Markus Andrews

Having a diversified portfolio means you should have some of your money in bonds.
Bonds can not only offer some protection against market volatility, but they also generate income.
Morningstar gives some of its top bond funds.

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Having a diversified portfolio means you should have some of your money in bonds. The assets can offer not not some protection against market volatility, but also generate income.
Yet deciding how to construct the fixed income portion of your portfolio may seem confusing, especially after the bond rout in 2022 and continued volatility last year. In October, the 10-year Treasury yield crossed 5%. Bond yields move inversely to prices, so when yields rise, prices decline.

This year, investors are closely watching the Federal Reserve to see if and when it will begin to cut interest rates.
“As the Fed pivots toward cutting rates, stock and bond returns should once again move in opposite directions, re-establishing a mix of the two as an attractive risk-return profile,” Morgan Stanley said in its 2024 bond market outlook.
However, investors shouldn’t try to time the market, said Morningstar senior analyst Mike Mulach.
“Try to have as much diversification as you can,” he said. “There will be some volatility; there’s been more volatility lately. But there will be a time when you can’t just sit in cash.”

Bonds vs. bond funds

If you want to own individual bonds, only do so with high-quality ones, said certified financial planner Chuck Failla, founder of Sovereign Financial Group.

For instance, Treasurys can be bought through the TreasuryDirect website.
“When you go into individual bonds, you have a very predetermined duration,” Failla said. Along the way, you will collect income and you get your principal back when the bond matures.
If you’re going this route, ladder the bonds — which means staggering maturities — to meet your specific time goal, he said.
That said, in general, most investors would be best served buying a diversified bond fund, said Mulach.
“It doesn’t have to be super fancy in terms of using a sector fund, but just focusing on high-quality bonds and high-quality bond funds that will traditionally provide the best diversification benefit against riskier assets, like equities, in your portfolio,” he said.

What to look for in bond funds

There are several factors to consider when investing in a bond fund.
“Narrowing your choices to the cheapest in the universe is a great place to start,” Mulach said.
Yet price alone isn’t a barometer. Investors should be aware of interest rate risk, which is the impact of interest rate changes on the asset’s underlying price. The best way to assess this is through the bond fund’s duration, Mulach said.
Then there is credit risk. The higher the quality of a bond, the less credit risk for investors.
“Those investment-grade bonds, high-quality bond portfolios tend to offer the greatest diversification benefits relative to the equities in your portfolio,” he explained.
You’ll also have to decide if you want a fund that is actively managed, which typically comes with higher fees, or a passive fund, which is tied to a specific index. Active bond funds outperformed their passive peers last year, according to Morningstar.
Because of that outperformance, Mulach generally recommends actively managed funds.
Still, it isn’t that simple. Both Mulach and Failla said it is important to look for funds that have high-quality managers.
“Look at the track record, but don’t rely on it,” Failla said. Also look at the default rate, how long the managers are tenured with the funds and what their process is for selecting assets, he added.
“You want to make sure that they have a real process in place … to mitigate the risks that are in that space,” he said. “There are a lot of good managers out there, you just have to do your homework.”
Mulach suggests sticking with intermediate-core, short-term and ultra-short term Morningstar categories. Ultra-short funds typically have durations less than one year, while short-term funds stick with one to 3.5 year durations. Intermediate-core durations typically range between 75% and 135% of the three-year average of the effective duration of the Morningstar Core Bond Index.
“Even within those categories, just mak[e] sure they’re diversified strategies, mainly investing across … investment-grade government-backed securities, corporate-debt securities and securitized-debt securities,” he said.
Here are some of Morningstar’s top actively managed bond funds.

