Saturday, January 19, 2013

The best since sliced bread

Those that are cashed up are buying cheap assets. Aivars Lode

GRUPO BIMBO is on the prowl in el Norte again. In 2009 the Mexican baking giant bought part of Weston Foods for $2.3 billion, becoming the biggest baker in the United States. Two years later it bought Sarah Lee’s American baking operations for $960m. In the past month it has been in a battle over the tastiest bits of Hostess Brands’ bread business, as that once-iconic and now-bankrupt company winds up its affairs.
Bimbo brings more than a shopper’s eye to its expansion. It is a master at bread-related breakthroughs. It helped introduce Spaniards to sliced loaves and pioneered the packaging of bread in clear cellophane. It is also a master of efficiency and logistics: Bimbo lorries with their teddy-bear logo are familiar sights in Mexico and Central America. The combination of savvy dealmaking and relentless cost-squeezing has made Bimbo a behemoth of baked goods, with $10.8 billion of sales in 2011.
The Boston Consulting Group (BCG) has been producing an annual study of the top 100 such “global challengers” from emerging markets since 2006. To qualify, besides having revenues above $1 billion, challengers must have a broad global footprint, with foreign revenues equal to at least 10% of the total, or $500m. Their global aspirations must also be credible, as measured by a combination of objective criteria and a poll of industry experts. BCG’s 2013 list provides an unusually sharp insight into what Marxists called “the correlation of forces” in the global economy as it begins to recover from the financial crisis.Together the emerging-market countries now have more than 1,000 firms with annual sales above $1 billion. Many are content to stay at home—after all, their markets are growing at least twice as fast as the rich world’s. But some, like Bimbo, are determined to venture abroad, invading foreign markets and buying foreign companies. They are sharpening old skills and acquiring new ones. And in the process they are reconfiguring entire industries.
First, the new list is notable for its variety. In 2006 it was dominated by 84 companies from the four BRIC countries—Brazil, Russia, India, China—including 44 from China alone. In 2013 it includes firms from 17 countries, up from ten in 2006, and only 30 Chinese ones. In 2006 the list was dominated by heavy industries. Today it looks more consumer-oriented, with firms in financial services (China UnionPay), e-commerce (Alibaba Group, also Chinese), health care (South Africa’s Aspen Pharmacare) and food manufacturing (Indonesia’s Golden Agri-Resources).
Also, the challengers are no longer simply competing on price. They are investing in innovation: almost half of the 150,000 staff at Huawei, a Chinese electronics firm, work in research and development. They are producing new business models: Alibaba has overcome the main problem in online selling—low trust—by creating an escrow-payment system, Alipay. They are gobbling up foreign firms, to acquire new skills or enter new markets: LAN, a Chilean airline group, has bought TAM of Brazil to create South America’s biggest carrier, LATAM; Aspen Pharmacare recently bought 25 brands in Australia from GlaxoSmithKline.
What is also striking in the latest league table of emerging-market challengers is that the number of state-controlled firms has slipped from 36 in 2006 to 26 now. It is too early to pronounce the death of state capitalism: there are after all nine new state firms on BCG’s latest list. But some may have realised that they have a comparative advantage only in their home market. Some may have been ordered to return by their state owners, for reasons of domestic politics. Others have retreated after failing to crack foreign consumer markets, or losing out to nimbler private companies in takeover battles.
Still, emerging-market multinationals are advancing on all fronts against their Western rivals. They are seeking a lock on other developing economies: Chinese contractors control 37% of Africa’s construction market, for example. They are pushing into the rich world too: Alibaba has been buying e-commerce sites in America. And they are forging alliances with each other, such as the ones Naspers, a South African media group, has with Russian and Chinese internet firms.
Reddy’s, steady, go
For the rich world, such emerging giants represent opportunity and growth as well as competition and disruption. For a start, they employ lots of Western workers. Tata Group of India employs 45,000 people in Britain (and announced 800 new jobs at Jaguar Land Rover, its luxury-car maker, this week). Wanxiang, a Chinese maker of car parts, employs 6,000 in America.
Emerging-market multinationals are big customers for rich-world firms: Huawei bought about $6.6 billion-worth of parts from American companies in 2011. They are injecting a huge amount of dynamism into the world economy: besides buying $1.7 trillion of goods and services each year, they collectively account for $330 billion in capital spending. They can make good partners too. DuPont of America has formed a joint venture with the China National Chemical Corporation to share skills. Merck of Germany has struck a deal with Dr Reddy’s Laboratories of India to develop cheap versions of cancer treatments whose patents are expiring; in a twist to the normal pattern, Dr Reddy’s is doing the product development and testing, and Merck is doing the manufacturing.
The top ranks of the emerging-market multinationals are a more volatile bunch, thus far, than their Western peers. Only half the companies that appeared on BCG’s original list in 2006 appear on the latest version. But there is no doubt that there are plenty more would-be giants waiting to take their place—and that these will be even more sophisticated and ambitious than those who came before them.

