Thiel In Control

Palantir Industries, the data-mining company owned by billionaire Peter Thiel, went public this week. But take note, if you buy stock in the company you will have virtually no say in the company's operations. Thanks to super-voting shares, Thiel and two other co-founders will retain voting control in perpetuity. Other Silicon Valley companies like Alphabet, Facebook, and Snap have similar voting structures. As Ohio State professor Michael Weisbach notes, "They  set it up so Peter Thiel can still sort of run it like a private company and still have the advantage of being public." The three co-founders will retain 49.99 percent of the voting power in the company regardless of the number of shares owned.    

Harley-Davidson Abondons India

Harley-Davidson announced that it was discontinuing manufacturing and sales in India, effectively abandoning the world's largest motorcycle market. Harley-Davidson joins the list of foreign manufacturers that have not been able to enter the Indian market, including General Motors, which stopped sales in India in 2017, and Ford, which entered a joint venture to scale back its Indian operations. These companies all exercised the option to abandon.

Dividend Comeback

Dividends took a major hit during the early part of the COVID lockdown, with numerous companies cutting or eliminating dividends. Now it appears that dividends are making a comeback. In August, 13 S&P 500 companies announced dividend increases, but only two companies announced a dividend cut. Remember, a company will generally only increase dividends if it believes that it can maintain that dividend in the future. Overall, this appears to be an indication that these companies believe the worst of the economic crisis may be over.

Loyalty Backed Bonds

Delta announced that it would issue $6.5 billion worth of new bonds. What is particularly interesting is that the bonds will be backed by the company's SkyMiles loyalty program. Although Delta did not disclose the value of SkyMiles in the announcement, United Airlines issued debt in June backed by that company's MileagePlus program, which it valued at $20 billion.

NPR Goes Junk

A recent podcast from Planet Money on NPR details the purchase of a junk bond issued by Hornbeck Offshore. Hopefully, the initial purchase was designed for the podcast, not as an investment. For example, the bond was purchased because it had the lowest price, which means the bond had the highest yield to maturity because it was likely the closest to bankruptcy. If you listen to the podcast, you will find out that the company did eventually go through a bankruptcy reorganization. One of the most perceptive comments made after the bond was initially purchased was that it would not likely make it to maturity. The podcast is worth a listen since it is an interesting journey of the purchase of a junk bond through the bankruptcy process.

BMW's Operating Leverage

A recent Wall Street Journal article highlights the operating leverage for several auto manufacturers. For example, BMW lost €666 million ($784.1 million) during the most recent quarter. A large part of the loss was due to the company's operating leverage. BMW loses $.43 for every dollar of lost sales, which of course means that the company gains $.43 for every increased dollar of sales. By way of comparison, Fiat Chrysler's operating leverage is about 18%, GM's is about 20%, and Ford's is about 25%. As a result, we would expect BMW's earnings to be more volatile when compared to other auto companies.

Currency Fluctuations Damage Earnings

In its latest report, Kyriba estimates that North America companies earnings fell by $10.77 billion due to currency fluctuations last quarter. The most common currencies affecting earnings were the Brazilian real, the euro, and the Mexican peso. The industry that was most affected was Healthcare Equipment & Supply. In contrast, European companies had a negative earnings impact of $1.44 billion.