Top Morningstar Bond Funds

Ticker
Fund
Morningstar Category
Type
30-day SEC yield
Adj. Expense Ratio

BUBSX
Baird Ultra Short Bond Fund
Ultra Short
Mutual fund
4.89%
0.40%

MINT
PIMCO Enhanced Short Maturity Active ETF
Ultra Short
ETF
5.30%
0.35%

BSBSX
Baird Short-Term Bond Fund
Short-term
Mutual fund
4.42%
0.55%

FLTB
Fidelity Limited Term Bond ETF
Short-term
ETF
5.27%
0.25%

BAGSX
Baird Aggregate Bond Fund
Intermediate-Term Core
Mutual fund
4.11%
0.55%

FBND
Fidelity Total Bond ETF
Intermediate-Term Core Plus
ETF
5.31%
0.36%

HTRB
Hartford Total Return Bond ETF
Intermediate-Term Core Plus
ETF
4.67%
0.29%

BCOSX
Baird Core Plus
Intermediate-Term Core Plus
Mutual fund
4.30%
0.55%

Source: Morningstar, Fund websites

In some cases there are managers who have success rates lower than 50%, according to Morningstar’s active/passive barometer.
“If you’re throwing a dart at the category, maybe you’re better off picking a passive strategy,” Mulach said.
For instance, the iShares Core U.S. Aggregate Bond ETF can be a great option to simply replicate that index, he said. It can also be a way to avoid any extra risk, since active mangers typically take on more risk to beat their benchmark, he said.

Stock chart icon

iShares Core U.S. Aggregate Bond ETF year to date

Failla also isn’t opposed to passive exchange-traded funds for Treasurys.
“High-quality Treasurys is a very efficient market,” he said. “You don’t need some high-powered analyst team.”
Meanwhile, if you have a higher risk tolerance, you can snag some attractive yields with lower-quality bonds. Just be aware that high-yield bonds have a greater risk of default.
Failla thinks they are a good investment right now. He sticks with actively-managed high-yield funds for his clients.
“1%, 2%, 3% of bonds in that portfolio will default, but if I have 500 of them I don’t really care,” he said. “That is where bond funds shine.”
He looks at each individual’s time horizon to determine asset allocation and reserves high-yield bonds for what they’ll need in about 10 years or more.
Lastly, keep in mind that income from bonds are taxed as income, compared to stocks, whose gains are taxed at a lower capital gains rate. For this reason, Mulach suggests keeping your bond funds in a tax-advantaged account, like an individual retirement account or 401(k). More

Women and Wealth Events
Your Money

Women are among those most reluctant to discuss money topics.
One nonprofit has launched a new AI tool to help them get their money questions answered faster.

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Most Americans consider money to be a private topic, and women are among those most reluctant to engage in financial conversations.
But not asking the questions they need help with can hold them back financially, experts say.

One women-focused nonprofit has launched a new way to help them get faster answers to their queries through the use of an online AI chatbot.
The organization, Savvy Ladies, was founded more than 20 years ago by Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York City.
After seeing her grandmother stay in an abusive situation because she lacked financial resources, Francis created the nonprofit with the goal of helping other women avoid similar situations.

The new chatbot — provided through Microsoft Copilot — allows visitors to the Savvy Ladies website to type in their financial questions and receive immediate answers curated from the website’s content written by CFPs and other financial professionals.
“We want to make sure that we are able to help anyone, any woman who has a question,” said Francis, who is also a member of CNBC’s FA Council. “This is something that she can go on literally at 3 a.m. and be able to get her question answered.”

That first engagement always closes with a prompt via the Savvy Ladies’ helpline for a one-on-one conversation with a professional who can provide advice and guidance.
“We want everyone to learn and grow in their knowledge, but still feel that they’re they can come and ask their own individual question and get matched,” said Judy Herbst, executive director of Savvy Ladies.

AI tools can’t replace financial advice

Artificial intelligence language models may play an important and evolving role in financial literacy, said Michael Roberts, the William H. Lawrence professor of finance at the Wharton School of the University of Pennsylvania.
But today’s tools are still developing and are a complement to — rather than a replacement of — our own personal financial knowledge and decision making, he said.

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Here’s a look at more coverage in CNBC’s Women & Wealth special report, where we explore ways women can increase income, save and make the most of opportunities.

