT.N) in Mexico.

“We see little progress in third-party usage of Telesites’ towers,” Itau BBA analyst Gregorio Tomassi said in a May 3 research note. It noted that ATT, another wireless player in Mexico, has not increased its demand for Telesites towers.

Private equity firms have traditionally invested in tower companies for their steady cash flows. Buyout firm KKR Co LP (KKR.N) bought a 40 percent stake in Spain’s Telefonica SA’s (TEF.MC) tower subsidiary Telxius earlier this year for 1.275 billion euros.

Telesites has a market capitalization of 38.52 billion Mexican pesos ($2 billion). The shares closed at 11.440 pesos on Friday on the Mexican stock exchange.

(Reporting by Liana B. Baker in San Francisco; Additional reporting by Anthony Esposito in Mexico City; Editing by Richard Chang)

In Aramco IPO pitch, Canada plays up its natural resources expertise

((This May 26th story corrects paragraph 12 to show Falih was speaking at news conference not to Reuters and adds comment on listing))

By Alastair Sharp

TORONTO The Toronto Stock Exchange’s efforts to win a slice of the massive Saudi Aramco public listing plays up the country’s deep experience in natural resources as part of a broader offer to help the kingdom with its shift away from oil dependence.

In pitch documents obtained by Reuters, the TSX talks up “a customized regulatory environment for resource issuers”, its leading position in oil and gas equity capital raising, and strong trading interest from outside the country.

The Canadian pitch is also broader than just for a slice of the Aramco IPO. On several trips to the kingdom, the most recent in late March, TMX executives have been joined by senior executives from some of the country’s biggest banks, brokerages and other financial players as Canada Inc seeks a role in delivering the kingdom’s broader Vision 2030 plan.

One source directly involved in the Canadian pitch told Reuters they are focused on convincing the Saudis that Canada excels in 10 of the 12 areas they have targeted for development under that plan, including in mining and infrastructure. The source declined to be named due to the sensitivity of the matter.

“We feel that we have put TMX and Canada’s best foot forward and we continue to promote our strengths in pursuit of business opportunities in the region and around the world,” TMX said in a statement.

But its best chance of winning a part of the biggest IPO ever, expected to raise about $100 billion as early as next year, may lie in its geography and geopolitics, securities lawyers say.

While the exchange, owned by the TMX Group Ltd, is widely considered an underdog in a race that has also excited larger exchanges in London, New York, Tokyo, Hong Kong and Singapore its case could be bolstered by a recent change in U.S. law that allows those affected by the September 11, 2001 attacks to sue the Saudi government, they said.

“We are inoffensive from a political perspective,” said Sarah Gingrich, a Calgary-based partner at Fasken Martineau, who has previously worked in Dubai with Saudi clients for international law firm Freshfields.

That law, the Justice Against Sponsors of Terrorism Act, came into effect in September, after the U.S. Congress overrode a veto by former President Barack Obama.

A group of insurers has since renewed a $6-billion lawsuit against the kingdom, seeking to hold it responsible for business and property damage as a result of the attacks, in which Saudi has long denied involvement.

In a March 17 interview with the Wall Street Journal, the Saudi energy minister, Khalid al-Falih, said the so-called “terror law” is one consideration in the country’s decision on whether to list in the United States.

Falih, who is Aramco’s chairman, declined to comment on the specifics of the IPO process at a recent news conference in Riyadh, citing legal restrictions. However, he said the Saudi government still intended to list Aramco in 2018 and that the preparations were on track.

It was not clear if the issue was discussed during U.S. President Donald Trump’s recent visit.

A spokeswoman for the NYSE, which sources have said planned to visit Saudi soon after Trump’s visit, declined to comment on their efforts to win Aramco’s business.

Nasdaq, which is a technology partner to Saudi Arabia’s exchange, is also pitching for the listing, while the London Stock Exchange is working on a completely new type of listing structure to woo Aramco, Reuters has reported.


Canada-listed oil and gas companies raised 22 percent of global energy financing over the past five years, the TMX pitch documents show, second behind the NYSE’s 44 percent.

The documents put Canada in third place behind Chinese and Hong Kong exchanges, and the United States for total capital raised in 2016, noting that TSX-listed companies raised 28 percent more than fourth-placed LSE.

They say more than 40 percent of TSX trading originates outside the country and that bid-ask spreads, a key measure of liquidity, are among the lowest in the world.

