Holding Stocks You Would Not Buy

One of the mistakes that I frequently make, and I am working to fix, is that I tend to only analyze assets as they are at the moment rather than taking into account what they will be–specifically, the invisible aspect of a corporation’s deal-making potential.

You may remember earlier this summer when I voiced disagreement with the professional analysts covering Anheuser-Busch that were projecting 9% annual growth at the giant brewmaker. I looked at the amount of costs already wrung out of the company, saw the anemic revenue growth, and figured there was no way earnings could grow at a rate of 9%.

What I didn’t factor into my analysis was this: The invisible, intangible deal-making ability of Anheuser-Busch executives to make an acquisition that would bolster earnings per share because the subsequent cost-cutting at the acquired company would be greater than any share dilution necessary to executive the deal. … Read the rest of this article!

How Many General Electric Shares Should You Exchange For Synchrony Financial?

The reason why stock split-offs are generally unpopular with investors is that it requires the measurement of figuring out how much of a company you’re familiar with (the parent company) to exchange for a company that is relatively unknown. And because stock split-offs usually occur in prosperous economies, you tend to receive a misleading set of figures–the truly long-term investors want to know how a company performs in the worst of times, and that information is not usually available at the time you have to make your decision.

But unfortunately, life isn’t so simple that you can adopt the rule that split-off companies should always be ignored. In fact, the academic studies show quite the contrary. In Dr. Jeremy Siegel’s work “Stocks for the Long Run”, he studied the performance of corporate spin-offs by comparing their performance to the original parent company for the subsequent ten years after the spinoff … Read the rest of this article!

How Does The General Electric-Synchrony Exchange Work?

Stock spinoffs are one of my favorite corporate events. If you are a shareholder of a company that is undergoing some kind of divestment, it is usually wise to pay attention. It is almost certain that the spun-off company has a different growth profile, earnings quality, and overall debt picture than the parent. Sometimes, a spinoff is done to pass off liability–like when Arch Coal and Peabody Energy shed assets to create Patriot Coal which was destined for immediate bankruptcy (a matter that is still being litigated to this day.)

Other times, the company spinning off the stock is the one in trouble–look at what Sears has done since 1993. In the end, Sears will go bankrupt, but in the past two decades you would have collected Allstate, Discover Financial, Morgan Stanley, Sears Canada, Lands’ End, and perhaps even a Seirs REIT before it is all said and done. That … Read the rest of this article!

Why Disney’s ESPN Cut 300 Jobs and Shut Down Grantland

ESPN, the sprawling cable TV company that has become the ubiquitous source of sports news across the country, has recently gained attention for its new eye towards cost-cutting. Bill Simmons is gone. Colin Cowherd is gone. Keith Olbermann is gone (again). Two weeks ago, ESPN announced that it is reducing its work force by 4% by terminating 300 current employees. And today, the contraction continued with the announcement that ESPN would soon be shutting the long-form website Grantland.com–the baby of Bill Simmons that matured into a collection of pop culture articles mixed with detailed 3,000+ word sports analysis articles.

If you read Disney’s annual report last year, you would encountered a few non-detailed passages about changes coming to ESPN that would focus on “streamlining performance”, finding “greater efficiencies”, and “leveraging the platform.” The vagueness and the corporate jargon of the annual report did not provide an observer with any substantive … Read the rest of this article!

The Next Stock Market Bubble

In December of 2001, the Journal of Finance published a study titled “A Rose.com by Any Other Name” by Michael J. Cooper, Orlin Dimitrov, and P. Raghavendra Rau that studied the bubblicious effects of companies renaming themselves something with dot.com in the name. The price of stocks adding .com gained an average of 53% above companies without the dot.com in the corporate name, and the authors concluded the following: “We argue that our results are driven by a degree of investor mania–investors seem to be eager to be associated with the Internet at all costs.” The fact that the Nasdaq took fifteen years to return to its 2000 high is a shorthand way of describing the bubble conditions that existed at the turn of the millennium.

On March 4, 2008, the professors Shih-An Yang, Robert C.W. Fok, and Yuanchen Chang wrote a paper titled “The Wealth Effects of Oil-Related Name … Read the rest of this article!