“To use these tools, you have to be able to engage with them; but to be able to engage with them, you have to be able to know what questions to ask, [and] how to ask them,” Roberts said. “And you have to be able to understand the responses coming back at you.”
Due to the fast rate of progress in this space, it’s hard to forecast where these tools will be even in another year or two, Roberts said.
Individual investors are already showing signs they are starting to embrace these tools.
Investors are more likely to trust advice from generative AI tools than from social media, according to a survey released last year from the CFP Board, a professional organization representing professional financial planners.
Yet they are more likely to be comfortable acting on that advice once it has been verified by a financial planner, the results found.

Technology experts who sit on Savvy Ladies’ board hope the new chatbot will help expand the nonprofit’s reach.
“We live in a world where you scroll TikTok or you scroll Instagram and you want an instant answer,” said Julia Rodgers, CEO of Hello Prenup and a Savvy Ladies board member.
“It’s very important for nonprofits like Savvy Ladies to keep up with that so that we can continue to deploy those services to those in need,” she said.
Since Savvy Ladies launched the tool, the chat bot has received questions regarding how to establish a monthly budget, build better credit and earn more money, according to Herbst.
The nonprofit is still refining the chatbot, she said. One goal is to make its voice match the organization’s mission.
“It’s a navigator, but we want it to be a soft-spoken female voice that comes through,” Herbst said.

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The 30-year fixed rate mortgage rose to 7.17% for the week ended April 25, according to Freddie Mac data via the Federal Reserve.
While some buyers have come to terms with 7% interest rates, the volatility of rates is “really the thing that’s going to impact the market the most,” said Nicole Bachaud, a senior economist at Zillow Group.

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Rates will keep ‘buyers and sellers on their toes’

“The biggest thing when we’re looking at mortgage rates right now is volatility,” said Nicole Bachaud, a senior economist at Zillow Group.
While some buyers have come to terms with 7% interest rates, the volatility of rates is “really the thing that’s going to impact the [housing] market the most,” Bachaud said.
When rates bounce around from week to week, a buyer looking into a house one day might not be able to afford the same property the next day, she said.

The swinging movement of rates is “going to keep buyers and sellers on their toes for longer than expected,” Bachaud explained.
For example, a homebuyer hoping to secure a $400,000, 30-year fixed-rate mortgage might have gotten a rate of about 6.82% in early April, according to Freddie Mac and Fed data. That works out to a monthly mortgage payment of around $2,613. Two weeks later, rates were hovering at 7.10%. That slightly higher rate adds $75 to the monthly mortgage payment, or $27,000 over the life of the loan.
Even a 1 percentage point difference may not sound like much, but it can mean almost $200 more on a monthly mortgage payment, said Jacob Channel, a senior economist at LendingTree.
Would-be buyers are paying attention to the math. For the week ended April 19, the mortgage application demand dropped 2.7% compared with a week earlier, as average 30-year fixed-rate mortgages jumped from 7.13% to 7.24%, according to recent data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.

The spring housing market is ‘getting back to normal’

“The spring housing market this year is somewhat getting back to normal,” Bachaud said.
Some areas are experiencing more sales with buyers getting used to the higher rates and looking for ways to make it work, she said.

Even so, more sales are expected to happen at the end of May and early June, she said.
That’s also when sellers tend to get the best prices. To that point, in 2023, homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home, according to an earlier Zillow analysis.
“I’d say we’d probably also see a later spring season this year,” Bachaud said.

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The number of households that live above the poverty line but are barely scrapping by is ticking higher.
Currently, nearly 40 million families are defined as ALICE, which stands for Asset Limited, Income Constrained, Employed.
High inflation and higher interest rates have taken a hefty toll, and there is little relief in sight.

Over time, higher costs and sluggish wage growth have left more Americans financially vulnerable, with many known as “ALICEs.”
Nearly 40 million families, or 29% of the population, fall in the category of ALICE — Asset Limited, Income Constrained, Employed — according to United Way’s United for ALICE program, which first coined the term to refer to households earning above the poverty line but less than what’s needed to get by.

