Stocks to watch this week: Berkshire Hathaway, Saudi Aramco, Glencore and Novo Nordisk

With earnings season in full swing, updates from key companies across the globe are providing insights into how certain markets are performing.

Investors this week will see updates from the Oracle of Omaha’s Berkshire Hathaway, after Warren Buffet trimmed his Apple and BofA positions. In Europe, the continent’s most valuable company by market capitalisation will tell markets if Ozempic is still number one.

From the Middle East, the world’s sixth most valuable company will provide investors an insight on how it has been dealing with the fluctuations in oil prices.

Berkshire Hathaway (BRK-B) – Reports second-quarter results on Saturday 3 August

As Berkshire Hathaway prepares to report its second-quarter earnings on Saturday, will look for any insights into the company's massive cash reserves, which stood at approximately $189bn (£148bn) at the end of March. This significant cash position has sparked speculation about potential uses, whether it be deploying capital into new investments or continuing to build the reserve.

In recent months, Berkshire has made some major adjustments to its investment portfolio. After trimming its Apple (AAPL) stake in the first quarter, the conglomerate further reduced its holdings in Bank of America (BAC) by approximately $3bn. These moves have left market watchers curious about Berkshire's investment strategy moving forward.

A focal point for analysts and investors alike will be the performance of Berkshire's insurance segment, the largest contributor to its revenue and pre-tax earnings. The firm's insurance operations have consistently been a pillar of strength, and updates on this segment are highly anticipated.

Unlike most companies, where net income and earnings per share are the main metrics of interest, Berkshire Hathaway's earnings reports require a nuanced understanding.

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Due to accounting rules affecting its extensive investment portfolio, net income can fluctuate significantly, often misleading less informed investors.

As past earnings reports have highlighted, the key figure to watch is operating income, which Warren Buffett himself has identified as a more accurate measure of the company's underlying business performance. At the end of the first quarter, operating income reached $11.2bn, up from $8.1bn a year earlier.

Wall Street expects operating profits excluding investment gains to drop about 6% year over year to $6,520 per class A share.

Key points of interest in the upcoming report include the company's stock buybacks, current cash levels, insurance profits, and any adjustments to its significant Apple stake. Observers are particularly curious whether Berkshire's cash reserves will surpass the $200bn mark and if share repurchase activity has increased from the $2.6bn recorded in the first quarter.

Saudi Aramco (2222.SR) – Reports second-quarter results on Wednesday 7 August

Saudi Aramco is expected to report a modest decline in second-quarter profit, as a rise in benchmark oil prices was insufficient to counterbalance a reduction in production levels, according to consensus estimates. The oil giant's output could see a gradual increase in the fourth quarter, contingent on OPEC+ adhering to its current plan to begin tapering production cuts, according to Bloomberg Intelligence.

The energy company is anticipated to deliver $124bn in total dividend payments in 2024, translating to a yield of 6.8%, one of the highest among global oil majors, according to Bloomberg analyst Salih Yilmaz.

During Q2 2024, Saudi Arabia's oil production averaged around 9.01 million barrels per day (bpd). Meanwhile, the average crude oil price stood at approximately $85.3 per barrel, up from $75.7 per barrel in Q2 2023.

Analysts at Al Rajhi Capital anticipate that Saudi Aramco's Q2 2024 revenue will remain largely flat year-on-year. The increase in brent prices (BZ=F) is expected to nearly offset the impact of lower production volumes compared to the same period last year. However, the downstream business may continue to face challenges due to weak refining margins amid slower demand.

Glencore (GLEN.L) – Reports first-half results Wednesday 7 August

Mining heavyweight Glencore is set to reveal whether it will proceed with a demerger of its coal assets in its upcoming half-year financial review.

The announcement follows the completion of a major acquisition last month, in which Glencore secured a significant portion of Teck Resource’s (TECK-A.TO) steelmaking coal business. The company has been consulting its shareholders on whether to keep the combined coal operations within the Glencore portfolio or spin them off into a separate entity.

As one of the world's largest producers and exporters of thermal coal, Glencore anticipates producing between 98 million and 106 million metric tons of thermal coal in 2024. The acquisition of Teck's assets is expected to significantly boost its steelmaking coal output, raising it from 7-9 million tons to an estimated 19-21 million tons annually.

Despite speculation about a potential demerger, analysts from Jefferies, UBS, and Bank of America have expressed scepticism. They say that shareholders value the robust cash flow generated by Glencore's coal business, especially when it is used for capital returns and share buybacks.

"Investors appreciate the strong cash flow from coal, particularly if it is channelled to capital returns/buybacks," noted analysts from Bank of America.

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In addition to the potential restructuring of its coal division, Glencore is still dealing with legal issues. The UK's Serious Fraud Office (SFO) has charged several former executives, including Alex Beard, the company's former head of oil trading, in connection with an investigation into alleged corruption.

Beard, who became a billionaire following Glencore's 2011 IPO, alongside former colleagues Andrew Gibson, Paul Hopkirk, Ramon Labiaga, and Martin Wakefield, faces charges related to alleged bribery in securing oil contracts across Cameroon, Nigeria, and Ivory Coast from 2007 to 2014. The accused are scheduled to appear at Westminster Magistrates' Court on 10 September.

Investors will be closely monitoring Glencore's announcement, not only for the decision on the potential demerger but also for any updates on the ongoing legal proceedings and their implications for the company's future.

Novo Nordisk (NVO) – Reports second-quarter results on Wednesday 7 August

Novo Nordisk A/S, Europe's most valuable company, is anticipated to raise its financial guidance when it reports earnings next week, driven by overwhelming demand for its weight-loss therapy Wegovy.

Analysts forecast a robust performance, with revenue expected to rise approximately 26% year-over-year to 68.47bn Danish kroner (£7.76bn/$9.9bn), and profits projected to increase nearly 10% to 21.27bn kroner (£2.41bn/$3.08bn), according to estimates compiled by Visible Alpha.

The Danish pharmaceutical giant, along with rival Eli Lilly (LLY), has faced challenges in meeting the surging demand for their weight-loss medications. Both companies have acknowledged that supply may lag behind demand despite efforts to scale up production.

The Danish pharmaceutical company previously updated its outlook in May, factoring in potential supply constraints for its popular weight-loss drugs, including Wegovy and Ozempic, throughout 2024. Despite these challenges, Novo Nordisk indicated that its revenue growth could surpass current projections, contingent on successful investments in expanding production capacity.

As demand continues to outstrip supply, Novo Nordisk's efforts to scale up manufacturing are seen as critical to meeting market needs and sustaining the company's growth trajectory.

Despite the dominance of Novo Nordisk and Eli Lilly in the weight-loss drug market, competition is on the horizon. Emerging players like Viking Therapeutics and Swiss pharmaceutical giant Roche have reported positive early trial results for their own weight-loss treatments.

Still, JPMorgan analysts remain confident in the continued dominance of Novo Nordisk and Eli Lilly in this market segment.

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