Still, while Canada boasts significant expertise in oil and gas financing and strong interest from both institutional and retail investors, it is dwarfed by the much larger U.S. market.

The oil and gas companies listed on its main TSX exchange and the junior TSXV have a total market capitalization of C$325 billion ($239 billion), TMX says.

By comparison, the New York Stock Exchange says its oil and gas companies – which include super majors ExxonMobil Corp, Chevron and secondary listings for Royal Dutch Shell and Total – are worth $3.3 trillion.

Neither the source in the TMX delegation nor the external lawyers said listing and regulatory requirements would prove much of an obstacle to a Canadian listing, especially if it were to be a third or fourth option.

But Canada would only find a way in to the action “if their (Aramco’s) bankers think they will get sufficient enough market interest here that it will help promote the stock price and give them some liquidity and trading,” said Darrell Peterson, a partner with Bennett Jones in Calgary.

(Reporting by Alastair Sharp; Additional reporting by John McCrank in NEW YORK, Reem Shamseddine in RIYADH; Editing by Denny Thomas/Nick Zieminski/David Clarke)

China’s reforms not enough to arrest mounting debt: Moody’s

BEIJING China’s structural reforms will slow the pace of its debt build-up but will not be enough to arrest it, and another credit rating cut for the country is possible down the road unless it gets its ballooning credit in check, officials at Moody’s said.

The comments came two days after Moody’s downgraded China’s sovereign ratings by one notch to A1, saying it expects the financial strength of the world’s second-largest economy to erode in coming years as growth slows and debt continues to mount.

In announcing the downgrade, Moody’s Investors Service also changed its outlook on China from “negative” to “stable”, suggesting no further ratings changes for some time.

China has strongly criticized the downgrade, asserting it was based on “inappropriate methodology”, exaggerating difficulties facing the economy and underestimating the government’s reform efforts.

In response, senior Moody’s official Marie Diron said on Friday that the ratings agency has been encouraged by the “vast reform agenda” undertaken by the Chinese authorities to contain risks from the rapid rise in debt.

However, while Moody’s believes the reforms may slow the pace at which debt is rising, they will not be enough to arrest the trend and levels will not drop dramatically, Diron said.

Diron said China’s economic recovery since late last year was mainly thanks to policy stimulus, and expects Beijing will continue to rely on pump-priming to meet its official economic growth targets, adding to the debt overhang.


Moody’s also is waiting to see how some of the announced measures, such as reining in local government finances, are actually implemented, Diron, associate managing director of Moody’s Sovereign Risk Group, told reporters in a webcast.

China may no longer get an A1 rating if there are signs that debt is growing at a pace that exceeds Moody’s expectations, Li Xiujun, vice president of credit strategy and standards at the ratings agency, said in the same webcast

“If in the future China’s structural reforms can prevent its leverage from rising more effectively without increasing risks in the banking and shadow banking sector, then it will have a positive impact on China’s rating,” Li said.

But Li added: “If there are signs that China’s debt will keep rising and the rate of growth is beyond our expectations, leading to serious capital misallocation, then it will continue to weigh on economic growth in the medium term and impact the sovereign rating negatively.”

“China may no longer suit the requirement of A1 rating.”

Li did not give a specific target for debt levels nor a timeframe for further assessments.

Moody’s expects China’s growth to slow to around 5 percent in coming years, from 6.7 percent last year, compounding the difficulty of reducing debt. But Diron said the economy will remain robust, and the likelihood of a hard landing is slim.

After Moody’s downgrade, its rating for China is on the same level as that on Fitch Ratings, with Standard Poor’s still one notch above, with a negative outlook.

On Friday, Fitch said it is maintaining its A+ rating. Andrew Fennel, its direct of sovereign ratings, noted China’s “strong macroeconomic track record”, but said that its growth “has been accompanied by a build-up of imbalances and vulnerabilities that poses risks to its basic economic and financial stability”.


Government-led stimulus has been a major driver of China’s economic growth over recent years, but has also been accompanied by runaway credit growth that has created a mountain of debt – now at nearly 300 percent of gross domestic product (GDP).

Some analysts are more worried about the speed at which the debt has accumulated than its absolute level, noting much of the debt and the banking system is controlled by the central government.

