Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
David Asman: This week we welcome National Editor Bob Lenzner, Staff Writer Leigh Gallagher, Senior Editor Mike Ozanian and Senior Reporter Victoria Murphy. Leigh Gallagher, UPS, what's the news?
Leigh Gallagher, staff writer: Well, if Santa Claus comes this season, he's going to be pulling up the big brown truck. Overall, holiday retail is supposed to be questionable this year, but online retail sales are projected to go up 15 percent. Now, consumers choose UPS (UPS) about 55 percent of the time when they make these online purchases.
David Asman: Bottom line for this stock?
Leigh Gallagher: It could go up.
David Asman: Victoria Murphy, reverse stock splits -- that's when you have 100 shares of a stock and suddenly tomorrow morning you only have 50 shares, right?
Victoria Murphy, senior reporter: Right, you have fewer shares, but the price goes up. So, it makes the stock prices look a little better. Many companies do this to avoid being de-listed if their shares are hovering around a dollar. Tech companies are doing this more and more.
David Asman: But Leigh, it's basically a psychological ploy, right? It doesn't change the value of the stock.
Leigh Gallagher: It's pure window dressing. If you notice, short sellers flock to these stocks.
Bob Lenzner, national editor: It's an attempt to sort of fool the investor into thinking things are better than they actually are.
David Asman: Bob Lenzner, would you like to talk a little about tech stocks and options?
Bob Lenzner: Some very powerful, influential investors are telling the big technology companies to stop issuing so many options and diluting the rest of the shareholders. So, they are lowering the amount of options and buy back more of the stock, so there is more interest for the shareholder. Amazon.com (AMZN) is saying that they are not going to offer any more options. It's a new restricted stock. They're going to keep the amount of shares to a limit. If they improve their operations, that makes Amazon a buyout.
Victoria Murphy: I think Bob is right. We should be paying attention to options because companies are doing a lot of weird things that could have negative effects for shareholders.
David Asman: But, Bob, bottom line it's bad for the insiders, but it's good for the individual stockholder.
Bob Lenzner: That's the whole idea here. In the past, the insider got too much and the outsiders got the short shrift and now we have to balance it off and help the public shareholders.
David Asman: Mike Ozanian, talking about insiders and outsiders. You've got a newsletter that's going to help outsiders have the information that insiders have.
Mike Ozanian, senior editor: Forbes magazine has just launched a newsletter called the Forbes Earnings Quality Report. You can get this by sending an e-mail to firstname.lastname@example.org Proctor & Gamble (PG), a company that Wall Street's really loved, is really a phony. They are lousy allocators of the shareholders capital. Sales are flat and what they have been doing to make earnings per share look better than they really are, they've been doing these non-recurring charges. But guess what? They've been doing it for 19 straight quarters.
David Asman: So, this is the information you normally couldn't tell from an annual report, but you get inside the figures.
Mike Ozanian, senior editor: Exactly, we go to the footnotes to see what's really happening.
David Asman: Anyone want to talk about this? Leigh? Victoria?
Leigh Gallagher: I would say that another household product company to look at besides Proctor & Gamble would be Gillette (G) which is in the process of an impressive turn-around.
Makers and Breakers
David Asman: Our guest stock picker today is Sarat Sethi. He is portfolio manager of Douglas Lane & Associates. Here are the stocks he has brought along today: McDonald's and Dominion -- which is a utility. Sarat's firm owns both of them and he personally owns McDonald's. The question is would these guys own them? Let's ask Editorial Vice-President Jim Michaels and Editor Bill Baldwin. First up, Sarat, why do you like McDonald's?
Sarat Sethi, Douglas Lane & Associates: MAKER
We like it because they have finally focused on internal growth. They're taking $400 million of their free cash flow and putting it back into franchises to grow their own earnings and profitability.
David Asman: All right, Jim, looks like they're doing the right thing.
Jim Michaels, vice president: BREAKER
There are a lot of lawyers out there who are suing them for making their customers fat. I'm more worried about them making their shareholders thin. Their return assets has been at a steady decline for many years. The country is saturated with hamburger joints. I think this is a company whose time has come and gone.
David Asman: One breaker. All right, Bill, what do you say?
Bill Baldwin, editor: MAKER
I like this stock. I think it's because those "McDonald's Made Me Fat" lawsuits are so absurd that they represent a turning point in law. We're going to get back to the basics, including greasy hamburgers and fries.
Sarat Sethi, Douglas Lane & Associates: MAKER
Dominion is a utility in Virginia. We like it because 60 percent of their earnings are regulated. In fact, 90 percent of their earnings are hedged for next year. It's got a 5 percent yield that management has committed to. On top of that, management has the most direct ownership that we know of, for any utility.
David Asman: Bill, do you like it?
Bill Baldwin: BREAKER
Unfortunately, I am a breaker on it. I don't like it because 60 percent of the earnings are regulated. Regulators are going to come out of the woodwork and go on a rampage against utilities.
David Asman: Jim?
Jim Michaels: BREAKER
If you recommend it as a bond, I would buy it. It pays over 5 percent on a well-covered dividend. There's no earnings growth over the next few years. I don't see it.
David Asman: All right, we're back to normal. Jim hates everything. Sarat, we'll give you time for a rebuttal.
Sarat Sethi, Douglas Lane & Associates: I like it also because 20 percent of their earnings come from E & P, which is oil and gas. But, to answer your question about the regulators, they're in Virginia, they don't come up with re-regulation until 2007. So, up until then, they can earn anything that falls below the bottom line.