Tuesday, April 29, 2014
Bank of America (BAC) announced that it would halt plans to buy back its stock and would not increase its dividend. The change was because BAC found an accounting mistake that reduced its capital by $4 billion. Because of banking regulations, BAC has to receive approval from the Fed to increase dividends or repurchase stock. In a previous attempt to increase dividends, the Fed miscalculated BAC's capital. As you would expect, the news affected the stock price, with a drop of over 6 percent on the day.
Wednesday, April 9, 2014
A 6th grade class from Fargo, North Dakota, recently trounced the competitors in a stock picking competition that included groups from major universities. The students' portfolio included many companies that were familiar to them, including Netflix, Starbucks, and Under Armour. The 6th graders' portfolio had a return of 22 percent since creation, outpacing the McIntire Investment Institute's 18.5 percent return. Maybe these students will be the future Warren Buffett or Peter Lynch. Then again, as one student said, "I think it was sheer luck."
Monday, April 7, 2014
Sears Holdings spun off Lands' End today, although the new stock was greeted poorly by the market. In early trading, the price of Lands' End stock dropped about 7 percent, while Sears' stock increased about 1.5 percent. Sears had originally purchased Lands' End for about $2 billion in 2002. The move is designed to allow Sears to focus on its core operations. Before the split, Lands' End paid a dividend of $500 million to Sears and the hedge fund run by Eddie Lampert, CEO of Sears, will retain about 49 percent of the stock in Lands' End, about the same percentage it has in Sears Holdings. Although you know that diversification is not a good reason for a merger, the diversification benefit of this particular spin off may be even greater than normal. Sears lost about $1.4 billion last year and there is speculation that the company may be forced into bankruptcy. In the event that Sears does file bankruptcy, the assets of Lands' End will no longer be included in the assets of Sears Holdings.
Wednesday, April 2, 2014
At the end of 2013, nonfinancial U.S. corporations held $1.64 trillion in cash, a 12 percent increase from 2012. Apple's cash hoard reached $158.8 billion, or about 9.7 percent of all corporate cash assets. Additionally, U.S. based multinationals have $1.95 trillion outside of the country. Much of the increase in international cash balances was driven by Microsoft, Apple, and IBM.