UBS estimates that government debt, including explicit and quasi-government debt, rose to 68 percent of GDP in 2016 from 62 percent in 2015, while corporate debt climbed to 164 percent of GDP in 2016 from 153 percent the previous year.

A growing number of economists believe that a massive bank bailout may be inevitable in China as bad loans mount. Last September, the Bank for International Settlements (BIS) warned that excessive credit growth in China signaled an increasing risk of a banking crisis within three years.


The Moody’s downgrade was seen as largely symbolic because China has relatively little foreign debt and local markets are influenced more by domestic factors, with many companies enjoying stronger credit ratings from home-grown agencies than they would in the West.

Still, the rating demotion highlighted investor worries over whether China has the will and ability to contain rising risks stemming from years of credit-fueled stimulus, without triggering financial shocks or dampening economic growth.

China has vowed to lower debt levels by rolling out measures such as debt-to-equity swaps, reforming state-owned enterprises (SOEs) and reducing excess industrial capacity.

In recent months, regulators have issued a flurry of measures to clamp down on the shadow banking sector while the central bank has gingerly raised short-term interest rates.

But moves so far have been cautious, especially heading into a key political leadership reshuffle later this year.

The autumn’s Communist Party Congress is President Xi Jinping’s most important event of the year, where a new generation of up and coming leaders will be ushered into the Standing Committee, China’s elite ruling inner core.

But party congresses are always tricky affairs, as different power bases compete for influence, so the government will be keen to ensure there are no distractions like financial or economic problems or diplomatic confrontations.

(Additional reporting by Ben Blanchard and Elias Glenn; Editing by Kim Coghill and Richard Borsuk)

U.S. economy slowed less than expected in first quarter; outlook cloudier

WASHINGTON The U.S. economy slowed less than initially thought in the first quarter, but softening business investment and moderate consumer spending are clouding expectations of a sharp acceleration in the second quarter.

Gross domestic product increased at a 1.2 percent annual rate instead of the 0.7 percent pace reported last month, the Commerce Department said on Friday in its second GDP estimate for the first three months of the year.

That was the worst performance in a year and followed a 2.1 percent growth rate in the fourth quarter.

“Economic indicators so far aren’t entirely convincing on a second-quarter bounce in activity and show a U.S. economy struggling to surprise on the upside,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

The first-quarter weakness is a blow to President Donald Trump’s ambitious goal to sharply boost economic growth.

During the 2016 presidential campaign Trump had vowed to lift annual GDP growth to 4 percent, though administration officials now see 3 percent as more realistic.

Trump has proposed a range of measures to spur faster growth, including corporate and individual tax cuts. But analysts are skeptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labor shortages in some areas.

“If the economy is going to grow at 3 percent for as long as the eye can see, businesses better spend lots of money on capital goods. That is not happening,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The economy’s sluggishness, however, is probably not a true reflection of its health, as first-quarter GDP tends to underperform because of difficulties with the calculation of data that the government is working to resolve.

The government raised its initial estimate of consumer spending growth for the first quarter, but said inventory investment was far smaller than previously reported. The trade deficit also was a bit smaller than estimated last month.

Economists had expected that GDP growth would be revised up to a 0.9 percent rate. Despite the tepid growth, the Federal Reserve is expected to raise interest rates next month.

The dollar was trading slightly higher against a basket of currencies on Friday, while U.S. stocks were flat after six straight days of gains. Prices for longer-dated U.S. government bonds rose.


Though the economy appears to have regained some speed early in the second quarter, hopes of a sharp rebound have been tempered by weak business spending, a modest increase in retail sales last month, a widening of the goods trade deficit and decreases in inventory investment.

In a second report on Friday, the Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, were unchanged in April for a second straight month.

Shipments of these so-called core capital goods dipped 0.1 percent after rising 0.2 percent in March. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement.

Second-quarter GDP growth estimates range between a rate of 2.0 percent and 3.7 percent rate.

“It looks instead that many companies may be delaying their equipment purchases for now to see if they get a better tax deal later on down the road,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The GDP report also showed an acceleration in business spending equipment was not as fast as previously estimated. Spending on equipment rose at a 7.2 percent rate in the first quarter rather than the 9.1 percent reported last month.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a 0.6 percent rate instead of the previously reported 0.3 percent pace. That was still the slowest pace since the fourth quarter of 2009 and followed the fourth quarter’s robust 3.5 percent growth rate.

