Companies make strategic plans and the strategic planning group examines multiple companies to come up with companies to work together with and possibly merge with. It is a normal practice and often the companies to merge with are in the same field – it is easier to vertically integrate than buying companies in a new regulatory space.
In the UK, there is a British company called Vectura Group PLC which licenses a range of medical inhalers to larger pharmaceutical companies. It is a good business and 2 US companies are interested in buying it – the Carlyle Group and Phillip Morris International. A bidding war has emerged and both of the companies have access to large amounts of credit.
The issue is a number of health organizations have come out against Phillip Morris’s bid because to them it would be unethical for a tobacco company to profit from treating lung diseases that its products helped cause.
Another issue is half of Vectura’s 500 people are researchers, and in Europe, if the tobacco company owned the company its researchers would not be able to work with research universities in Europe.
The ironic part is Phillip Morris International wants to move away from tobacco and become a heath care and wellness business.
Linking to dividend paying stocks, all companies which are profitable have a past history, sometimes it is wonderful, sometimes it is not in keeping with today’s ideals, but companies which are profitable are desirable to own. When there is a merger on the books, those who are against it will use the company’s past to help them win votes, even though they may not be much better. When you invest in the future of the company, the company does have baggage and it is up to you to decide if you would rather find an alternative.
There are more questions than answers, till the next time – to raising questions.
When companies begin the most important thing they worry about is sales to customers which bring in profits which eventually allow them to pay dividends. On the financial side it is relatively easy and there are many metrics to help companies. However companies employ people and invariably some sort of internal company culture moves forward, which to the rest of the world likely does not worry or is concerned about it.
As the company is more successful, it hopefully will try to be a good corporate citizen and that means all kinds of things to people. Ideally, it is both about pay, growth, giving back to community and internally ensuring lines are not crossed.
In an report by James Griffiths, recently Alibaba (which is the Amazon of China) fired a male employee accused of raping a female colleague. The female had reported the incident to both the police and the human resources representatives at Alibaba. Nothing was done, the lady decided to take it public in the company canteen and the message spread across the company with employees demanding Alibaba do something.
Alibaba Group Holding Ltd Chairman Daniel Zhang did the right thing of firing the employee but it did some light on what goes on at the company. Mr. Zhang acknowledge within the company there is an internal culture that enables misogyny and sexual harassment. The company will be introducing a dedicated reporting channel for instances of sexual harassment or assault. The surprising thing about the announcement is the 22 year old company with hundreds of thousands of workers did not have such policies in place.
Linking to dividend paying stocks, when people are hired to a company there are rules and internal rules which are followed. If the company pays lip service to the rules and no is held accountable, then little will change until a new management comes in. For a company, the service and goods that it makes are important to the outside world, but internally people have to work together, dividend paying companies are typically mature enough to have actual policies to ensure people work and respect work and home life.
There are more questions than answers, till the next time – to raising questions.
Every government around the world looks at its corporate partners and plays a balancing act between corporations doing very well and its citizens doing well. It is no different in the US, although under the previous administration, the emphasis was helping the corporate sector first. In President Biden’s administration the emphasis is helping people first.
In an article by Lucia Mutikani of Reuters, the Department of Commerce reported US corporate profits surged to a fresh record high in the second quarter. Profits from current production increased by $234.5 billion or up 9.2% to a record $2.8 trillion. Non financial corporations were up $169.8 billion.
Jay Bryson, chief economist at Wells Fargo aid elevated margins suggest higher costs have not yet meaningfully eaten into firms’ profits, as firms appear to have more pricing power today than they would typically would this early into an expansion. (it appears firms have the ability to raise prices).
Economists polled by Reuters expected the the 2nd quarter growth would be 6.7%, the economy grew at 6.6%. The previous quarter growth was up 6.3% and the combination has recouped the steep losses suffered in the COVID recession.
Consumer spending which accounts for 2/3’s of the US economy appears to be cooling. Credit card data suggested spending on services such as airfares, cruises, hotels, motels has been slowing.
Bank of America Securities has cut its projection from the 7% growth to 4.5% growth in the 3rd quarter.
Growth is expected to pick up in the 4th quarter as business must replenish its inventories.
