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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (963)	11/10/1998 9:00:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

GM sees higher output, market share in '99 WARREN, Mich., Nov 10 (Reuters) - General Motors Corp. President G. Richard Wagoner on Tuesday said the automaker expects higher North American output for the first three quarters of next year, as well as market share gains. The world's largest automaker, still recovering from two summer strikes, has previously said its fourth quarter North American output will be its highest fourth quarter level in 10 years. "It's fair to say the first several quarters of next year...will be up year-to-year in production," Wagoner said at a news briefing announcing $1.5 billion in new investments for southeastern Michigan. Wagoner also said assuming the annual U.S. vehicle market stays in the 1999 range of 15 million to 15.5 million, the company will be in a position to boost its market share next year as well. Separately, GM officials confirmed a USA Today report that GM North American Operations President Ronald Zarrella told top North American managers the company wants to hit 32 percent U.S. market share in 1999. Zarrella also said during a recent annual conference GM has a North American 1999 profit target of $4 billion. GM so far this year has 29 percent of the U.S. market. Its 1997 level was 31 percent. GM's 1997 North American profits were $2.3 billion.

To: Freedom Fighter who wrote (963)	11/11/1998 9:00:00 PM
From: porcupine --''''>	Read Replies (2) \| Respond to of 1722

Is this based on actual reported earnings or the operating variety? I haven't looked at GM in a while. GM will easily net $7 or $8 per share over the coming 12 months, no matter how calculated. With the share price still under $70, that puts the earnings yield over 10%. As noted above, GM borrows money for less than 6%. At what point do you think that leveraging a company's TANGIBLE equity in order to buy back shares becomes a net negative even if it can be done in a way that increases EPS. I am thinking about recession risk, business risk etc... It all depends. I'm not so happy about Boeing doing this under current circumstances. In a year two, when the stock is double its current price, it will look like a good move. But considering all the problems Boeing has had, retiring debt would be more appropriate than borrowing more money to buy back shares. GM is different. The cash keeps pouring in -- and GM stock is a better buy than a GM bond -- whether you're an individual investor or the Board of GM. There is a $13 billion cash cushion, over and above the buybacks, to deal with a recession. As for business risk, can you name any members of Congress that would not vote to bail out GM? There are many companies out there right now that are buying in shares with cash and debt at significantly above TANGIBLE book value. They are thus shrinking the balance sheet and making themselves look more profitable (higher ROE and more rapid growth rate in EPS) when in reality all they are doing is leveraging the company and potentially increasing risk. Share buybacks reduce equity regardless of cash and debt levels relative to tangible book value -- as would any distribution of cash to shareholders. Certainly buying in shares with free cash instead of paying dividends is a plus if it can be done at a price that makes sense. What I am talking about here is the financial engineering of EPS growth and ROE in a manner that is clearly limited. I am finding a lot of companies that have leveraged themselves significantly on their TANGIBLE equity. I was sort of shocked recently by how leveraged corporate America is when I did a recent casual glance of some companies I am interested in. I had been reading reports that everybody had cleaned up their balance sheet in recent years, but I wonder if those reports were based on book value including goodwill. For most of the 1990's, corporate debt grew at a decreasing rate. As can be seen from the very first posting on this thread, for much of the decade debt on the DJIA grew at an average of 3.6% annually, while revenues (a less ambiguous figure than book value) grew at 5% annually. However, the cash flow seems to have peaked in the 3rd quarter of 1997, since which there has been an uptick in corporate debt. However, it is being financed at decreasing rates of interest. Maybe it's just the industries I am looking at that have leveraged up. Which ones?