That figure doesn’t include the 37.9 million Americans who live in poverty, comprising 11.5% of the total population, according to data from the U.S. Census Bureau. 
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“ALICE is the nation’s child-care workers, home health aides and cashiers heralded during the pandemic — those working low-wage jobs, with little or no savings and one emergency from poverty,” said Stephanie Hoopes, national director at United for ALICE.

Inflation weighs on low-income households

The term ALICE “essentially describes what people in the lower middle class have seen for decades, they can just cover current needs but not easily generate a surplus to cover the cost of a home or investments like stocks or bonds,” said Columbia Business School economics professor Brett House.
“It’s an acute situation for more people now than a few years ago,” House added.

Stubborn inflation has driven many households near the breaking point, but the pain of high prices has not been shared equally.
By most measures, low-income households have been hardest hit, experts say. The lowest-paid workers spend more of their income on necessities such as food, rent and gas, which also experienced higher-than-average inflation spikes. 

“The ALICE households, in particular, have borne the brunt of inflation,” said Greg McBride, chief financial analyst at Bankrate. “Even though we’ve seen wage growth on the low- to moderate-income scale, that’s also where inflation has hit the hardest.”
Inflation has been a persistent problem since the Covid-19 pandemic when price increases soared to their highest levels since the early 1980s. The Federal Reserve responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.
The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.

Inflation continues to prove stickier than expected, dashing hopes that the Fed will be able to cut interest rates anytime soon. Increasing inflation has also been bad news for workers, as real average hourly earnings rose just 0.6% over the past year, according to the Labor Department’s Bureau of Labor Statistics.
Recent statements by Fed Chair Jerome Powell and other policymakers also cemented the notion that rate cuts aren’t coming just yet.
That leaves ALICEs in a bind, Hoopes said. “Keeping rates high is hurting the labor market and ALICEs’ ability to have higher wages.”

In the meantime, lower-income households have fewer ways to reduce or change their spending habits and less money in their savings or investment accounts to fall back on.
To bridge the gap, some families are increasingly relying on credit cards to cover some bills. In the past year, credit card debt spiked to an all-time high, while the personal savings rate fell.
Credit card delinquency rates climbed to 3.1% at the end of 2023, the highest level in 12 years, according to Fed data.
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YOUR GUIDE TO NAVIGATING YOUR FINANCIAL FUTURE

One of the most important conversations newlyweds will need to have is figuring out how and who will pay the bills.
The way couples approach and accomplish this task can be extremely personal and the end goal can be reached in so many ways.
Whatever method you choose, it is critical that it works for you both.

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Wedding and engagement season is right around the corner and that means many couples will embark on a path toward marriage.
One of the most important conversations newlyweds will need to have is figuring out how and who will pay the bills. The goal is to ensure the bills are being paid, especially on time, so the couple remains current with their finances and that means keeping their credit intact.

Money may not be the most exciting topic to discuss with your new partner, but it is a must. According to a recent study by the Institute for Divorce Financial Analysts, 22% of all divorces are due to money issues.  Having a plan and an active dialogue can help strengthen your bond as a couple.

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Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

The way couples approach and accomplish this task can be extremely personal and the end goal can be reached in so many ways.
No one way is the right way, and we will explore some of the more popular ways we have seen this accomplished.

3 ways couples split bill responsibilities

Many couples find it best to address their bills like they have approached their marriage: They look to commingle their finances like they have their lives.
Taking this approach, the couple would set up a joint account for their bills where all the income they receive would be deposited. That joint account would then be used to pay their bills and fund their emergency and other savings accounts. This provides a fair amount of transparency to both members of the relationship to see how much money is coming into their account each month and where it is going.

Some couples would rather not combine their finances in the way previously described, and would prefer keeping things more separated.
We have seen couples that have separate accounts where their respective pay is deposited. The couple then will agree to divide certain household expenses for which they would be responsible.
One member may be tasked with paying the mortgage, taxes and insurance, while another may pay for the groceries, utilities and maintaining the home. Using this method can provide the same level of transparency for each spouse if that is what the couple wants, or it could also be used to keep things a bit more private.