On the employment sector, there was a record 10.1 million job openings in June and it the 25 states led by Republican governors, they have stopped the federal government funding including an extra $300 payment. Business groups claimed the money encouraged people to stay home rather than work. In the other states, the $300 payment is scheduled to expire on September 6, affecting 11 million people.
Linking to dividend paying stocks, when you invest in profitable companies which can pay a dividend it is entirely possible to have money coming into your account without doing any work for it, however it is investment income. If you listen to politicians who say people need to work, if you have dividend income that means you can have meaningful work or have options what you do or do not do.
There are more questions than answers, till the next time – to raising questions.
After Labor Day, traditionally people came back to the workplace ready to implement the fall plans of the company. Everyone is back to work and what are the possible consequences to implementing the fall plans?
In an article from Reuters in August, they picked 5 broad themes likely to dominate global financial markets:
Holi-dazed
We all know with COVID and stay at home orders for health reasons, tourism is down but how much?
Spain welcomed 75% fewer tourists than in June 2019. Thailand’s Phuket had just 1% of the visitors it had before the pandemic. Turkey tourism revenues were $3 billion as compared to a normal $8 billion. Kenya normally received 2 million visitors in 2019, in 2020 the number was 300,000.
Similar to most regions, tourism is a major draw and contributes to 6% of GDP and 8% of employment. When the numbers are down all tourist economic spending is drastically down.
Headwinds in Asia
For many years, growth in China has been a given, but lately Chinese and growth are not in the same sentence. China is suffering from slowing credit growth as the government lowers leverage and debt from local governments. Thailand is suffering from lack of tourism and the Phillippines might cut its own bank reserve requirements.
Inflation Palpitations
Is inflation making a comeback in the US or can the Federal Reserve make the case for reeling in stimulus sooner than later?
COVID Claims
Most of Europe’s big insurers have stripped cover for the pandemic from their policies. Insurance companies bottom lines are increasing including France’s AXA, Italy’s Generali and Germany’s Allianz. Other companies include Zurich Insurance, Aegon and NN from Holland, and the UK’s Aviva, M&G, and Prudential.
Zambia Votes
It is not only the voting whether the right or left wins, but the debt of the country. The Euro set up the Common Framework debt relief plan and Zambia is the first case. The Euro needs Zambia to be successful.
Linking to dividend paying stocks, with every investment there are always headwinds and it is easy to focus on the glass half empty. As an investor you want the glass half full view where the company can still make profits to pay dividends and has the ability to grow market share.
There are more questions than answers, till the next time – to raising questions.
The government can be the great influencer in the industry although for the most part government tries to help industry as industry makes it own decisions. Around the world we see climate patterns changing, highly likely due to global warming. Governments have a choice, do nothing and live with the changing climate patterns or try to ensure climate does not change too much where the population lives.
In President Biden he has decided part of the broader plan to fight climate change is to target emissions from cars and trucks. In an an article by David Shepardson and Jeff Mason, President Biden signed an executive order making half of all vehicles sold in 2030 electric. If you ever driven behind an electric vehicle they are the ones without tail pipes.
It is relatively easy to say 50% of vehicles sold should be electric, but the harder part and this is where the government will be helping is the cost to produce the millions of cars and trucks that are sold annually. President Biden has committed funding to the auto producers of GM, Ford and Stellantis (Chrysler).
You may or may not remember, former President Trump disagreed with California Air Pollution standards and wanted to lower them. The Biden administration agrees with the California model and in fact so do the big three auto makers.
Consulting company Alix Partners reported electric vehicles (EV) represent 2% of total global vehicle sales and will be about 24% in 2030. To get there will require billions in charging systems, incentives and changes in factory production. President Biden’s infrastructure bill addresses some of this funding.
Linking to dividend paying stocks, governments are wonderful in announcing big plans, but the execution takes time and money. One of the reasons you buy profitable companies that can pay dividends is they know how to execute to the consumer at a profit. As an investor you can follow the trends and see how companies adapt to government policies.
There are more questions than answers, till the next time – to raising questions.
During the pandemic when people stayed at home, one of the things they did was eat more snack foods which helped profits at Frito-Lay’s owner Pepsi. Revenue was up 20% from the same period a year earlier. When revenues are up, people everywhere in the company want to benefit and there was a strike at one of Frito-Lay’s plants in Topeka, Kansas. The strike went on for 3 weeks and was eventually settled.
