Another day, another blow for Bill Ackman. The billionaire hedge fund manager has added one more adversary betting against his highly publicized $1 billion short of Herbalife, as reports suggest legendary investor George Soros has taken a sizeable position in the nutritional supplements company. The stock, which has already doubled this year, took off again on Wednesday, further squeezing Ackman’s probably losing short position. …read more
It wasn’t a good Monday for hedge fund billionaire Bill Ackman. Herbalife, the nutritional supplements company he’s been shorting to the tune of $1 billion, posted strong second quarter numbers, including a top and bottom-line beat, and raised guidance. The stock, which is up big time this year, took off in the post-market session. …read more
The following is a diversion from typical “Prison Complex” posts, but it certainly falls within Forbes’ wheelhouse. Plus, it’s fascinating. Don’t fret: we’ll be back to dissecting U.S. prison spending soon. — Matt Stroud ——— In case you haven’t been following along, Wall Street hedge fund manager Bill Ackman has been saying very publicly since December that Herbalife, the multi-billion dollar nutritional supplement multi-level marketing company (MLM), is a sham. Ackman is so convinced of Herbalife’s fraudulence that he’s placed a billion-dollar Wall Street bet that the company’s dishonest business practices will eventually kill it. To bolster his public outrage, Ackman has repeatedly invited the U.S. Federal Trade Commission to conduct an investigation into the company’s inner workings. He’s not alone on that front. California congresswoman Linda Sanchez made a similar call recently. New York City Councilwoman Julissa Ferreras did the same. So did the National Consumers League in March. And while FTC representatives have said they find the company’s business practices “disturbing” — and rumors continue to swirl about an Herbalife probe — an official investigation has yet to be launched. Ackman, Rep. Sanchez, Ferreras, and others hope that’ll change. But if the U.S.’s historical approach to MLMs is any indication, they may have to wait a long time. The Amway Decision The landmark MLM case in the U.S. occurred way back in 1975. At that time, the FTC went after Amway for many of the same reasons Ackman and others want the FTC to go after Herbalife today. Amway is a Michigan-based multi-level marketing company (MLM). It’s international — one of the first MLMs to become a household name in the US and one of the first to expand successfully abroad. It’s got a vast product line (including home and personal care products, electronics, jewelry, even insurance and dietary supplements) but its business model is indistinguishable from MLMs all over the world: its non-employee distributors are paid small commissions to sell products and recruit as many new distributors as possible. While the eventual ruling in the 1979 Amway case didn’t make Amway look very good, it also shielded other MLMs from prosecution. As the FTC saw it, Amway had two main problems. First, its distributors weren’t really selling anything. Amway’s distributors would receive a percentage of what they sold, a bonus percentage for what their recruits sold, another bonus percentage of what their recruits’ recruits sold, and so on. But they could only maximize and maintain those percentages by remaining “active” — by selling a certain amount of product every month. So they took the easy way out: instead of selling products, distributors would just buy the minimum number of products every month and stash it somewhere. Second, Amway made unprovable claims about distributors’ income. The FTC decision — a 121-page document that describes years of arguments and questions about Amway’s sales practices — walks readers through a litany of Amway-approved pitch lines: “What are some of your dreams?” “Do you want a new car, a new house, college …read more
For more than a year, I have been following the transformation fiasco at J.C. Penney . On Feb. 5, 2012 — as the stock was nearing its peak above $40 — I suggested that the company was “the Netflix of 2012″, referring to Netflix’s 75% fall from peak to trough during 2011. Sure enough, J.C. Penney stock has fallen nearly 70% since I suggested back then that investors should sell or short the company:
J.C. Penney Stock Chart (Feb. 1, 2012-present), data by YCharts.
J.C. Penney’s dreadful performance can be attributed primarily to the ambitious but poorly tested transformation plan implemented by CEO Ron Johnson shortly after his arrival at the company. Johnson’s merchandise changes and attempts to dramatically scale back the use of coupons and sales alienated many previously loyal customers. On Monday afternoon, J.C. Penney’s board confirmed the inevitable, firing Johnson after only 17 months on the job.
