Morning Commentary
For the past several months, corporations’ buying back their own stock has become the reason for great confidence, but also a greater reason for scrutiny. Ironically, in the past corporations developed a poor reputation for buying, often loading up at the top, but avoiding chances to buy on the dip. Check out all the buying into the 2007 market top and lackluster buying in 2009.
We discussed this on my show last night, Making Money with Charles Payne on Fox Business (each week night at 6PM), and the most relevant point that was brought up was interest rates.
Essentially, corporate America is taking very cheap money to make major investments even the richest company in the world borrowed money to buy back its own stock. But not every company is Apple. That said, we have entered a phase in the market where earnings and guidance are now taking a backseat to dividend hikes and stock repurchase news.
That was the case this morning as both Children's Place (PLCE) and Dollar General (DG) have reported earnings, but that news was overshadowed by commitments to return capital to shareholders in the form of higher dividends and buybacks.
In addition, to those retailers we got results from a couple hot IPOs last night after the bell. Shake Shack (SHAK) and Box, Inc. (BOX) both enjoyed solid growth, however it was not enough to justify lofty valuations that had already come down hard from the first week of trading.
With more and more IPOs seeming like duds in comparison to the 1990s, the IPO frenzy will continue.
But the quantity and quality of IPOs against the 1990s are night and day. Far fewer deals and lot more revenue.
The problem isn't quality; it's the way these hot deals are bulked up in private before the public gets a piece of the action. I think it's a raw deal and hope investors shun more and more of these deals. The problem is even on pullbacks, it’s difficult finding true value or a bottom (I'm learning this the hard way) because fundamentals are ignored and the shorts are in control.
Overnight, Alibab (BABA) took a stake in Snapchat that values the company at $15 billion from $10 billion a few months ago. You can bet by the time you get a chance to own Snapchat it will be at valuations significantly higher.
Bank Buybacks and Stress Test
First, let me say I think the bank stress tests are a (bad) joke. That said, 3 of 31 banks actually did not pass the test; and while two are foreign, keep in mind, they have access to Federal Reserve funds. The biggest winner from the test appears to be Citigroup while the biggest losers are Bank of America (which has to resubmit), Goldman Sachs, Morgan Stanley and JP Morgan which issued stock buybacks that were less than anticipated.
Symbol |
New Dividend (Q) |
Prior Dividend (Q) |
Share Buybacks |
AXP |
0.29 |
0.26 |
$6.6 billion |
BAC |
0.05 |
0.05 |
$4.0 billion |
BBT |
0.27 |
0.24 |
$820 million |
BK |
0.17 |
0.17 |
$3.1 billion |
C |
0.05 |
0.01 |
$7.8 billion |
CFG |
0.10 |
0.00 |
$500 million |
CMA |
0.08 |
0.07 |
$725 million |
COF |
0.40 |
0.30 |
$3.125 billion |
DFS |
0.29 |
0.24 |
$2.2 billion |
FITB |
0.14 |
0.13 |
$756 million |
GS |
0.65 |
0.60 |
TBD |
HBAN |
0.07 |
0.06 |
$366 million |
JPM |
0.44 |
0.40 |
$6.4 billion |
MS |
0.15 |
0.10 |
$3.1 billion |
NTRS |
0.36 |
0.33 |
$675 million |
PNC |
0.51 |
0.48 |
$2.875 billion |
RF |
0.06 |
0.05 |
$875 million |
STI |
0.20 |
0.24 |
$875 million |
STT |
0.34 |
0.30 |
$1.8 billion |
USB |
0.26 |
0.25 |
$3.022 billion |
ZION |
0.06 |
0.04 |
$700 million |
Today’s Session
I continue to ask what's bugging Main Street. Sure, the feeble recovery is frustrating and dispiriting, but I continue to think it goes to a national malaise centered on a lack of leadership. Consider the latest 'most important' poll from Gallup that shows the government is by far the most important problem facing the country.
This poll is backed up with this morning's data which showed marked improvement in the labor picture as 289,000 folks filed for initial jobless claims against consensus of 306,000.
Yet, despite rapid improvement in overall job creation and cheap interest rates, consumers are not spending. Sure, we can blame it on the weather, but last February was no walk in the park and consumers opened their wallets and purses. The fact is after flattening out last spring retail sales have collapsed since December.
Equities are mixed because this report makes it difficult for the Fed to hike rates- there is no urgency if measured by Main Street which wasn't in the flight path of all those Fed trillions.
Note: Intel (INTC) warned this morning so the NASDAQ should be under pressure as it will drag semiconductors and other tech names potentially lower. The lower guidance surrounds PCs, which were supposed to be dead a decade ago.
Comments |
1)Do you not believe that these buybacks are Board and Mgt's intent just to disguise and cover issuance of options. 2) Is it not true that if stock is repurchased at a price BELOW Shareholder Equity per share it is beneficial...higher than equity per share it reduces that number. 3) most commentators fail to mention any buyback approved is a right NOT an obligation..most Co's never come close...use it as pure hype!! RLB on 3/12/2015 11:50:39 AM |
Why has the economy been so bad this year compared to last? I'd list 3 things: 1. This winter has blasted the northeast like nothing else in the last 10 years. 2. The continued low labor participation rate confirms underlying weakness in the real economy. And 3. The recklessness of the administration on both the foreign and domestic fronts (Syria and Ferguson don't seem worlds apart) have increased consumer anxiety about the future. If a Democrat like Hillary wins in 2016, many will conclude that America's halcyon days are definitely over. Alinksy's Rules for Radicals are definitely hard at work in Ferguson. Dennis Howard on 3/12/2015 10:03:22 PM |
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