Update Qualcomm (QCOM)
Qualcomm (QCOM) is doing all it can to support its stock price—but the second half still depends on getting margins higher.
On March 1 the company’s board of directors voted to increase the company’s quarterly dividend by 12% to 19 cents a share from the previous 17 cents a share. The new 76 cents a share annual rate is equal to a 2.03% yield on the noon price on March 2. (The increase is effective for dividends paid after March 28.)
The board also authorized a new $3 billion share buyback program. This replaces the company’s recently expired $2 billion program. (As is typical of most share buyback programs this one wound up buying back fewer shares—about $1.7 billion—than authorized.)
The stock has popped today on the news—up about 5% as of noon—since companies typically use dividend increases to signal their confidence in the company’s future. In this case I think investors are thinking that the company is saying that it believes that its call for a second half 2010 increase in average selling prices—which would bring higher margins—is accurate.
Want to see the U.S. dollar’s future? Watch the fall of the pound
Short-term politics trump long-term economics. That’s the message in the beating administered to the pound yesterday.
The implications for the United States are rather depressing.
The pound got killed yesterday (March 1), falling almost four cents against the U.S. dollar and dropping below the $1.50 level that has provided major support.
The reason? New polls that show that the Conservative Party lead in the next election, expected in May, has just about evaporated and that the country faces the real prospect of a hung parliament with no party in an overall majority.
The financial markets had been willing to cut the pound some slack despite a big current budget deficit and an economy where growth lags both the euro economies of the continent and the United States because of the belief that a Conservative Party victory would result in immediate spending cuts. But that relative optimism is in short supply now that the currently ruling Labor Party is within 2 percentage points in the polls. Experienced election observers say that the electoral system in the United Kingdom could well leave the Conservatives short of a majority even if the party wins the election,
The price of 10-year government bonds, called gilts, has not only plunged but is now trading below comparable Italian and Spanish 10-year bonds.
The yield on 10-year gilts is now 0.976 percentage points above the yield on the benchmark German 10-year bonds, called bunds.
That’s not especially surprising given that the German budget and economy are both in better shape than their U.K. counterparts.
But the rout in the pound has pushed the yield premium on gilts above the 0.827 percentage point premium on Italian 10-year bonds and the 0.725 percentage point premium on Spanish 10-year bonds.
The one must-have number for successful long-term investing
How do you decide what to buy?
I get the question a lot and I think it’s a good one. The answer depends on things like how long I’m planning to hold the stock, whether I see it as a value or a growth play, and where the momentum is in the market.
If I’m looking for a long-term investment, though, I don’t start with any of that stuff of with any of the usual measures such as price-to-earnings ratios, earnings growth rates, PEG ratios, or price to book or price to sales.
I start with ROIC—return on invested capital. I don’t think there’s a single number that tells investors more about whether they want to buy and hold a stock.
Do the new Coke and the new PepsiCo both fail the taste test?
Gee, I really hate this deal.
It’s not just that I question the price that Coca-Cola (KO) is paying to acquire the North American operations of its biggest bottler Coca-Cola Enterprises (CCE). The $12.7 billion price works out to about the same multiple that PepsiCo (PEP) paid to acquire its two biggest bottlers. After the deals both close Coke will have control of about 90% of its North American bottling and distribution system; Pepsi will control about 80%. But while the companies are paying about the same price PepsiCo looks like it has a much bigger opportunity to cut costs in its deal than Coke does.
Or that the deal takes away a major reason to own shares of Coca-Cola. Wall Street preferred Coke to Pepsi because it saw Coke as the better emerging markets play. But this deal will take Coke’s revenue from 74% overseas to 54% overseas, according to Barclays Capital.
Or even what the deal says about the declining market for soft-drinks in North America. And the shift in power toward big box stores such as Wal-Mart (WMT.) First, U.S. sales volume of carbonated drinks is down across the industry according to Beverage Digest. Sales volume fell in 2009 following a 3% decline in 2008, a 2.3% drop in 2007, and a 0.6% falling 2006. At the same time, the increasing market power of big box retailers has put pressure on soft drink margins and cut into the shelf-space that Coke and Pepsi get for their bottled waters and the other non-carbonated drinks that they’re counting on to make up for the drop in carbonated soft-drink sales volumes.
No, what really troubles me is that this deal has history, you see. And the history is one of asset-shuffling and accounting razzle-dazzle. If these companies’s are willing to forgo the financial magic that the deals brought them in 1986 and 1999, respectively, then the long-term challenges facing these companies are more serious than I thought. (For more about the implications of the current wave of deals see my post http://jubakpicks.com/2010/02/26/can-ceos-destroy-shareholder-value-in-an-acquisition-just-watch-them/ )
Update Potash of Saskatchewan (POT)
Potash of Saskatchewan (POT) has been doing a lot of talking recently at private dinners with Wall Street analysts and Wall Street conference calls.
The picture that emerges is of a company a lot more confident that it can see the turn in the fertilizer market.