The new (old) boss Unfortunately for shareholders, J.C. Penney stock dropped by more than 10% when the markets reopened on Tuesday. Apparently, Mr. Market wasn’t inspired by the J.C. Penney board’s choice of successor: Mike Ullman. Ullman was the CEO who was pushed out in 2011 to make room for Johnson. At the time of Johnson’s hiring, shareholders were delighted to get rid of Ullman. In fact, J.C. Penney’s largest shareholder, activist investor Bill Ackman, was instrumental in bringing Johnson on board. It is somewhat understandable that shareholders were happy to show Ullman the door; J.C. Penney stock delivered a total return of approximately negative 12% in the six-and-a-half years between when Ullman became CEO and when Johnson’s hiring was announced:
J.C. Penney Total Return (December 2004-June 2011) data by YCharts.
To some extent, Ullman was playing with a bad hand; his previous tenure included the Great Recession, which decimated nearly all retail stocks. That said, Kohl’s was able to contain the damage from the recession, and Macy’s has bounced back very strongly, posting four straight years of double-digit EPS increases. Meanwhile, J.C. Penney was already on the way back down when Ullman left, with same-store sales down 1.6% and gross margins down 160 basis points year-over-year in his last quarter at the helm, driving lower adjusted EPS.
J.C. Penney stockholders thus have good reason to doubt that Ullman has any good answers for the company’s woes. The company’s long-term underperformance vis-a-vis Macy’s and Kohl’s is largely the result of its stodgy image and aging customer base. As I wrote back in February, bringing back sales won’t necessarily bring back profits (or customers) for J.C. Penney. In fact, there are some good reasons to believe that performance will continue to slide; when all is said and done, J.C. Penney stock could be sitting in the single digits.
Challenges ahead
It seems all but certain that first-quarter sales have been dreadful, and I expect J.C. Penney to lose even more money than it did last year, when it posted an adjusted
J.C. Penney announced yesterday that CEO Ron Johnson was stepping down from the helm of the beleaguered discount retailer, naming former top executive Mike Ullman to take his place and return to the position he held from 2004 until Johnson’s hire in 2011. In response, the shares fell more than 12% today, extending a decline that has lopped 60% off J.C. Penney’s stock price in the past year.
Despite the rising chorus of calls for Johnson’s ouster, investors clearly agree that J.C. Penney’s move today isn’t the right answer. Here are three reasons why.
1. Meet the new boss — same as the old boss. Trying something new only to have it fail is always discouraging. But it’s even more discouraging to see a company choose to throw away the entire past year and a half without learning any lessons from its failure.
To understand how big a step backward this is for Penney, you have to go back to 2011. At the time, it was struggling, having plunged like most of its peers during the financial crisis and then getting left behind in the economic recovery that lifted shares of most of its rival retailers. Activist investor Bill Ackman, who argued for a shakeup in J.C. Penney’s management, noted repeatedly how Ullman failed to manage the company well and gave investors dismal share-price performance. It’s hard to believe that the best the company could do for leadership was to bring Ullman back. If he chooses to ignore the hard-won lessons that Johnson helped J.C. Penney learn, then it’ll be hard for investors to have any confidence that the retailer is likely to find a path out of its troubles.
2. Turning back isn’t an option. Some investors likely believe by now that they’d be better off if J.C. Penney had never strayed from its coupon-and-discount model in the first place. Even if they’re right, the company can’t assume that by returning to that model now, customers will come back.
Once-loyal customers who felt betrayed by Penney’s strategic shift largely fled to competitors. Some stepped up to upscale retailer Macy’s, which has seen a real revival in its business over the past year. Others likely went to fellow discounters TJX and Ross Stores, both of which have executed very well by offering name-brand merchandise at deep discounts to normal retail prices. For Penney to try to win those customers back would take a huge investment, and even then, having been burned once, they’ll never have the same loyalty they once had to the retailer.