Another method we see as financial advisors often combines some of the first two ways discussed.
In this situation, we see each person maintaining their own accounts and they each contribute a determined amount each month to a joint account. The joint account would be used to pay all the bills for their collective household. 
Usually, one member of the couple would take the lead to make sure the bills are paid and other times we see them divide this responsibility. This provides each person the ability to maintain their own accounts while giving the couple transparency around the household bills and what it costs to run it monthly.

How to make a bill plan as a couple

Bills and paying them are a necessary evil for any couple and how it gets done can be quite different from one household to another. Whatever method you choose, whether it is one outlined here or something very different, it is critical that it works for you both.
There must be an agreement, similar to so many things in a relationship, between the two people or it simply is not going to be followed.
Once that is in place, you need to ensure that it is being followed, the bills are being paid and they are on time, too.
Paying the bills on time will save you the nuisance of paying interest and late fees, which could add strain to your relationship. Another major benefit is to make sure your individual and credit as a couple is maintained or increased to the highest score possible.
Having great credit, which is helped by paying your bills on time, can have a positive effect on your financial situation.

Having a plan and sticking with it is very important. But it is also important that you check in with each other over time to confirm that the current plan is still working for you both. There may be times in your relationship, based on your situation as a couple, that you may need to adjust your approach. Be flexible and as transparent as you can as a couple, and this will only lead to enhancing your relationship.
In the end, financial planning is extremely personal, and you need to find and follow what works best for you.
— By Lawrence D. Sprung, a certified financial planner and founder/wealth advisor at Mitlin Financial Inc. More

The U.S. Labor Department issued a rule that aims to raise the legal bar for investment advice to retirement savers.
Rollovers from 401(k) plans to individual retirement accounts are a key focus of the “fiduciary” rule, attorneys said.
Almost 5.7 million people rolled money to an IRA in 2020, according to IRS data.

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A new U.S. Labor Department rule will significantly change the advice many investors receive about rolling money over from 401(k) plans to individual retirement accounts, legal experts say.
The so-called “fiduciary” rule, issued April 23, aims to raise the legal bar for brokers, financial advisors, insurance agents and others who give retirement investment advice.

Such recommendations may be tainted by conflicts of interest under the current rules, the agency says.
Rollovers are undoubtedly a “chief focus” of the regulation, said Katrina Berishaj, an attorney at Stradley Ronon Stevens & Young.
“The Department of Labor was not shy about that,” said Berishaj, co-chair of the firm’s fiduciary governance group.

Millions of investors roll over funds each year

Rollovers are common, especially for retiring investors.
They often involve moving one’s nest egg from a 401(k)-type plan to an IRA.

In 2022, Americans rolled over about $779 billion from workplace retirement plans to IRAs, according to a Council of Economic Advisers analysis. Almost 5.7 million people rolled over money to an IRA in 2020, according to most recent IRS data.
The number and value of those transactions have increased significantly as more baby boomers enter their retirement years. In 2010, for example, about 4.3 million people rolled over a total of $300 billion to IRAs, according to the IRS.

A ‘major shift’ in rollover advice

The new Labor Department rule aims to make more investment recommendations “fiduciary” in nature.
A fiduciary is a legal designation. At a high level, it requires financial professionals to give advice that puts the client first. They have an obligation to be prudent, loyal and truthful when giving advice to clients, and to charge reasonable fees, experts said.
Today, many rollover recommendations aren’t beholden to a fiduciary standard under the Employee Retirement Income Security Act, attorneys said.
Labor officials fear that exposes investors to conflicts of interest, whereby advice may not be best for the investor but earns brokers a higher commission, for example.

If the past is any indication of the future, we can anticipate millions of rollovers each year.

Katrina Berishaj
attorney at Stradley Ronon Stevens & Young

Under the current legal rules, which date to the mid-1970s, a financial agent must satisfy five prongs to be considered a fiduciary.
One of those prongs says they’re a fiduciary if they provide advice on a regular basis, attorneys said.
However, many rollover recommendations don’t happen as part of an ongoing advice relationship. Instead, it’s often a one-time occurrence, attorneys said.
That means it’s “very unusual” for a rollover recommendation today to be beholden to a fiduciary standard, Reish said.
The new Labor Department rule changes that, however.
“Under this rule, one-time investment advice to roll assets out of a plan would trigger fiduciary status under ERISA,” said Berishaj, who called the change a “major shift.”