What are the concerns for the future? In an article Linda Nazareth examined what could happen at Frito-Lay.
The company Frito-Lay is well known for the sophistication of its operations and during the pandemic it has increased its abilities. Consulting company Gartner Inc puts PepsiCo at No 7 in its ranking of companies with top supply chains. One example of what the chain can do is if chip lovers in one zip code like Cool Ranch Doritos and another zip code likes Nacho Cheese, the company can adjust inventory quickly and everyone is happy.
PepsiCo is teaming up with Robby Technologies that will send a 6 wheel mobile vending machine robot called Snackbot in college and university dorms. The food is ordered from an app.
In June US manufacturing jobs were 12.3 million compared to 12.8 million before the pandemic. Some of the rest may come back but others will be replaced by robots.
A robotics company called Berkshire Grey had an IPO on the Nasdaq and and industrial automation companies such as Rockwell Automation and Eastman Machine Co are reporting brisk orders.
Boston Dynamics as a dancing robot on Twitter, but it has also showcased Stretch which is built for warehouse automation.
Economist Daron Acemoglu of MIT has estimated every automated device replaces 6 human workers, Half move to new jobs, half are retired.
Linking to dividend paying stocks, the supply system is the bottle neck for every company, most of the time it works but when it does not, the partial solution of automation is examined. Every year there are new developments and when robots can work the warehouse, that means there are fewer exceptions for the supply system not to work well. In your investments, how is your company using robots to fix the supply system concerns? The Gartner rankings are below.
There are more questions than answers, till the next time – to raising questions.
Gartner Announces Rankings of the 2021 Supply Chain Top 25
Cisco Systems Retains Top Position; Four New Companies Join Ranking
Gartner, Inc. has released the results from its annual global Supply Chain Top 25, identifying supply chain leaders and highlighting their best practices.
“In our 17th edition of the Supply Chain Top 25 we saw organizations continuing to deal with the effects of COVID-19 on their businesses. Therefore resiliency and agility capabilities became essential to survival,” said Mike Griswold, vice president team manager with the Gartner Supply Chain practice. “Our ranking highlights companies that possess these strategies and other differentiating capabilities.”
Cisco Systems scored the top spot in the ranking for the second consecutive year, followed by Colgate-Palmolive, Johnson & Johnson, Schneider Electric and Nestlé (see Table 1). Four new companies joined this year’s list: Dell Technologies, Pfizer, General Mills, and Bristol Myers Squibb.
“Strong revenue growth, strength in environmental, social and governance (ESG) initiatives, and recognition of leadership in the community opinion polls drove Cisco to the top spot for the second consecutive year,” said Mr. Griswold. “Cisco’s agility helped them prioritize video conferencing and critical infrastructure capabilities for hospitals and vaccine research.”
To recognize sustained supply chain excellence, Gartner introduced the “Masters” category in 2015. To be considered Masters, companies must have attained top-five composite scores for at least seven out of the last 10 years. All of last year’s Masters – Amazon, Apple, P&G, McDonald’s, and Unilever – qualified for the category this year.
“During times of disruption, these companies continue to lead by example and provide advanced lessons for the supply chain community,” Mr. Griswold added. “The Supply Chain Top 25 offer a platform for insights, learning, debate and contributions to the rising influence of supply chain practices on the global economy.”
In the world of investing, there are typically two types of methods to try to determine the future price of shares -value and growth stock. Both look at the fundamentals of the company and then you ask yourself are you paying for growth or value? If you are paying for growth you will pay more than if you are paying for value. The difference is if the company is on the way to profitability and is growing there should be more movement in the stock price upwards and downwards. in the past year, we seen another variable added, is this a meme stock?
Earlier this year, shares in GameStock, AMC and a couple of other stocks soared and then slowly came back down. The reason was connected to WallStreetbets website. Another stock which is now in the same type of valuation consideration is Robinhood.
In an article from Reuters, Robinhood which allows free trading and relatively easy to use app is now a public company. The shares went public with the normal publicity machine behind it, the professionals looking at the company from a fundamental point of view thought it was overvalued and the IPO went down. Then people on WallStreetbets talked about it and there was the ability to buy options and the shares jumped 82% to a high of $85, up from its IPO of $38 a share.