3. Big-box retail is on its way out. As if it weren’t bad enough that its competitors have benefited from its woes, J.C. Penney has to deal with the longer-term trend that has threatened not just it but big-box retail in …read more
Herbalife shares are in freefall today — once again, through no fault of its own.
In months past, the stock has come under continual attack from famed hedge-fund manager Bill Ackman, who has publicly shorted the stock and even accused the multilevel marketer of operating a pyramid scheme. Today, however, the culprit is different: Herbalife’s own auditor is behind the collapse of the stock, which is down 3.6% with an hour left in trading.
In a nutshell, the story goes like this. Last week, the company’s auditor, KPMG, announced that it had fired a partner in its Los Angeles office who had apparently been feeding confidential information on the company to a third party, which was trading Herbalife stock.
This morning, Herbalife announced that as a result of these actions by the partner in question, KPMG has notified Herbalife that it’s resigning as the Herbalife’s auditor. KPMG says this employee may have compromised Herbalife’s fiscal-year 2010, 2011, and 2012 audit reports, which can therefore no longer be considered “independent.” KPMG has consequently resigned and withdrawn its endorsement of the financial-year reports in question.
For its part, Herbalife is attempting damage control, emphasizing that:
KPMG‘s resignation is “solely due to the impairment of KPMG‘s independence resulting from its now former partner’s alleged unlawful activities.”
“Herbalife’s financial statements, its accounting practices, [and] the integrity of Herbalife’s management” have not been impugned.
None of the audit reports (albeit now withdrawn) “contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope or accounting principles.”
There were never any “disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.”
As such, Herbalife says it stands by the accuracy of the reports, even if KPMG no longer does, averring that “the Company’s financial statements covering the referenced periods fairly present, in all material respects, the financial condition and results of operations of the Company as of the end of and for the referenced periods.”
Investors, now beginning to absorb the import of the news, are beginning to rethink the sell-off. The stock has slowly been recovering some of its losses this afternoon.
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Today is an interesting day to be an observer of the stockmarket.
Aluminum giant Alcoa kicked off earnings season less than 24 hours ago, investors and analysts are still parsing last night’s speech by the Federal Reserve chairman, and trading in two stocks was halted this morning due to an insider-trading scandal at one of the nation’s largest accounting firms.
You’d never know this, however, by looking at the performance of blue-chip stocks today. With roughly an hour left in the trading session, the Dow Jones Industrial Average is up by 97 points, or 0.66%.
While Alcoa is certainly not the economic bellwether it once was, its earnings release is nevertheless noteworthy, as it marks the unofficial start of earnings season. For the three months ended March 31, the company earned $0.11 per share, comfortably exceeding the consensus estimate of $0.08 — though its top-line revenue figure came up short of expectations.
The next Dow component at bat is JPMorgan Chase . The nation’s largest bank by assets is scheduled to report earnings on Friday. Analysts anticipate that the bank will earn $1.39 per share, an increase of nearly 10% over the same quarter last year.
At about the same time Alcoa was reporting its results, Federal Reserve Chairman Ben Bernanke was delivering remarks at a financial-markets conference near Atlanta, Ga. The purpose of the talk was to discuss bank stress-testing, though Bernanke couldn’t avoid the subject of the economy, given last Friday’s dismal jobs report. According to Bernanke, “Today the economy is significantly stronger than it was four years ago, although conditions are clearly still far from where we would all like them to be.”
The remarks left analysts wondering if and when the Fed might finally ease off of the aggressive monetary policy that has driven long-term interest rates down to near-historic levels.
Finally, the two biggest pieces of news today both concerned stocks owned by activist investor Bill Ackman. First, J.C. Penney announced that CEO Ron Johnson has been shown the door and replaced by former J.C. Penney CEO Myron Ullman. The retailer has been reeling from Johnson’s attempted makeover of the brand, which has thus far led to massive declines in same-store sales. The stock is down nearly 12% on the news.
