July 27th 2010
The Anorexic Recovery
Is it really good news when companies prosper by starving themselves?
Fashion can be a brutal business. The starvation look is on the wane, thank goodness – women who look like walking sticks are no longer the envy of the catwalk.
But fashion is fickle in the corporate world too… and now public companies have picked up the anorexia bug.
“Many companies are focusing on cost-cutting to keep profits growing,” The New York Times reports, “but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production.”
Harley Davidson (HOG:NYSE) is a case in point. Harley’s profits have risen smartly, but mainly as a function of deep cost cuts. Motorcycle sales have fallen three years in a row – and look set to fall further still – but Harley has kept pace by slashing jobs even faster.
“The trend is hardly limited to Harley,” the NYT adds.
With the difficult stock market environment that we have experienced recently, you may have observed and I have written about my move towards ‘value’ rather than ‘growth’ investing. I have selected stocks for my own portfolio as well as for this blog to discuss that are what I would call investment ‘stalwarts’ that are reasonably priced, pay good dividends, and can weather the vagaries of the economy. You have seen me discuss stocks such as Coca-Cola (KO), Sysco (SYY) and McDonald’s (MCD). These are certainly terrific companies but I want to try with this post to tip-toe back towards the original intent of this blog, to discuss those companies with steady revenue and earnings growth.