Sean Hyman
Contributing Writer
instructor@mywealth.com
Since there’s all of the bad news being pumped out there daily by the media…I thought it might be refreshing to talk about two of the bright spots that just came over the horizon.
If you are a regular reader of my blog (www.mywealth.com/blog), then you are aware of some of the signs of a strong company (even if you don’t know how to read balance sheets).
One of those signs was to look for companies that feel strongly enough about their own financial situation in this environment that they can purchase another company (at least partly with cash).
If you feel, as a company, that you can spare some cash for a purchase in this type of an environment then you obviously feel strongly about your financial future.
That company? T.D. Ameritrade (AMTD) …They are buying Think or Swim (SWIM) for a little over $600 million (and about $225 million will be in cash while the remainder will be in Ameritrade stock.
This tells me that the management of T.D. Ameritrade feels good about things going forward and they want to pick up some “value” while things are so suppressed out there. I also note that investors haven’t “driven down” the shares of Ameritrade quite as harshly as some of their nearest competitors (such as E*trade (ETFC) ...trading just over a buck a share!).
Ameritrade will also benefit from the expansion of their options business through Think or Swim. Think or Swim is a fast growing business that they gobbled up. Think or Swim increased their options business by 82% last year alone.
Ameritrade estimates that by picking up Think or Swim…they’ve saved themselves “several years” due to the advancements in trading that Think or Swim has that Ameritrade did not have.
Plus, Think or Swim’s net income grew 10 fold over the last year. Wow! How many can say that. So they’re likely picking up a real jewel here thus making them a better, stronger company for the future.
These are things to look for in a company when you are building a portfolio of stocks in preparation for the recovery. This is not an outright recommendation to buy Ameritrade but it does serve as a great example of the attributes in which I speak of.
Got an opinion or question? Email Sean: shyman@mywealth.com
The Next Bright Spot? America’s Biggest Department Store Blows Out their Earnings Estimates!
America’s biggest department store, Sears Holdings (SHLD) said it expects 4th quarter earnings of between $2.44 to $3.09 a share which blew past the analyst’s expectations of $1.92 a share. On top of that, they reported that they should end the year with approximately $1.3 billion dollars in cash. Wow! What a great thing in this environment!
This announcement caused the pair to gap higher on the chart on increased volume…and the technicians out there will note that it broke an inverted head and shoulders (bullish chart) pattern on the chart.
So this gives the fundamentalist and the technician something to bite into here.
How did they do it? Good ole’ fashioned “belt tightening” and by promoting a very old fashioned system.
First, the belt tightening….They had to stop the employee 401k matching program for now which will preserve corporate cash. While employees have to give up a great “perk” for now…it helps them to keep the more important thing –their jobs! This shows that Sears is trying to preserve both jobs and cash right now which is a good thing.
The 2nd thing – layaways. Yeah, that’s right. Remember those from “back in the day”? You don’t see those too much anymore ever since credit cards became so prevalent.
However, it’s a great system overall for both parties. The customer gets to make sure the product is available and will be there for them as they make payments and eventually pay off the bill and they usually pay little to no interest while in the process.
The corporation, on the other hand, can take that cash and earn some interest on the “held” payments in the mean time. So people who normally couldn’t shop with you due to them not having the full amount at the time OR those that can’t get credit cards can now shop with you. So you’ve increased your potential customer base while also increasing the size of the “cash pot” that you can earn interest on. It’s a great concept that has generally gone by the “way side”.
However, their K-mart division promoted this concept over the Christmas holidays and it evidently helped them greatly in these tough economic times. Also, think about all of the people in the U.S. that can’t get checking accounts and can’t even cash their own checks through a bank…these people can take their cash and do “lay-a-ways” at K-mart and get things that they might normally need a credit card for but don’t have the ability to obtain.
It pays to think creatively…and it looks like it paid off well for Sears Holdings. This type of “defensive” thinking could really help this company to emerge from the ashes for now and to put a bottom in their stock price.
So when picking your stocks…look for things like this where management is “using their heads” or where a company feels so strongly about the future that they are comfortable with giving up some cash for now (in these trying times) to purchase another company.
Little signs like this go a long way when a company is attempting to get an edge that can help to turn them around. Take note of things like this when you too are looking for stocks to build into your portfolio.
To learn more things such as these...check out our Investing Course at: http://www.mywealth.com/investing.html
Sean Hyman
Head Instructor
http://www.mywealth.com/riskdisclaimer.html
