We all wish we were better at knowing just when a stock was about to dive or about to take off, but a recent study shows that even executives buying their own stock are unable to know that. The research firm FactSet tracks repurchases of a company's own stock by top execs, and found they are much more likely to buy high and sell low, rather than the other way around.
The recent peak for repurchases of stock came at the outset of the stock market downturn, back in the fourth quarter of 2007. During that quarter, companies listed in the S&P 500 spent $141.7 billion buying back their own stock. That number plunged along with the larger market, until the first quarter of 2009, when those same companies bought back only $30.8 billion of their own stock. In retrospect, the market was a tremendous bargain at that point, but the company leaders didn't see that.
They seem to be getting better at this, though. There were more repurchases by S&P 500 in the third quarter of 2011, when stocks were notoriously sluggish, than they were in the fourth quarter, when the market began to rebound.
Tuesday, April 10, 2012
Monday, April 9, 2012
The Cost of a Penny
As you probably heard, the Canadian government announced last week that it would no longer manufacture pennies, in part because it costs the Canadian government 1.6 cents to manufacture and distribute each penny. This has sparked renewed calls here in the U.S. for our own government to eliminate the penny; each of our pennies costs 2.41 cents to produce and distribute.
All those pennies add up. The U.S. government lost $60.2 million on the manufacture of pennies in 2011. That's a sharp increase from the $27.4 million they cost us in 2010, and the $19.8 million we spent in 2009.
But if we move to get rid of the penny, what does that mean for the nickel? We lose money on each nickel we produce, too; each one costs 11.18 cents. So we lost $56.5 million making nickels last year, too. The Obama administration is now seeking to change the composition of the nickel to make them cheaper to produce. Maybe that will be enough save them.
All those pennies add up. The U.S. government lost $60.2 million on the manufacture of pennies in 2011. That's a sharp increase from the $27.4 million they cost us in 2010, and the $19.8 million we spent in 2009.
But if we move to get rid of the penny, what does that mean for the nickel? We lose money on each nickel we produce, too; each one costs 11.18 cents. So we lost $56.5 million making nickels last year, too. The Obama administration is now seeking to change the composition of the nickel to make them cheaper to produce. Maybe that will be enough save them.
Friday, April 6, 2012
The March Jobs Report
The new unemployment figures released by the Bureau of Labor Statistics this morning were mildly disappointing: After two straight months in which the economy added more than 200,000 jobs, we gained just 120,000 more jobs in March. Still, that was enough to drive the overall unemployment rate down by a percentage point, from 8.3 percent to 8.2 percent.
Most of the employment categories were little changed from February. Perhaps the most encouraging change was in the category of involuntary part-time workers - people who are working part-time, but want to work full-time. The number of people in that group fell by 400,000. The other bit of good news is that both January and February's number of new jobs was revised upward: January went from 275,000 to 284,000, and February went from 227,000 to 240,000.
The sectors that added the most jobs in March included manufacturing, up by 37,000; food services and drinking places, also up by 37,000; professional and business services, up by 31,000; and health care, up 26,000. The sector shedding the most jobs was general merchandise stores; that area lost 32,000 jobs on the month.
Most of the employment categories were little changed from February. Perhaps the most encouraging change was in the category of involuntary part-time workers - people who are working part-time, but want to work full-time. The number of people in that group fell by 400,000. The other bit of good news is that both January and February's number of new jobs was revised upward: January went from 275,000 to 284,000, and February went from 227,000 to 240,000.
The sectors that added the most jobs in March included manufacturing, up by 37,000; food services and drinking places, also up by 37,000; professional and business services, up by 31,000; and health care, up 26,000. The sector shedding the most jobs was general merchandise stores; that area lost 32,000 jobs on the month.
Thursday, April 5, 2012
Cutting the Boss' Pay
It's almost become an American pastime to criticize excessively compensated CEOs, especially when the corporations involved aren't performing well. According to a new research study, there's a reason aside from basic fairness to be concerned about this. As it turns out, there's a direct correlation between cutting a CEO's pay and the resulting performance of his company's stock.
A team of researchers looked at 927 instances between 1994 and 2005 in which a CEO's pay was cut by at least 25 percent. In the year in which the CEO's pay was lowered, the median stock return for the companies involved was a loss of 8 percent. But in the year after the pay cut, the median stock in the study increased by 10 percent.
Cutting a CEO's pay is more common than generally believed, and is much more common than simply firing the CEO. The same study found that the boss was twice as likely to have his or her pay cut drastically than to simply be replaced.