And second, trading in shares of Herbalife was temporarily halted this morning after it was reported that KPMG had resigned as its auditor. Although there’s been much speculation about the possibility that Herbalife is a Ponzi scheme — this is Ackman’s position and thus the reason he’s short Herbalife stock — today’s move involves KPMG instead. It turns out that a partner at the firm had been leaking inside information about Herbalife and another company to a still-unknown outfit, which then traded on the inside information.
Want to learn more about Alcoa? Materials industries are traditionally known for their high barriers to entry, and the aluminum industry is no exception. Controlling about …read more
Mark Lennihan/APMike Ullman was named CEO of J.C. Penney after Ron Johnson was ousted Monday, after a massive restructuring at the retailer backfired.
By ANNE D’INNOCENZIO
NEW YORK — J.C. Penney is hoping its former CEO can revive the retailer after a risky turnaround strategy backfired and led to massive losses and steep sales declines.
The company’s board of directors ousted CEO Ron Johnson after only 17 months on the job. The department store chain said late Monday, in a statement, that it has rehired Johnson’s predecessor, Mike Ullman, 66, who was CEO of J.C. Penney Co. (JCP) for seven years until November 2011.
The announcement comes as a growing chorus of critics including a former Penney CEO, Allen Questrom, called for Johnson’s resignation as they lost faith in an aggressive overhaul that included getting rid of most discounts in favor of everyday low prices and bringing in new brands.
The biggest blow came Friday from his strongest supporter, activist investor and board member, Bill Ackman, who had pushed the board in the summer of 2011 to hire Johnson to shake up the dowdy image of the retailer. Ackman, whose company Pershing Square Capital Management, is Penney’s biggest shareholder, reportedly told investors that Penney’s execution “has been something very close to a disaster.”
On Saturday, Ullman received a phone call from Penney’s chairman Thomas Engibous asking him to take back his old job, according to Penney spokeswoman Kate Coultas. The board met Monday and decided to fire Johnson.
Neither Johnson nor Ullman were available for an interview.
Until early last week, some analysts thought the board would give Johnson, a former Apple Inc. (AAPL) and Target Corp. (TGT) executive, until later this year to reverse the sales slide. A key element of Johnson’s strategy was opening new shops featuring hot brands to help turn around the business. They began opening last year and had been faring better than the rest of the store.
“I truly believed that he had until holiday 2013,” said Brian Sozzi, CEO and chief equities strategist Belus Capital Advisers. “Today’s announcement is an indictment of his strategy.”
Under Ullman, the chain brought in some new brands such as beauty company Sephora and exclusive names like MNG by Mango, a European clothing brand, but he didn’t do much to transform the store’s stodgy image or to attract new customers. He’s expected to serve mostly as a stabilizing force, not someone who will make changes that will completely turn the company around.
“What they need is a little bit of stability and essentially adult supervision,” said Craig Johnson, president of Customer Growth Partners, a retail consultancy. “[Ullma]) did nip-and-tuck surgery. But this was a place that needed radical surgery,” Johnson said.
Embattled J.C. Pennney (JCP) CEO Ron Johnson is already dealing with a 97% pay cut. Now, he may be losing the support of Bill Ackman, the hedge fund manager who hand-picked him for the top spot.
Reuters reports that Ackman, who has been Johnson’s biggest and most prominent supporter, is starting to show signs of impatience with the beleaguered exec. In an investment conference sponsored by Thomson Reuters, Ackman acknowledged that Johnson had made some serious mistakes in his attempts to turn around the retailer’s fortunes.
The turnaround, said Ackman, has been “something very close to a disaster.” That’s the strongest language we’ve heard yet from Ackman, but we’re guessing many shareholders might take issue with the “something very close” part of that statement. Sales for the retailer dropped 25 person in Johnson’s first year at the helm, and the share price has lost more than half its value in the last year.
Ackman specifically cited the fact that there was “too much change too quickly without adequate testing.” That’s been a common complaint, especially with regard to the now-abandoned “fair and square pricing” scheme. Johnson infamously refused to do a trial run of the new pricing strategy, with the former Apple Store boss supposedly scoffing that “we didn’t test at Apple.” Another ill-fated change has been a complete revamp of the retailer’s apparel offerings, which prompted many older customers to take their business to competitors like Sears (SHLD) and Kohl’s (KSS). (At least one customer has stayed loyal, though — even as Ackman criticized Johnson’s turnaround strategy, Reuters reports that he wore socks purchased at J.C. Penney.)