Only a few stocks can be meme stocks and an investor has to ask how does a company which charges no commission to trade make money? While it is wonderful for the investor to buy and sell at no commission where does Robinhood make money? Robinhood hopes to attract deposits, but at the moment it is a very good thing there is a bull market on Wall Street.
Linking to dividend paying stocks, at some point for every company dealing with consumers the issue will be how to make money from each consumer? Robinhood hopes in the future for the customers who make money to buy deposits or fee generating products which will diversify their income stream. When you do your homework, the reason to do it is which companies not to buy and which ones to consider. The result of your homework saves you money and one of the rules of investing is try not to lose money.
There are more questions than answers, till the next time – to raising questions.
When people go to work for a company, there are rules within the company but for many work is work and when they are no longer being paid, the company is important in the background. The company will have interests that do not perfectly lined up with the employees, for example the division between corporate and personal taxes, who should pay and how much? As an individual you think you pay something but not too much, as a corporation, there are departments and consultants to ensure the company pays as little as possible and still be within the law.
In an article by Alexandra Olson of the Associated Press, companies are making decisions about their workforce and vaccinations. In most years, it would be an easy decision because public health is an easy answer, however politics has played a role and the decision for companies is complicated.
There is a portion of the population who do not want to be vaccinated and they are potential customers, on the other hand those who have been vaccinated do not necessarily want to work with those who are not. The other issue is if a company requires vaccinated people, will it cause a labor shortage or will those concerns be enhanced?
Health care companies started the be vaccinated or do not come to work because the health of the patient is the reason for the existence of the company. President Biden has mandated people working for the government need to be vaccinated or be tested twice a year and lose privileges on the job and likely promotions.
Walmart and Amazon have said no to mandatory vaccinations but rely on incentives to be vaccinated, however Walmart said if you work at head office you need to be vaccinated, which is strong signal to managers.
Blackrock, the global investment manager, is allowing only vaccinated workers into the offices but it expects people to work from the office in the near future.
Linking to dividend paying stocks, corporations and individuals often have competing interests and that is the way it should be. In the past, the corporate interests was the party or person who helped the corporate interest but public health is different and decisions are made for the interests of the people who work and are customers of the company.
There are more questions than answers, till the next time – to raising questions.
If you can remember in March a firm from Hong Kong lost over $10 billion because it was leveraged more than it should be. The company used the firms of Credit Suisse, Nomura Securities, Morgan Stanley and Goldman Sachs to leverage the returns and for a while it worked very well. Then the market changed, the stocks Archegos focused on went down and the big investment banks started selling stocks to meet margin calls. Archegos did not have the capital to wait it out and the investment banks lost money. Credit Suisse seemingly lost the most money and the management report has been issued on why Credit Suisse lost money.
In article by Brenna Hughes Neghaiwi of Reuters the report said a lackadaisical attitude toward risk and a lack of accountabliltiy were to blame for Credit Suisse $5.5 billion loss.
The independent assessment wrote the losses were the result of a fundamental failure of management and control’s in Credit Suisse Investment Bank particularly in the Prime Services business. The business was focused on maximizing short-term profits and failed to rein in and enabled Archegos’ voracious risk-taking.
The bank responded that it would put risk management at the heart of our decision-making processes.
Besides the losses, the bank has taken action against 23 staff with 9 let go and a total of $70 in bonuses taken back.
New Chairman Antonio Horta-Osorio is trying to turn the page after a swathe of investigations, executive changes, executive changes and divisional reshuffles. Management is promising to unveil a strategic overhaul by year end. Credit Suisse appointed Goldman Sachs partner David Wildermuth as the new chief risk officer.
Linking to dividend paying stocks, in the investment banking world credit is given and loans are repaid and bonuses made. The important part of the equation is loans are repaid, there is always an issue can the client repay the loans. The risk officer’s position is one of the most important in the bank, if there is lack of people saying no, traders will trade for the highest short term profits and biggest bonuses. The risk officer is suppose to be a check on trading. For a profitable company, look who says no to projects but ensures the company makes money on yearly basis.
There are more questions than answers, till the next time – to raising questions.
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