Apple’s Juice

Setting my own political ideologies aside, it is curious that a publicly-traded company is donating money to oppose California’s Proposition 8 amid one of the worst economic downturns since the Great Depression.
 
A measly $100,000 may not seem like a lot of money to Apple, which has annual revenues in the tens of billions of dollars. But is the company sending the right message to the Street when volatility is at an unprecedented high?
 
Such actions beg the question whether public companies are obligated to take a neutral stance on political issues for the sake of a fiduciary responsibility to shareholders.  In some ways, it seems unfair to contribute to any campaign at the risk of alienating shareholders who invest in a company for their products, not their politics.

 

Evan Pondel, Vice President, epondel@pondel.com
 
 

NYSE Acquires AMEX Without Hoopla

Many of you may be wondering if the NYSE Euronext acquisition of the American Stock Exchange (AMEX) is complete.  I don’t know about you, but amidst the economic turmoil we’re in, it occurred to me that I hadn’t heard about the status of the acquisition.  Apparently, the acquisition was completed on October 1, 2008.  And, did you know that the former AMEX has been renamed NYSE Alternext US LLC?  The Alternext market is not new.  It was formed in 2005 by Euronext, which became a division of NYSE after the 2006 merger of the two entities.  NYSE Euronext expects to have transitioned the AMEX trading platform to NYSE Euronext technology in December 2008.

 

PondelWilkinson, investor@pondel.com
 
 

Buy-Side Chatter

Thomson Reuters recently issued a perception study on the current sentiment on Wall Street. They spoke to more than 70 buy-side investors across the globe (50 in the U.S., 21 in Europe and three in Asia) and probed for their outlook on the current markets.  Not terribly surprising, key highlights include:
 

  • In order for the market to stop its slide, credit markets need to stabilize, and confidence needs to be restored.
     

  • Investors are keenly focused on credit spreads, liquidity, government rescue plans, and the stability of banks.
     

  • Half of investors say they are not changing asset allocations at this time, but the other half admit holding more cash than usual, shifting more into defensive stocks (e.g., healthcare; some are eyeing technology and industrials; many are reducing their exposure to financials and consumer discretionary stocks), and favoring emerging markets overseas.

 

PondelWilkinson, investor@pondel.com
 
 

Wall Street is Still Listening

It was not exactly the most fun time to be on an informational road show with a small cap company. But it was well worthwhile.
 
Yes, the moods were glum. One portfolio manager talked about bread lines in our future. Another said he hasn’t seen anything like this in 35 years. But most were doing their jobs as usual, visiting with management teams, writing research notes and hoping for better times. They all thanked us for coming, and therein is the real benefit of getting out there during these frightening times.
 
While no company has been immune to the market sell-off, regardless of earnings performance, portfolio managers have choices of which stocks to sell, which to hold, and even whether to step up to the plate and do some buying.  Likewise, sell-side analysts are still making all kinds of recommendations.
 
What I learned this week may seem like common sense, but here goes:
 

  1. Stay visible. The company that hides during these times may well be the first forgotten about by investors and analysts.  And may well be among the first to be sold. Staying visible provides tangible benefits.
  2. Re-visit messaging. Cash, cash, cash are three critical words to emphasize if a company has any. Investors are looking hard at balance sheets. Conservative management styles are in vogue, even for classic growth companies.
  3. Concentrate on quality. Yes, investors and analysts are looking for solid stocks to buy—if not today, they want to be ready when that right time comes.  But carefully assess the potential holders with whom you visit. Better to do four or five meetings with quality investors in a day, than squeeze in six or seven and risk a potential short seller or short term, fast-money investor.

 
In four days of meetings, both group sessions and one-on-ones, it was strange to see that all the guys wore ties.  I just took mine off.  TGIF never sounded so good.

 

Roger Pondel, President, rpondel@pondel.com
 
 

It Was in the Cards

Sometime in late 2006, I was sitting at a blackjack table in Las Vegas listening to the dealer talk about how he had just purchased his fifth home.  My brain screamed out, “Wait a second! Something is just not right here!  I am a senior level executive at a nationally recognized investor relations firm and I definitely cannot afford five homes (in fact, I can barely afford one in Los Angeles).”  While I had no idea what the dealer’s earnings were, I was certain that it couldn’t possibly be high enough to justify five mortgages.  I knew my instinct was right, but what I failed to consider at the time was the unbelievable magnitude and spiraling damages from all of the mortgage lending excesses.
 