J.C. Penney already lost one major investor when Vornado Realty Trust sold 10 million shares — almost half its stake in the company. If Johnson loses the support of Ackman too, he won’t be in the job much longer.
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss how to fix the biggest problem with executive compensation, which Martin believes is that it incentivizes CEOs to make decisions based on the short term, not based on the long-term benefits of the business. Martin argues that we would be better off if executives were compensated in stock that began to vest after the CEO retired, therefore incentivizing the CEO to focus on the long-term health of the company.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.
If you’re on the hunt for a great stock idea, The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the new free report: “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.
Brendan Byrnes: Should CEOs not get any stock-based compensation?
Roger Martin: I think the world would work a lot better if they didn’t. We have this now romantic attachment to stock-based compensation. If people feel that they have to use stock-based compensation, I think they have to do two things.
One is, in the case when I hired you, I’d say, “Brendan, this is your only grant of stock-based compensation you are ever going to get as CEO. It’s a really big one, but we’re not going to give you one annually.”
And, “These are restricted. They’re restricted until three years after you retire.”
If that was the case, then you wouldn’t try to drive things down to drive them back up because you’re not going to get some more stock at a low value, and you won’t try and time it right to the end and do all sorts of extravagant, crazy things at the end — gigantic acquisitions, massive cost-cutting of all R&D and everything — to get the stock as high as possible when you retire, because it’s going to have to perform well for several years until you leave. That’s what I would do.
Brendan: And maybe you would focus more on grooming a successor.
Martin: Oh, you sure would. You sure would.
Brendan: Waiting three years afterwards.
Martin: Yeah, because that person, you really depend on them. Again, back to P&G and A.G. Lafley, he went to the board and said, “You know all my stock-based compensation? I think you should make it vest in 10% increments in each year after I retire.” He did that, not the board.
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss executive compensation, specifically what he thinks of the current way executives are compensated. Martin believes that stock-based compensation for executives leads many of them to focus too much on the short term and can lead to management making decisions based on compensation schedules rather than the good of the business.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of “Playing to Win,” a new book on strategy written with former Procter & Gamble CEO A.G. Lafley.
If you’re on the hunt for a great stock idea, The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.
Brendan Byrnes: Executive compensation. You’ve said in the past that right now the executive compensation system is deeply flawed. What is wrong with it right now, and how has it evolved over time?
Roger Martin: What’s wrong with it now is it’s so much based on stock-based compensation, and that has evolved since about 1980. Prior to 1980, there was actually almost no consequential amount of stock-based compensation in the American economy.
In 1976, less than 1% of CEO compensation was stock-based. By 2000, it had become 50%.
The deep flaw, I think, is if you really think about what a stock price is, a stock price is simply everybody in the market‘s view of how well the company is going to do in the future. It’s not a real thing. It’s just about expectations of the future.
Brendan: Another Warren Buffett. In the short term, it’s a popularity contest.
Martin: That’s absolutely right. So, in essence, when you give somebody stock-based compensation … If you’re the CEO of a company, I’m on the board and I give you a stock option at the current market price, and say, “This is your incentive compensation, Brendan. You should make the most of this.” What they’re actually saying to you is not, “Make the company perform better.” They’re saying, “Raise expectations about future performance by those people out there called investors.”
I would argue there are a lot easier ways to do that, especially in the short term, than actually work really hard to build better products and be more efficient and effective and a better company.
Brendan: Let’s talk about those ways. How do you do it better? Do you look at a model like maybe Jeff Bezos at Amazon and say, “He’s focused on the long term, …read more Source: FULL ARTICLE at DailyFinance
In the following video, we speak with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss what Martin believes is J.C. Penney‘s fundamental strategic flaw, the fact that it’s competing against itself with the new “store within a store” concept, and why he believes the company is doomed to fail.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics, including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the co-author of Playing to Win, a new book focusing on strategy, written with former Procter & Gamble CEO A.G. Lafley.
