Morning News: May 23, 2013
Posted by Eddy Elfenbein on May 23rd, 2013 at 7:15 am

Japanese Stocks Fall Sharply

China Factory Activity Shrinks For First Time In Seven Months: Flash PMI

IMF’s Lagarde Heard by Court in Sarkozy-Ally Arbitration Probe

Bernanke Seeks Sustained Job Gains Before Paring Bond Buy

House Set To OK Pegging Student Loan Rates To Financial Markets Despite A Veto Threat

Cash Piles Up as U.S. CEOs Play Safe With Slow-Growth Economy

Torches and Pitchforks for IRS But Cheers for Apple

Lenovo Quarterly Profit Rises 90% on Market Share Gains

Target Earnings: Outlook Cut Follows Weak Sales

U.S. Retailers See Big Risk in Safety Plan for Factories in Bangladesh

EU Regulators Accept Lufthansa, United Antitrust Offer

SoftBank Would Appoint “Security Director” To Sprint Board

UK Regulator Fines Jpmorgan 3 Million Pounds

Joshua Brown: Chills n’ Wrath

Credit Writedowns: Excess German Savings, Not Thrift, Caused the European Crisis

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Flowers Foods to Split and Raise Dividend
Posted by Eddy Elfenbein on May 22nd, 2013 at 8:58 pm

I often point out to investors that there are a lot of dull and little-known companies that have been great investments. One of the best has been Flowers Food ($FLO). Here’s a company description from Hoovers:

Flowers Foods is a rising star in baked goods. The company is one of the largest wholesale bakeries in the US. Flowers Foods bakes, markets, and distributes fresh breads, buns, rolls, corn and flour tortillas, and sweet bakery goodies to retail food and foodservice customers in the western, southern, and northeastern US. The company’s brand names include Cobblestone Mill, Nature’s Own, and Tastykake. Flowers Foods makes snack cakes, pastries, donuts, and frozen bread products for retail, vending, and co-pack customers nationwide. It also rolls out hamburger buns for national fast-food chains. Flowers Foods has agreed to buy several bread brands, including Wonder, and about 20 bakeries from Hostess Brands.

Exciting, huh? Yeah, I know it sounds pretty boring but FLO makes stuff people need, and after all, that’s all that business is.

The stock is currently at $34 per share; 18 years ago, you could have picked them up for $1 apiece. Since 1995, FLO has split 3-for-2 seven times (and that doesn’t include another in 1987), plus they just announced another 3-for-2 split today. Flowers is also raising its dividend by 5.5% to 11.25 cents per share per quarter.

Despite a stellar track record and a market cap near $5 billion, Flowers is followed by just nine Wall Street analysts. Netflix ($NFLX) is followed by 24 even though FLO makes about seven times the profit.

Ford Expands Production
Posted by Eddy Elfenbein on May 22nd, 2013 at 9:39 am

So many things are going right for Ford ($F) these days. A few years ago, the company was worrying about staying alive. Today, it’s worried about keeping up with demand.

The WSJ reports:

Ford Motor Co. plans to increase its North American manufacturing capacity by 200,000 vehicles in 2013 through a series of production-line expansions and a shortening of its normal summer shutdown by a week at several plants.

The Dearborn, Mich., auto maker won’t say what its total capacity is, but the company built 2.8 million vehicles in the region last year and was working near full capacity.

Ford will reduce its normal summer shutdown to one week from two at most of its North American plants. That alone will add 40,000 units of capacity, the company said. Also, it plans to speed up production at other plants to meet demand.

Ford recently said it would add a third shift to its Kansas City, Mo., F-150 pickup truck plant, adding 900 workers. It also is adding a shift of workers to an assembly plant near Detroit that will make the Fusion sedan as well as the Mustang.

After spending years closing plants and battling with its U.S. unions to get cost-savings, Ford is adding back production and is running at nearly full capacity, said Jim Tetreault, Ford’s North American manufacturing chief.

“We have three-quarters of our plants running on three crews,” Mr. Tetreault said. Three shifts at a plant is considered beyond “full capacity,” which typically is two shifts running 40 hours a week. Going around the clock makes plants more efficient and profitable.

I think Ford is a $20 stock.