Guess the house doesn’t always win.

 

PondelWilkinson, investor@pondel.com
 
 

Decoding Where You Sit

If you sit in the same seat at your regular company staff meetings, you may be interested to know what this says about you and your status.  Researchers have found that people fit into one of seven personality types based on where they sit.  At meetings, typically the boss sits at the head of a rectangular table (often facing the door to see who’s coming before anyone else).  The person sitting to the boss’s right tends to say “yes” to most of the leader’s suggestions.  The person to the left of the boss tends to signal support of the leader, though may slip in an opposing view.  Sitting opposite the leader is usually someone who is argumentative and sitting in the middle is the mediator.  The remaining two personality types include the person sitting at the corner of the table, which may indicate he is trying to hide in the crowd and the person sitting on the side (away from the table) may signal she is taking a “bigger picture” perspective (or just late to the meeting).
 
Where do you sit?

 

PondelWilkinson, investor@pondel.com
 
 

Etymologists, This One’s for You

With so much going on these days, who has time to read magazines?  I certainly don’t, and I assume you don’t, either.  But one magazine I scan religiously each week is the New Yorker, whose writers I have quoted several times in this blog.
 
Lately, I have been spotting many words in New Yorker articles that I never heard of before.  So I started keeping a log—I found more than 30 in the last three issues alone.  I looked up their meanings and am happy to share 10 with fellow PW Insight readers.
 
You’ll not likely ever see these words in PondelWilkinson-written press releases or in other documents that we draft for our clients, but maybe we’ll all find some use for them somewhere.
 
Let’s have some fun, and if you have a moment after reading this, shoot me a quick email to let me know how many of these words you have heard of.  Hint: they all came from the same general kind of article.  Let me know if you figure that one out, too.  Now cover the answers below, and test yourself:
 

  1. lumpen
  2. purdah
  3. adumbrated
  4. merde-head
  5. epizootic
  6. gamine
  7. sententious
  8. emunctory
  9. insouciance
  10. louche

 
The answers:
 

  1. mentally sluggish
  2. curtain to separate women from men
  3. partially concealed
  4. shit-head
  5. containing fossil remains
  6. diminutive female who is part imprudent and playfully mischievous
  7. given to excessive and pompous moralizing
  8. body organ that functions in carrying off waste products
  9. lack of concern or indifference
  10. shady and disreputable

 
Give yourself one point for every answer you got right, even if you’re close.  Give yourself 10 bonus points if you figured out that each of these words came from articles that had to do with the upcoming presidential election.  Really.  Don’t forget to let me know how you did.

 

Roger Pondel, Chief Etymologist, rpondel@pondel.com
 
 

Media Dividends, How about Dividon’ts

The pain being suffered this year by the U.S. banking system is all too familiar for another American institution – the media.  So, speaking on behalf of the Fourth Estate, welcome to the misery, guys.
 
It’s not really news that the American media, especially its print arm, has been in crisis mode for some time.  When it comes to billion-dollar bailouts, I’m certain there are more than a few newspaper publishers who would like a piece of that pie.  Newspapers have been slashing and burning staff for the past three years, as advertising has dried up and circulation has dropped faster than Lehman Brothers’ stock price.
 
But don’t shed too many tears yet for the media giants and their financial misfortunes.  Some of the major media companies – Gannett, Media General, The New York Times Company, McClatchy – had terrible second quarters, but still remain profitable and are still throwing around big-time dividends, according to a recent article in the Columbia Journalism Review.  Gannet, in fact, lost a tenth of its revenue from a year ago in Q2, but still posted a profit margin of 13.5 percent, which must leave other companies asking, ‘What are they whining about?’
 
In the financial clean-up package, Gannett, and others, should start by taking a look at their dividend yields.  Gannett’s dividend yield is 9.3 percent, Media General has a 7.4 percent rate and the NYT Co. is at 6.9 percent.  McClatchy’s was a whopping 14.7 percent, but executives wised up last week and announced they are cutting their quarterly dividend in half.
 
The question is, if newspapers are gasping for air, why are they returning all this cash to shareholders?  Well, the families that control the voting shares need a steady stream of income to afford another ivory back scratcher, so they are essentially bleeding their companies dry.  Maybe a more practical idea would be to eliminate these dividend payouts all together and use these hundreds of millions of dollars as the media’s version of a government bailout.

 

Ron Neal, Senior Associate, rneal@pondel.com