Why rollover advice may be ‘higher-quality’

Under the new rule, advisors would generally be expected to consider factors such as alternatives to a rollover, including the pros and cons of keeping money in a 401(k) plan, Berishaj said.
For example, they’d likely compare various fees and expenses of a workplace plan vs. an IRA, as well as the services and investments available in both. They’d also provide certain disclosures to investors prior to the rollover, such as a description of the basis for that rollover recommendation, she added.
Good advisors are likely making an honest effort to do what’s best for their clients, but hopefully the Labor Department rule would “bring up the bottom to a better quality,” Reish said.

“I think the DOL’s intent is to encourage higher-quality advice, which would get people both better invested and with lower cost,” Reish said.
However, many financial companies dispute the necessity of the Labor Department rule.
For example, the regulation will “harm retirement savers and their access to the professional financial guidance they want and need,” said Susan Neely, president and CEO of the American Council of Life Insurers, an insurance industry trade group.

Additionally, the Labor Department “has chosen to ignore the significant progress made to strengthen consumer protections” over the last several years, Neely said. They include rules issued by the Securities and Exchange Commission and National Association of Insurance Commissioners.
Reish said those rules are “all less demanding than the DOL rule,” Reish said. “So, it’s a higher standard across the board.”
That’s especially true of recommendations from insurance agents to roll money from a 401(k) plan to an annuity held in an IRA, due to differences in current legal rules versus the Labor Department requirements, according to attorneys and other financial experts.
“We believe insurance agents will be most exposed to this rule, especially those who sell annuities,” Jaret Seiberg, financial services analyst for TD Cowen Washington Research Group, wrote in a recent research note.
Industry groups will likely sue to block the rule from taking effect, he said.  More

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Earnings season is giving analysts plenty to chew on as they learn more about the impact of macro challenges on companies.
Though Wall Street is watching short-term stock moves spurred by quarterly results, the top analysts have their eyes on companies’ long-term prospects.

Bearing that in mind, here are three stocks favored by the Street’s top pros, according to TipRanks, a platform that ranks analysts based on their past performance.
Netflix
Netflix (NFLX) is this week’s first pick. The streaming giant reported better-than-expected results for the first quarter of 2024. However, investors were disappointed with the company’s decision to stop reporting quarterly subscriber numbers. The company said that it is more focused on the revenue and operation margin metrics.
Following the first-quarter print, BMO Capital analyst Brian Pitz reaffirmed a buy rating on NFLX stock with a price target of $713. The analyst highlighted the company’s addition of 9.3 million subscribers, which handily exceeded BMO’s estimate of 6.2 million and the Street’s expectation of 4.8 million.
Pitz added that Netflix has again proved that it can grow in the U.S., with 2.5 million net additions reported in the first quarter in the U.S. and Canada. He expects continued growth in membership, driven by the ongoing paid sharing efforts and content innovation.   
Explaining his bullish thesis, Pitz said, “$17 billion of content investments for 2024 positions Netflix well for ongoing wallet share gains as linear TV viewership declines.”