Morning News: May 22, 2013
Posted by Eddy Elfenbein on May 22nd, 2013 at 7:21 am

Bank of Japan to Bond Markets: We Hear You

Russia Shelves Bond Auction Citing Lack of Competitive Bids

In Europe, a Fed President Urges Quantitative Easing

Dudley Says He Can’t Be Sure If Next QE Move Is ‘Up or Down’

Even Before Apple Tax Breaks, Ireland’s Policy Had Its Critics

Apple’s Web of Tax Shelters Saved It Billions, Panel Finds

Google Joins Apple Avoiding Taxes with Stateless Income

Sony Board Considers Plan for Entertainment IPO

Vote Strengthens Dimon’s Grip

Ford Adding 200,000 to Capacity as Fusion, F-Series Gain

Lowe’s Earnings Fall Short of Estimates

Toll Brothers Profit Rises 46%

Staples Quarterly Profit Misses Analysts’ Estimates

Cullen Roche: The Portfolio Manager Strategy Cycle

Howard Lindzon: Tumblrnomics – The Winners of the Tumblr and Yahoo Deal are …..Web Entrepreneurs, Creatives and Angel Investing…The Loser is The Middle Class

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19 Straight Tuesdays for the Dow
Posted by Eddy Elfenbein on May 21st, 2013 at 4:02 pm

For the 19th time in a row, the Dow has rallied on a Tuesday.

JPMorgan Chase Raises Dividend
Posted by Eddy Elfenbein on May 21st, 2013 at 3:31 pm

Fresh after winning its vote, Jamie Dimon and JPMorgan Chase ($JPM) raised its quarterly dividend by 26.7% to 38 cents per share. The old dividend was 30 cents per share. Based on the new dividend and this afternoon’s price, JPM yields 2.86%.

That Goldman Sachs Report
Posted by Eddy Elfenbein on May 21st, 2013 at 2:42 pm

Here’s a link to that Goldman Sachs report that’s been getting so much attention. In it, Goldman says the S&P 500 could reach 2,100 by 2015. They forecast earnings of $124 for 2015 so that translates to an earnings ratio of 17.

Here’s more from ValueWalk and Josh Brown.

The Russell 2000 Breaks 1,000
Posted by Eddy Elfenbein on May 21st, 2013 at 2:12 pm

Yesterday, the Russell 2000 index broke 1,000 for the first time ever. The index has a chance to close over that mark today.

While large-cap stocks have had a hard time over the last several years, small-caps have done quite well. Consider this: if the S&P 500 had kept pace with the Russell 2000 over the last 14 years, it would be over 3,200 today.

Surowiecki: “But This Time It Is Different”
Posted by Eddy Elfenbein on May 21st, 2013 at 11:53 am

Just because the stock market is up doesn’t mean it’s a bubble. Nor does it mean that the rally is unsustainable. In the New Yorker, James Surowiecki says that this time, things really are different.

Take taxes: one big reason that after-tax corporate profits are much higher than their historical norm is that corporations pay much less in taxes than they used to. In 1951, corporations had to pay almost half of reported profits in taxes. In 1965, they had to pay more than thirty per cent. Today, they pay only around twenty per cent.

Then, there’s globalization. Many of the “American” companies in the S. & P. 500 are multinationals: a study of two hundred and sixty-two of them found that, on average, they got forty-six per cent of their earnings from abroad. This is a relatively new phenomenon. As late as 1990, foreign earnings accounted for only a small fraction of corporate profits in the U.S. Today, they account for almost a third of corporate earnings, and they’ve nearly tripled since 2000. So comparing corporate profits only to American G.D.P. yields a false picture of how companies are doing. The global economy, even with its current woes, is projected to grow more briskly than the U.S. economy over the next decade, so corporations will continue to benefit.

Finally, the decline of unions and the sluggish labor market have enabled corporations to cut payrolls, thus keeping profits high. The result is that labor’s share of the economy has fallen steeply. Skilled workers are still in demand, but most workers have little bargaining power. This could change if there is another economic boom—during the tech bubble, in the late nineties, wages did rise briskly—but, even in that case, corporate profits would likely stay high, as increased sales would make up for narrowing profit margins.

Surowiecki concludes that the boom is real, but workers are being left on the sidelines.

Jamie Wins
Posted by Eddy Elfenbein on May 21st, 2013 at 10:53 am

The New York Times is reporting that shareholders of JPMorgan Chase ($JPM) have voted down a proposal to separate the jobs of Chairman and CEO. I’m disappointed to see this but I’ll be curious to see how large Jamie’s victory margin was. The bank continues to do well (new 52-week high today) but many people are clearly not happy with Mr. Dimon’s leadership.

Update: 32% of shareholders voted against Jamie.