If you’re on the hunt for a great stock idea, The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.
Brendan Byrnes: You know a thing or two about strategy, having helped turn around Procter & Gamble. I wanted to ask you about Bill Ackman and J.C. Penney. You wrote in a blog post recently that “Bill Ackman shows almost no evidence of understanding enough about strategy to turn around a company.” What’s he doing wrong?
Roger Martin: Well, I think he understands a whole lot about capital markets and a whole lot about how to make investors happy, but I’m not sure he knows how to make consumers — customers — happy in a way that brings about competitive advantage.
What I see with J.C. Penney is sort of a fallacy that I see often in the strategy of companies, which is that it’s good enough to try to improve things. It’s not. Improving is good, but only in the context of having a goal to have an advantage against competitors with some set of customers so that customers say, “I need this company.”
If you just improve a company, you say, “I’m going to get their inventory turns up, or their sales per square foot up.” That ends up often disappointing. I think that’s, in some sense, what’s happening at J.C. Penney.
They just announced a huge fourth-quarter loss. Same-story sales were down almost 30% in 2012, but the focus has been on, “Oh, we’ve got the new J.C. Penney” — 10% of the stores are this new store within a store, and it’s double the sales per square foot of the rest of J.C. Penney — “so as soon as we get the stores converted over to 100% of this our sales per square foot,” which were 130 apparently, and are 260 within the little store-within-a-store new J.C. Penney, “everything will be fine.”
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. Martin says that investors looking for great businesses should focus on whether the company has a clear “Where to play” area that they’re focusing on and that they have a “How to win” with a solid customer base.
As Martin points out, however, that’s only half of the equation. Evaluating the expectations the market has built into the stock is a whole different skill set and one that can derail even investments in such great companies as Apple and Microsoft .
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick great companies. Martin is the coauthor of “Playing to Win,” a new book that focuses on strategy and which he cowrote with former Procter & Gamble CEO A.G. Lafley.
If you’re on the hunt for a great stock idea, The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.
Brendan Byrnes: As an investor, from your perspective, you have an inside view of quite a few companies. What do you think investors should look for, from the outside, at companies that are maybe doing things the right way from a strategic point of view?
Roger Martin: Boy, it’s a really hard question. Lots of people say, “You’re a strategy guy, Roger, so what’s your investment advice?”
I say you have to be careful. There are two things that are completely different. One is the real operations of a company and then there’s the expectations surrounding those. I have no experience, no insight, no nothing, on evaluating the expectations.
I could say to the person, “Here’s what I would do. If I wanted to understand whether that company was going to perform well over time, I’d ask myself the question, “Do they have a very clear “Where to Play”? Can you tell from the outside that they want to play here and not there, and they’re sticking to this?
Then they have a “How to win.” Here’s an offer that they have to their customer base there. If you can see that, and you can see that clearly, that company has got a better likelihood of performing well over the long term.
Now, it may just be that everybody else looking at that says, “They’re unbelievable. They’re even better than you think they are, or better than reality,” in which case buying that stock would be a bad idea.
Carl Icahn can’t seem to stay out of the headlines. The one-time Netflix agitator and mortal enemy of fund manager Bill Ackman is now knee-deep in what has become a low-grade bidding war for Dell .
I’m mystified, though, as to why Icahn or anyone else would want a piece of the PC maker. Dell is missing out on the greatest growth opportunity we’ve seen in more than a decade.
Tablet troubles Some won’t agree with that take, especially those who say that tablets are, in effect, PCs. They’re the just the new “form factor” — what the computer has morphed to be, these cheerleaders say, arguing that an uptick in tablet sales favors Microsoft and Intel at least as much as Apple and Google .
Nonsense.