With consumer sentiment hovering at lofty levels, consumer spending could pick up. But there are worries that surging household debt could cut into spending as monthly repayments squeeze paychecks.

Businesses accumulated inventories at a rate of $4.3 billion in the last quarter, rather than the $10.3 billion reported last month. Inventory investment increased at a $49.6 billion rate in the October-December period.

Inventories subtracted 1.07 percentage point from GDP growth instead of the previously estimated 0.93 percentage point.

The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 2.5 percent in the first quarter, hurt by legal settlements, after rising at a 2.3 percent pace in the previous three months.

Penalties imposed by the government on the U.S. subsidiaries of Credit Suisse and Deutsche Bank related to the sale of mortgage-backed securities reduced financial corporate profits by $5.6 billion in the first quarter.

In addition, a fine levied on the U.S. subsidiary of Volkswagen (VOWG_p.DE) related to violations of U.S. environmental regulations cut $4.3 billion from non-financial corporate profits.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Switch it up this year: Buy in May, till November stay

NEW YORK “Sell in May and go away” is perhaps the oldest saw on Wall Street, but it appears there’s no shortage of U.S. mutual funds doing exactly that this year.

After all, the SP 500 .SPX has delivered a total return, including reinvested dividends, of 10.8 percent over the last six months, essentially capturing all of the average rolling 12-month total return on the index since 1990, so why not cash in?

Indeed, political drama and high valuations are clearly driving some investors to take profits. American fund investors have yanked more than $17 billion from U.S. stocks so far this month, data from fund tracker Lipper shows, with some $10.1 billion in withdrawals in the latest week alone, the second biggest outflow for the year.

Some hearty investors, however, stand ready to bet against that flow – and history – and are advocating a buy-in-May approach this year.

“If anything you might want to buy in May and sell in November,” said Chris Zaccarelli, Chief Investment Officer at Cornerstone Financial Partners, in Huntersville, North Carolina, who bases his bullishness on the healthy outlook for the global economy rather than expectations for a policy boost from the Trump administration.

While stocks appear to have priced in hope for a Trump stimulus this year, Zaccarelli says his expectations for progress on Trump’s agenda in 2017 has recently tumbled to 40/60 from 80/20 because he doesn’t see Trump gaining enough support from a severely divided Republican party, which suggests to him that selling will be more opportune a few months down the road.

“If we go the entire year and Washington does nothing, no tax reform, no repatriation, I think there will be a little disappointment,” he said. “Ironically enough, the disappointment will be in November or December because people will realize they went the whole year and got nothing done.”


The sell-in-May tactic has been kicked around Wall Street for decades and is premised on the historic outperformance of the November-May period over the other six months of the year. It works.

In the last 20 years, a $100 investment in the SP from November through April would have become $343 while a $100 investment in May through October in the same years would have slipped to $98.5, according to Bespoke Investment Group, in Harrison, New York.

From 1928 to 2017 the $100 would have become $4,270 from November through April but would only be worth $257 from investing from May through October, according to Bespoke.

In the summer months “things slow down so you tend to see the chances for a pickup in volatility. That’s usually accompanied by weakness in the market,” according to Paul Hickey, Co-founder of Bespoke Investment Group, LLC who is not selling now as he still has “a positive view toward equities.”

Other factors that can drive a summer lull include a corporate tendency to hold stock-boosting investor meetings early or late in the year, a reduction of over-optimistic analyst estimates around mid-year, and a boost just ahead of the end-of-year holiday shopping season, says Linda Bakhshian, portfolio manager at Federated Investors in Pittsburgh.

John Augustine, Chief Investment Officer at Huntington National Bank in Columbus, Ohio said he is “taking the opposite tack to “sell in May” and moving into U.S. small and mid cap stocks which have underperformed large caps so far this year.

The small cap Russell 2000 index has risen just 1.8 percent year-to-date compared with 7.8 percent for the SP 500, 6.6 percent for the Dow Jones Industrial Average .DJI and 15.3 percent for Nasdaq Composite .IXIC.

“To sell we’d need a Fed that’s more hawkish than expected mixed with economic data that’s weaker than expected. That combination could give us a domestic stock sell off this summer. But markets have discounted that this week based after Fed minutes, thinking the Fed would stay dovish this Summer,” said Augustine.

(Reporting by Sinead Carew; editing by Dan Burns and Andrew Hay)