Friday, January 18, 2013


It will be interesting to see if this is manipulation of Apples stock or if sales have actually fallen. Aivars Lode

Following an earlier report stating weakening demand for Apple’s (AAPL) iPad forced a big manufacturing slowdown at Apple’s panel supplier, more bad news emerges from China. According to data released by TrendForce, a China-based market research firm plugged into the supply chain in the Far East, display panel shipments for tablets grew 25.6% to 19 million units in December. The growth could be a positive note for the tablet market as a whole, but it comes alongside more troubling news for market leader Apple: According to TrendForce, fourth-quarter iPad sales were weaker than expected.
“The tablet shipment showed dramatic growth,” TrendForce noted in its report. “As Apple’s 9.7” product saw lower-than-expected sales in Q4’12, the inconsistency emerged between panel suppliers’ output and clients’ procurement. But Apple increased procurement significantly at the end of the year on concern of maintaining the following relationship with suppliers, resulting in a noticeable 25.6% growth in the overall tablet panel shipment MoM to 19.34 million units, but Apple‘s act must drag down the 9.7” product demand even more in Q1’13.”
Apple’s iPad mini undoubtedly impacted sales of the company’s full-size tablet, but Apple’s orders for December certainly would have accounted for the inevitable cannibalization of its 9.7-inch tablet. As such, TrendForce’s note that sales were weaker than expected could weigh heavy as Apple prepares to report its holiday-quarter results next week.
The firm also stated that LCD TV panel shipments declined 10.3% sequentially to 19.82 million units in December and notebook panel shipments dropped 10.7% month-over-month.

Thursday, January 17, 2013


Facebook is not free, it comes at a cost, they can sell your data. So be very careful what you post if you don’t want it coming back to haunt you one day.  Aivars Lode

Facebook (FB) has a lot riding on Graph Search, which was unveiled earlier this week. The company’s intra-site search engine isn’t just about finding new ways to connect users with the information they want, it’s about a next-generation advertising product that allows Facebook to woo clients with a better class of targeted ads. The wider Graph Search’s reach, the better, and Facebook has begun making moves to ensure its new search product covers as many users as possible — moves that will likely spark a new round of Facebook rage.
As picked up by Quartz, Facebook recently made changes to its privacy policy to remove users’ ability to opt out of search results.
Long before unveiling Graph Search on Wednesday, Facebook updated its privacy policy on December 11th to the following:
When you hide things on your timeline, like posts or connections, it means those things will not appear on your timeline. But, remember, anyone in the audience of those posts or who can see a connection may still see it elsewhere, like on someone else’s timeline or in search results. You can also delete or change the audience of content you post.
Facebook cited a stat that only a single-digit percentage of its users (which amounts to tens of millions of people) had previously opted out of having their content appear in search results, so the change wouldn’t be noticed by most. Of course at the time, no one knew the future of Facebook’s advertising business might ride on their data appearing in search results.
Graph Search has begun rolling out as a limited beta to users who signed up, and a full launch will take place later this year.

Wednesday, January 16, 2013

Dividend income funds sizzling after cliff deal

As I have discussed many times over the last three years, why dividend stocks will gain importance. Aivars Lode

After a brief year-end disruption related to the fiscal cliff negotiations, the hunt for dividend income is back on with a vengeance.
“Right now, the money is flowing into our rising-dividend fund at a record rate of more than $1 million a day,” said George Schwartz, president and chief executive of Investment Counsel Inc.
Mr. Schwartz co-manages the $317 million Ave Maria Rising Dividend Fund (AVEDX) along with Rick Platte.
Over the past few years, the extended stretch of record-low interest rates has spawned a growing thirst for dividend income, which is illustrated by the more than $17 billion in net asset flows into dividend-focused mutual funds last year, according to Morningstar Inc.
But even though the monthly net flows for the first 11 months of 2012 ranged from $775 million to more than $3 billion, the threat of higher taxes on dividend income trimmed net flows into the funds in December to $159 million.
What has changed since December is the threat of the taxation of dividend income as ordinary income, up from a 15% rate in 2012.
Under the fiscal cliff deal, the tax rate on dividend income jumps to 23.8% for households earning more than $450,000, or $400,000 for a single person.
The new rate, which includes a 3.8% tax on investment income to help pay for Obamacare, is considered a bonus compared with the new top ordinary income tax rate of 39.6%, up from 35% last year.
The health care law tax kicks in for households making $250,000, or $200,000 for singles, adding up to an 18.8% tax on dividends and capital gains at those income levels.
“At the end of the year, people were unloading their dividend payers, but a lot of that has since snapped back, and dividend stocks have started to resume their strong performance,” said Jay Wong, who manages the Payden Value Leaders Fund (PYVLX) at Payden & Rygel, a $65 billion asset management firm.
Categorywide asset flows for January are not yet available, but the average return of the roughly 400 dividend-paying stocks within the S&P 500 since the start of 2013 is 3.5%.
By comparison, the average return of non-dividend-payers over the same period is 3.2%.
Dividend-focused funds tracked by Morningstar produced an average return of 13.6% last year and have gained an average of 3% so far this year.
The S&P 500 gained 16% last year and is up 3.3% so far this year.
Studying just the first two weeks of January is a small sample, but the recent performance of the dividend payers does represent a stark reversal from 2012, when non-dividend-payers in the index beat dividend payers by an average of 2%, according to Mike Boyle, senior vice president at Advisors Asset Management Inc.
“Our message throughout the year was that dividend stocks have historically been successful in all tax environments, but the long and short of it is that dividend-payers might have underperformed last year due to fears of higher taxation,” he said. “I think what we're seeing now is some pent-up demand.”