Aeropostale Losing Promotional Edge. Abercrombie, American Eagle, and Others Tearing Down Margins. But Aeropostale Flush With Cash.

Aeropostale is seriously losing its edge in the promotional business. Competition in the teen apparel industry is increasingly fierce and margins are under intense pressure as Abercrombie & Fitch and American Eagle Outfitters, among others, are embracing discounts and offering more clearance and promotional sales. In addition, cotton prices have rocketed upwards during recent years, and have only now started to show some signs of subsiding.

The stock has fallen below $12 per share recently and investors are anxiously awaiting its next earnings and sales numbers, as last quarter's were atrocious, with both margins and sales tumbling by double digits. So why would any investor still consider owning the company? They have piles of cash still left on their balance sheet, and have no long-term debt whatsoever. Why is no-debt significant? Because when the company makes a dollar in earnings, all of that earnings can be designated towards something that actually improves shareholder value, such as: share-buybacks, capital expenditures, expansion, or dividends to shareholders. In other words, the shareholders actually own the whole company, unlike many businesses, which are owned by shareholders and a conglomeration of banks and creditors.


Financially, the company is healthy, and they are still making a decent profit, so if next quarter's numbers reveal a bump up or stabilization of sales and revenues, this stock will be cheap, very cheap. But until then, fashion is a horribly fickle business and notoriously difficult for the Intelligent Investor to predict. The proof for this company will be in the sales data.

Behavioural Psychology and Investing: Be Aware of Investor and Stock Market Expectations.

Behavioural Psychology and Investing: In his book “The General Theory of Employment” renowned economist John Maynard Keynes devoted a wonderful chapter to investor expectations. In the book he notes that investors are generally concerned “not with making superior long-term forecasts of the possible yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public.” The basic premise of his theory is that in determining the value of an investment, a lot of fundamental and intrinsic value analysis can be a waste of time when all that really matters is what other people, on average, will think that the stock is worth over the next few months or years.

Of course, if you were buying the whole company, the most important thing to you is going to be earnings, and future earnings, because that is the money that you will put in your pocket. As a short- term investor, however, you only want to know what other people might pay for your stock over the next little while. In this case, the emotion of the investing public plays a crucial and pivotal role. Investors like Keynes have been highly successful at times by trying to predict the emotions of the general public and how this will affect the price of securities.

One very simple, but sometimes very effective strategy is to always buy your stocks on pessimism and sell into positivity. Remember, if everyone is already positive on a stock that means that there might be very few new buyers. If people are largely negative, a shift in company news or opinion could result in a stream of new buyers. Also, if you own a company whose shareholders have high expectations, be careful at the first sign of bad news... it could mean a stream of new sellers. As Warren Buffett always says “Be greedy when others are fearful, and fearful when others are greedy.”


Happy Investing : )

Research in Motion Layoffs. RIM Laying-Off 2000 Employees to Save Costs. Number in Canada not Announced.

Canada's Research in Motion (TSE: RIM) will be laying off 2000 employees in order to save costs. This represents more than 10 percent of the company's workforce, and is more lay-offs than many analysts had previously expected. Some think that this might mean that the situation at the company is worse than expected, but others maintain that it is just an important part of their restructuring efforts to increase corporate profits.

According to RIM, the reduction is: "a prudent and necessary step for the long term success of the company and it follows an extended period of rapid growth within the company whereby the work force had nearly quadrupled in the last five years alone.”

RIM has not announced where the lay-offs will take place, but if the company hopes to save any substantial amounts of money, they will probably be from North America. More information on the cuts will be announced on September 15th, and chief financial officer Brian Bidulka will oversee the cost-cutting program.

The major worry with the investment community is that these lay-offs may not be focusing much on the future, but on quickly shaving costs for short-term gains in profits. However, it is important that the company is moving quickly and indicating to the public markets that it is actively looking after shareholder resources. A major danger, however, is that human capital is crucial in the technology industry, and having your employees move elsewhere means that they can take their valuable ideas and intellectual capital with them.

Happy Investing : )

Look Here for Dividend Growth. Many Investors are Looking for General Electric to Raise its Dividend Again.

General Electric could be well on its way to becoming a dividend aristocrat again. Having once paid a dividend of 31cents per quarter, the company was forced to slash its dividend to 10cents during the height of the financial crisis. MarketWatch, among others, have begun reporting that the company is poised to raise its dividend again. 


GE, (NYSE: GE), has now boosted its dividend for the last three quarters and it now stands at a healthy 15cents per share. Half of what it once was, but rising quickly. The CEO, Jeff Immelt, noted that the company's financial health is back on track, and that he hopes to have GE back to issuing annual dividend increases... something the Intelligent Investor should look for. 


The company has a much simpler group of businesses than it did pre-recession, having downsized its financial wing, and spun off its entertainment division into a joint-venture. On the horizon is big growth in its energy infrastructure unit, which has been making key strategic acquisitions during recent years. So, to include some dividend growth in your portfolio, and help you diversify away from your Canadian bread and butter, take a look at General Electric. 


For more information: 
http://www.marketwatch.com/story/investors-look-for-dividend-hikes-from-general-electric-and-3m-this-earnings-season-2011-07-04?reflink=MW_news_stmp 


Happy Investing.