A team of researchers looked at 927 instances between 1994 and 2005 in which a CEO's pay was cut by at least 25 percent. In the year in which the CEO's pay was lowered, the median stock return for the companies involved was a loss of 8 percent. But in the year after the pay cut, the median stock in the study increased by 10 percent.
Cutting a CEO's pay is more common than generally believed, and is much more common than simply firing the CEO. The same study found that the boss was twice as likely to have his or her pay cut drastically than to simply be replaced.
Wednesday, April 4, 2012
The First Quarter's Big Winners
Yesterday we looked at the big-picture results for the first quarter of 2012. Now let's take a look at individual stocks. Here are the ten biggest gainers in the S&P 500 for the first three months of the year:
1. Sears Holdings (up 117 percent)
2. Bank of America (up 76 percent)
3. Netflix (up 72 percent)
4. Whirlpool (up 60 percent)
5. Federated Investors (up 55 percent)
6. Priceline.com (up 54 percent)
7. Regions Financial (up 53 percent)
8. Apple (up 53 percent)
9. Salesforce.com (up 52 percent)
10. Pulte Group (up 50 percent)
You'll notice that several of those stocks, like Sears, Bank of America, and Netflix, have posted huge gains in large part because they were beaten up so badly in 2011. Ironically, those three stocks had nearly identical years last year: Sears was down 57 percent in 2011, B of A was down 58 percent, and Netflix was down 59 percent.
1. Sears Holdings (up 117 percent)
2. Bank of America (up 76 percent)
3. Netflix (up 72 percent)
4. Whirlpool (up 60 percent)
5. Federated Investors (up 55 percent)
6. Priceline.com (up 54 percent)
7. Regions Financial (up 53 percent)
8. Apple (up 53 percent)
9. Salesforce.com (up 52 percent)
10. Pulte Group (up 50 percent)
You'll notice that several of those stocks, like Sears, Bank of America, and Netflix, have posted huge gains in large part because they were beaten up so badly in 2011. Ironically, those three stocks had nearly identical years last year: Sears was down 57 percent in 2011, B of A was down 58 percent, and Netflix was down 59 percent.
Tuesday, April 3, 2012
A Strong Quarter
The first quarter of 2012 ended last Friday, with a very positive record for the stock markets. The S&P 500 finished the quarter up 12.59 percent. The Dow Jones industrial average closed the quarter more slowly, gaining just 8.84 percent, but the Nasdaq rose by 18.67 percent.
There were gains nearly everywhere you look. According to Morningstar, the worst-performing investing style for the three months was large-cap value, which still returned 8.25 percent. At the other end of the spectrum, large-cap growth stocks returned 17.5 percent, the best performer among the investing styles. The top sector for the quarter was financial services, up 22.29 percent; the worst - and the only sector to lose value - was utilities, which were down 1.51 percent.
One odd thing about the gains is how smooth they were. In 2011, when the markets were basically flat, there were 68 trading days where the S&P 500 moved up or down by more than 2 percent. That kind of volatility has been mostly absent this year. So far in 2012, we've had only one such day.
There were gains nearly everywhere you look. According to Morningstar, the worst-performing investing style for the three months was large-cap value, which still returned 8.25 percent. At the other end of the spectrum, large-cap growth stocks returned 17.5 percent, the best performer among the investing styles. The top sector for the quarter was financial services, up 22.29 percent; the worst - and the only sector to lose value - was utilities, which were down 1.51 percent.
One odd thing about the gains is how smooth they were. In 2011, when the markets were basically flat, there were 68 trading days where the S&P 500 moved up or down by more than 2 percent. That kind of volatility has been mostly absent this year. So far in 2012, we've had only one such day.
Monday, April 2, 2012
Dropping Defaults
One nice piece of fallout from the improved economy is that the number of corporate defaults has fallen away to very low levels. There were 53 corporations that defaulted in the entire world in 2011, according to Standard & Poor's. That's down from 81 defaults in 2010, and a whopping 265 in 2009.
This bit of news is of great importance to investors in high-yield bonds, what used to be called junk bonds. Companies at risk of default are the ones that are going to need to issue high-yield debt. Of all the corporations that defaulted last year, only one had a credit rating better than junk status.
That's not to say that companies with a rating that forces them into high-yield debt are at any great risk of defaulting. Among American corporations with junk status, just 2 percent of them went into default in 2011.
This bit of news is of great importance to investors in high-yield bonds, what used to be called junk bonds. Companies at risk of default are the ones that are going to need to issue high-yield debt. Of all the corporations that defaulted last year, only one had a credit rating better than junk status.
That's not to say that companies with a rating that forces them into high-yield debt are at any great risk of defaulting. Among American corporations with junk status, just 2 percent of them went into default in 2011.
Subscribe to:
Posts (Atom)