Despite Netflix’s growth investments, the analyst expects an improvement in operating margin this year and beyond. He also anticipates that the company will benefit from its focus on advertising, given that $20 billion of linear TV ad dollars are expected to shift to connected TV (CTV)/online globally over the next three years, including $8 billion in the U.S.
Pitz ranks No. 155 among more than 8,700 analysts tracked by TipRanks. His ratings have been profitable 75% of the time, with each delivering an average return of 18.4%. (See Netflix Ownership Structure on TipRanks)
General Motors
Next up is automaker General Motors (GM), which announced impressive first-quarter results and raised its full-year guidance, backed by strong performance in North America.
In reaction to the solid results and outlook, Goldman Sachs analyst Mark Delaney reaffirmed a buy rating on the stock and increased the price target to $52 from $50. The analyst raised his EPS estimates for 2024, 2025 and 2026 to reflect improved margin expectations. 
“We believe that margins can remain resilient, driven both by cost/efficiencies (including executing on the balance of its $2 bn net cost reduction program this year) and relatively firm pricing,” said Delaney.
The analyst considers General Motors’ progress on electric vehicle profitability to be favorable. It is worth noting that GM continues to expect its EV business’ variable profit to be positive in the second half of this year and generate a mid-single-digit earnings before interest and taxes margin in 2025.
Delaney further added that GM’s optimism is based on its current expectations for EV demand and production growth, with the company projecting increasing gains from the battery production tax credit and fixed cost leverage.
Finally, the analyst thinks that GM’s capital allocation will continue to be a tailwind. He anticipates that the company will return higher levels of capital to shareholders beyond 2024, given its aggressive buyback plan with a goal to reduce its outstanding share count to below 1 billion.  
Delaney holds the 256th position among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 61% of the time, with each delivering an average return of 17.5%. (See General Motors Stock Buybacks on TipRanks)
Wingstop
Finally, there is the restaurant chain Wingstop (WING), which operates and franchises in over 2,200 locations worldwide. Following a recent analysis on the U.S. total addressable market, Baird analyst David Tarantino said that there is upside to the company’s long-term target for the domestic market.
WING sees the potential to scale its presence to more than 7,000 global locations over the long term, including over 4,000 restaurants in the U.S. However, Tarantino stated that Baird’s analysis indicates an upside to the company’s domestic target, with room for at least 5,000 U.S. locations.
Further, BMO’s analysis indicates that there is potential for the estimated TAM to move higher over time, given the company’s continued growth in its most penetrated markets in recent years.
“All in, a sizable domestic runway along with a relatively open-ended opportunity in international markets (only 288 locations after 2023) seems likely to support double-digit unit growth for many years to come,” said Tarantino while reiterating a buy rating on WING stock with a price target of $390.
The analyst estimates that Wingstop’s unit-level cash-on-cash returns are already about 70% for U.S. franchised locations and appear well-positioned to increase further this year, driven by higher average unit sales volumes.
Tarantino contends that WING deserves a significant valuation premium due to its solid near-term operating momentum and attractive long-term growth profile. Looking ahead, the analyst is positive about the company’s ability to maintain annual revenue growth in the mid-teens, along with a very capital-efficient growth model. 
Tarantino ranks No. 264 among more than 8,700 analysts tracked by TipRanks. His ratings have been successful 65% of the time, with each delivering an average return of 11.5%. (See Wingstop Stock Charts on TipRanks) More

The New York Stock Exchange welcomes executives and guests from Wolfspeed (NYSE: WOLF), on Oct. 4th, 2021, in celebration of its listing.

Company: Wolfspeed (WOLF)

Business: Wolfspeed is a semiconductor company focused on silicon carbide technologies. The company provides solutions for efficient energy consumption and a sustainable future. Its product families include silicon carbide material and power devices targeted for various applications such as electric vehicles and fast charging, as well as renewable energy and storage.
Stock Market Value: $3.3B ($26.25 per share)

Activist: Jana Partners

Percentage Ownership: n/a
Average Cost: n/a
Activist Commentary: Jana is a very experienced activist investor founded in 2001 by Barry Rosenstein. The firm made its name taking deeply researched activist positions with well-conceived plans for long term value. Rosenstein called his activist strategy “V cubed.” The three “Vs” were” (i) Value: buying at the right price; (ii) Votes: knowing whether you have the votes before commencing a proxy fight; and (iii) Variety of ways to win: having more than one strategy to enhance value and exit an investment. Since 2008, the firm has gradually shifted from that strategy to one which we characterize as the three “Ss” (i) Stock price – buying at the right price; (ii) Strategic activism – sale of company or spinoff of a business; and (iii) Star advisors/nominees – aligning with top industry executives to advise them and take board seats if necessary.

What’s happening

On April 22, Jana sent a letter urging Wolfspeed to engage in a comprehensive review of strategic alternatives, including a sale of the company.