If the categories really were so indistinct, then Dell would have no reason to sell itself to the highest bidder. Just sit back and roll in the giant piles of cash built from sales of the XPS 10 tablet and the relatively new XPS 12 convertible, which earns good reviews from the likes of CNET and Engadget. These are the sorts of Windows 8 devices that will boost the whole PC sector, right?
PC fumbles Wrong. Manufacturers haven’t seen a boost of any kind. Intel’s first-quarter guidance came in below consensus due to weak PC demand. Microsoft reported good Q4 results in its Windows division, but on a comparative basis, Windows 8’s launch quarter brought in about $1 billion less than Windows 7 did at the time of its introduction. Taiwanese manufacturer Acer recently said Chromebook sales are on the rise while characterizing Windows 8 as “still not successful.”
Dell, too, is showing battle scars. The one-time PC king suffered an 11% decline in revenue and a 22% drop in adjusted earnings per share in Q4. Both figures nudged ahead of estimates, revealing just how pessimistic Wall Street‘s view is of this business.
Analysts have good reason to be wary. Q4’s results continue a downward pattern that’s been in place for years and that shows no signs of abating:
Tabbed out In its 10-K annual report, Dell cites the “mobility” business as one of its weakest. Sector revenue declined 20% on an 18% drop in units sold. Average selling prices also fell 2%.
“During Fiscal 2013, we experienced a difficult pricing environment for our client products. In particular, demand for our client products in emerging countries was affected as we saw a migration to lower-value offerings, where we are less competitive. Our results were also affected as customers shifted some of their demand to alternative computing devices, particularly in our Consumer segment,” the report confesses. [Emphasis added.]
Translation: We aren’t good at selling smartphones and tablets, which is a problem when you consider how important these devices have become:
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss how leaders must look at innovation within their organization. Martin believes that CEOs must lead like their company’s life depends on innovation in order to stay one step ahead of the competition. He believes that investors should watch out if CEOs of companies in their portfolio aren’t leading in this way.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & GambleCEO A.G. Lafley.
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Brendan Byrnes : How important do you think it is to have a CEO or top management that are constantly innovating, to take Apple as an example? Are you of the opinion that they’re in trouble now that Steve Jobs is gone and Tim Cook is in there — more of an operator and less of an innovator? Is that how you see it, or do you think both can be successful?
Roger Martin: I’ve never met Tim Cook, so I’m loath to make assessments of people I’ve never met, but to your fundamental question I do think, especially in the modern era of business, if you don’t have a CEO that really believes that his or her company’s life depends on innovation, I think it’s bad for you.
I just think, with more global competition, especially with really legitimate players in so many sectors in the low-cost geographies — whether it be Indian outsourcers in that business, or Chinese manufacturers in a whole bunch of businesses — if you’re not innovating, they’re going to be able to replicate what you’re doing now with a much lower cost structure and your advantage will be eroded that much faster.
You always have to be one step ahead, and I think you need a CEO who’s comfortable with that, not uncomfortable, not wistfully thinking, “If we could only just keep things the way they are,” or “If I could only go to the government and prevent those Chinese or Indian companies from entering our market.”
If that’s your CEO today, I just don’t see good things for you.
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and Dean of the Rotman School of Management at the University of Toronto. We discuss why shareholders of a company should care about corporate responsibility. Martin argues that investors should look for the companies that are using their products to express their corporate responsibility, including companies like Starbucks .
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.
If you’re on the hunt for a great stock idea, The Motley Fool’s chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report, “The Motley Fool’s Top Stock for 2013.” Just click here to access the report and find out the name of this under-the-radar company.
Brendan Byrnes: You’ve also done a lot of work on corporate responsibility. How important is that to shareholders of a company, and how do you think potential investors should look at the corporate responsibility of a company when they’re considering an investment?
Roger Martin: I think this is a really, really interesting issue which is still being very much sorted out.
I think there is now a rising tide of desire for corporate responsibility among consumers. Until such time as that happened, I just don’t think that corporations were going to respond, but I think now consumers care more than they ever have before, so I think getting out ahead of sustainability issues and how you treat your employees is important.
