Posted on 03/15/2015 7:00:49 AM PDT by expat_panama
Utilities and "companies like steelmakers" benefit from cheap oil and strong dollars. "Major exporters" (whoever they are) -- to the extent that they use raw materials and labor from abroad also benefit from cheap oil and a strong dollar on the cost side of the income statement.
Stock valuations are stretched IMO. Very hard to find bargains with a margin of safety.
Exactly. While pundits may get paid for doom’n’gloom content the fact remains that there are many more oil consumers than producers and the falling price will benefit a hefty majority.
A lot of folks are saying that, and have been saying it seems like forever; but when I get out PE's, div-yeilds, etc. I'm really hard pressed to find a clear signal.
Same with the Swissy unpegging. For every dollar lost, there was a dollar made, and a lot of it on margin.
The quality of earnings concerns me. As is generally known, many companies are buying back shares with borrowed money. This can be a smart thing to do given that low rates make this financial engineering possible. This juices earnings since there are fewer shares outstanding after each round of buybacks. So even with a flat revenue, you can still achieve “higher earnings”. But what happens when all those easy buybacks stop because of rising interest rates?
Stand by for a ramming.
So they’re taking on debt to make their earnings look better? Yikes.
get out PE's, div-yields, etc
The quality of earnings concerns me. As is generally known, many companies are buying back shares with borrowed money
Virtually all corporations raise capital with some combination of share sales and borrowing, which is why investors also look at say, debt/equity ratios or return on equity when evaluating an investment. The point is to go past 'quality' and get into 'quantity', in order to calculation how much or how little to invest.
There's a lot of negativism around, but when folks say the metrics are bearish I still get nowhere when it comes to actually getting to see those metrics to compare w/ times past when markets later proved to be failing.
When earnings go up, and the stock price follows, executive compensation also rises. There’s a big incentive to push earnings up.
That can sound bad but most individual investors and practically all institutional investors know better. Publically traded corps have to report borrowing just like they report earnings.
Debt by itself isn't a problem, I'd be happy to buy Apple if they changed their debt to equity ratio to 99.999,999,9%, that would mean I could buy all their shares for $1,000. Over the past 40 years their market cap has doubled on average 30 times over the past four decades. At that rate in four years I could sell my shares for $7T.
What a scam.
big incentive to push earnings up.
Taking on debt could make earnings look better compared to the number of shares, but the amount of earnings wouldn't change unless taking on debt somehow made a serious improvement in corp's earning power. If it did, then that's good.
Virtually all corporations raise capital with some combination of share sales and borrowing
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True but in this case we’re not talking about raising money for capital expenditures or other business needs. It’s about taking on debt solely to buy back shares. I prefer to see real, organic growth instead. Just my view.
To your other point, fundamentals don’t seem to matter much anymore. This is a fed-driven market and that printing party seems to be coming to its inevitable end. That concerns me. IMO there is a lot of downside risk right now.
If you’re a corporate executive, a rising EPS is a good thing. No matter how you did it. Can you say bonus time? I knew you could.
Its good work if you can get it! :) The compensation committee may even up your options next year!
We can agree that there are corp execs that have perks tied to earnings increases, but let me know if you can name one exec who'd cash in if he boosted the EPS by buying back all but a couple shares while earnings fell by 90%.
In a pig's eye. Never happen.
Operating remotely from Big Easy (New Orleans) this week.
Mrs. abb and I using a few pence from investing proceeds to sightsee and sample a plate or two of the gourmet fare available here.
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