Behind the Scenes

Wolfspeed is the world’s leading producer of silicon carbide, or SiC, and a manufacturer of silicon carbide applications. SiC is an extremely difficult and expensive substrate to manufacture: It requires growing epitaxial layers, baking at up to 4,532 degrees Fahrenheit, and then using ion implantation. This gives Wolfspeed a competitive advantage as the market leader. As a first mover, the company enjoys domination of the global market for SiC, having produced on the order of 90% of the material to ever exist. Due to the increased demand for their materials products and power devices in EVs, motor drives, power supplies, solar and transportation applications, the company sold its LED business in 2021 and its radio frequency business in 2023 to, in part, fund an increase in manufacturing capacity of SiC and vertically integrated manufacturing. The company has announced and is in the process of ramping up two major manufacturing facilities simultaneously in Siler City, N.C. and Marcy, N.Y. The John Palmour Manufacturing Center for Silicon Carbide in North Carolina is a facility dedicated to the production of SiC wafers. The company’s Mohawk Valley project in New York will produce advanced SiC devices like metal oxide semiconductor field-effect transistors, or MOSFETs, which are widely used in electronics and power applications.

Over the past one-, three-, five- and 10-year periods, Wolfspeed has had a negative total shareholder return and has vastly underperformed its peers. The company doesn’t have a demand problem. In fact, demand is quite robust, and the company has a substantial moat in SiC. For example, in 2023, Renesas made a customer deposit of $2 billion to Wolfspeed in order to secure a 10-year supply agreement for SiC wafers. Further, from a current base of nearly $1 billion, the company’s expansion plan supports a $20 billion market opportunity by 2030. Even in the event of an EV slowdown, Wolfspeed is such a small part of the market, that it could easily reach capacity on its facilities.
What Wolfspeed really has is a supply and ambition problem. The rollout of its two new facilities have been plagued by delays, and the company still only projects 20% utilization for the Mohawk Valley plant by the end of fiscal 2024. Even more concerning for investors has been the fact that the company announced in early 2023 plans to construct the world’s largest and most advanced SiC device manufacturing facility in Germany. Expansion is a great idea for a company that is executing well and reaching capacity. Wolfspeed is doing neither right now, and announcing further expansion plans before proving that it can execute scares the market as evidenced by the stock’s performance. Jana would like to see Wolfspeed do the following: (i) prioritize execution at Mohawk Valley and Siler City, (ii) earn an acceptable return on capital, (iii) set realistic targets and (iv) outline a clear plan for capital expenditures to assure that the company will not need to pursue any additional dilutive capital raises. If the company can create a credible forward-looking plan to earning an acceptable return on capital and set realistic targets, then the market will begin to regain confidence and the stock should rebound from its current depressed levels.
Jana also recommends that the board commences a review of strategic alternatives, including a possible sale of the company. However, with a stock price teetering at about $25 per share – it was trading as high as $70 per share in July 2023 – a sale of the company at an acceptable premium is highly unlikely here. The more likely outcome is for management to fix the problems with the company and potentially pursue a future sale or look for an investment from a strategic investor that might be willing to invest at a high multiple to shore up supply. Jana notes that Denso and Mitsubishi Electric recently made a minority investment in Coherent at a multiple of 10 times revenue. Wolfspeed presently trades at less than six times revenue.
This is similar to the issues Jana identified at Freshpet when the firm invested there: supply shortages and difficulty rolling out its U.S. manufacturing operations. At Freshpet, Jana also made operational and capital allocation recommendations in addition to reviewing a sale of the company. Jana ultimately received board representation and a sale never happened as the operational fixes worked. Freshpet’s stock closed at $106.36 on Friday, up from $45.37 in September 2022. As is customary for Jana, at Freshpet, the investor launched its activist campaign with a team of experienced industry executives ready to be board nominees, if necessary. Here, there has been no such mention of a “Jana Dream Team,” but it is a little too early for that. The director nomination window does not open until June 25 and closes on July 25, at which time we will have more clarity on which road this campaign will take.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.

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