Brendan: We talked about conscious capitalism last time. Companies like Whole Foods , Panera , Starbucks starting to do more of this and, actually, if you look back at it over time, seeing better returns. Is that something that you think other companies will take notice and will start to take off and snowball like that?
Roger: I think they will, and I think what is cool about those examples that you’ve given are that the expression of their corporate responsibility is through what they actually do for consumers.
Starbucks saying, “You will get a cup of fair trade coffee.” Coffee is their business, so I like that better than — even though I like corporate philanthropy — than, say, giving money to something that doesn’t relate at all to your business. Whole Foods would be a similar story. I think that’s going to be the trend.
If I was an investor looking at that I’d say, “Boy, I’d rather invest in a company that’s figured out through their business, in a way that supports and enhances their business — those people drinking a cup of coffee from Starbucks …read more Source: FULL ARTICLE at DailyFinance
In the video below, The Motley Fool speaks with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss Apple and how it conducts consumer research. Martin points out that while Steve Jobs famously said the company doesn’t do consumer research, it often hires the best users of its products and gives prototypes to these internal people for evaluation, giving it a built-in advantage in understanding the consumer.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of Playing to Win, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.
There’s no doubt that Apple is at the center of technology’s largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool’s senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.
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In the video below, we speak with Roger Martin, strategy expert and dean of the Rotman School of Management at the University of Toronto. We discuss why CEOs should stop using uncertainty as an excuse, and the best way for companies and investors to conquer uncertainty.
The full interview with Roger Martin can be seenhere, in which we discuss a number of topics including Bill Ackman, innovation, corporate responsibility, executive compensation, and how to pick out great companies. Martin is the coauthor of “Playing to Win“, a new book focusing on strategy written with former Procter & Gamble CEO A.G. Lafley.
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway‘s book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool’s premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe’s take on Berkshire!
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Every quarter, many money managers have to disclose what they’ve bought and sold, via “13F” filings. Their latest moves can shine a bright light on smart stock picks.
Today, let’s look at investing giant Daniel Loeb, founder of the Third Point LLC hedge fund. Loeb is a well known activist investor, famous for publicly airing his opinions about companies in which he invests, and not mincing words when he’s displeased. Loeb was instrumental in pointing out discrepancies in former Yahoo!CEO Scott Thompson’s biography – paving the way for Yahoo!’s new CEO, Marissa Mayer.
His activity bears watching, because the guy seems to know a thing or two about investing. According to the folks at GuruFocus.com, over 15 recent years, Loeb racked up a cumulative gain of 1,022%, compared with just 124% for the S&P 500.
The company’s reportable stock portfolio totaled $5.5 billion in value as of December 31, 2012.
Interesting developments So what does Third Point‘s latest quarterly 13F filing tell us? Here are a few interesting details.
The biggest new holdings are News Corp. and Tesoro. Other new holdings of interest include AbbVie and Herbalife .AbbVie was split off from Abbott Labs, and contains the pharmaceutical business, while Abbott focuses on medical, diagnostic, and nutritional products. AbbVie is saddled with a lot of debt, but it sports about $18 billion in annual revenue, more than $6 billion in free cash flow, and gobs of cash. Bears don’t like its being very dependent on its blockbuster drug Humira, which generates half its revenue. It does have other drugs, though, and more in its pipeline – and a 4.1% dividend yield.
Among holdings in which Third Point increased its stake was ARIAD Pharmaceuticals , which received FDA approval for its leukemia drug Iclusig – though its initial sales have been weak, so far. (The drug seems to be nearing approval in Europe, though, which bodes well.) ARIAD‘s bone-tumor drug ridaforolimus was rejected in Europe, but it might still prove effective against other cancers. The company has been spending heavily on research and development, and it needs some more success from its pipeline, as it consumes a lot of cash.
Third Point reduced its stake in companies such as Hillshire Brands , which has been trading near a 52-week high. The company, the result of a split-up of Sara Lee, describes itself as “a leader in meat-centric food solutions for the retail and foodservice markets,” and encompasses brands such as …read more Source: FULL ARTICLE at DailyFinance
