Day: September 13, 2024

STERLING HEIGHTS, Mich. (AP) — To Ruth Breeden, who assembles Ram trucks in this Detroit suburb, a simmering dispute between the United Auto Workers and Stellantis isn’t merely about whether her employer will reopen a distant factory in Illinois. To her, the standoff is a danger sign for all UAW workers.

Stellantis had pledged to reopen the factory in Belvidere, Illinois, under a contract it forged last year with the union. But the reopening was delayed given what the company calls unfavorable “market conditions.”

Stellantis says it will eventually reopen the plant. But no date has been given to restart it or open a new battery plant and a parts warehouse, both of which were also promised in the contract that ended the UAW’s strike against Stellantis last year. At stake are over 2,700 jobs.

Breeden and other union members fear that Stellantis will break other commitments, jeopardizing their jobs.

“It’s the whole company,” she said at a union rally last month near her factory. “Who knows which plant is next?”

Union leaders have threatened to strike, a move that could extend beyond Stellantis. Labor experts say its two Detroit-area rivals, Ford and General Motors, are watching as they consider strategies that include whether to move future production out of the U.S.

Detroit automakers have been expanding production in Mexico for years. And after last fall’s strikes shut down a Ford truck plant, its CEO warned the company would rethink where it builds new vehicles.

“There’s plenty of history of the U.S. manufacturing sector moving its operations to low-wage countries,” said Bob Bruno, a labor and employment relations professor at the University of Illinois. “It seems reasonable to me for the UAW to be concerned about not opening here, not investing here.”

In February 2023, the last Jeep Cherokee SUV rolled off the assembly line in Belvidere, about an hour northwest of Chicago, and 1,350 workers were laid off. Stellantis had planned to close the factory.

After six-week strikes against all three Detroit automakers last fall, each company signed a new contract with the UAW. Stellantis agreed to reopen Belvidere Assembly in 2027, with plans to build up to 100,000 electric and gas-powered midsize pickups annually.

It also agreed to open a parts hub in Belvidere this year and an electric-vehicle battery factory with 1,300 workers in 2028. In all, the company pledged $18.9 billion of U.S. investments during the contract, which runs until April 2028.

So promising was the prospect of reopening Belvidere that it drew a celebratory visit from President Joe Biden and a pledge of $335 million in federal dollars to revamp the 5-million-square-foot plant.

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A year later, there’s no parts hub and no definitive plan to open the assembly and battery plants, setting off alarms among union members.

On Wednesday, Stellantis said it would spend roughly $400 million to revamp three Michigan factories to build electric vehicles or parts. Breeden’s plant will receive about $235 million of the money, which was included in the contract.

Still, Breeden fears that CEO Carlos Tavares, who talks frequently about cutting costs, wants to move more production to low-wage Mexico, where the company already builds Ram pickups.

“The truth is Stellantis doesn’t want to invest in America,” UAW President Shawn Fain said in a recent video.

Tavares has said that one reason Stellantis needs to slash costs is to make electric vehicles — which cost roughly 40% more to build than gas-powered cars do — affordable to typical customers.

Experts say the Belvidere matter could end up in court.

In August, Stellantis announced that it would stop making older Ram pickups at a plant in Warren, Michigan, and it will lay off up to 2,400 workers. It was the latest sign that Stellantis’ U.S. workers face an uncertain future, said Marick Masters, business professor emeritus at Wayne State University.

Stellantis said it stands by its commitment to Belvidere, but said it needs the delay so it can afford to remain competitive and preserve U.S. factory jobs.

“It is critical that the business case for all investments is aligned with market conditions and our ability to accommodate a wide range of consumer demands,” Stellantis said in a statement.

The company noted language in a letter detailing investments that’s part of the contract. It says Stellantis and the UAW agree that investment and jobs in North America are “contingent upon plant performance, changes in market conditions, and consumer demand continuing to generate sustainable and profitable (sales) volumes.”

Maite Tapia, associate professor at Michigan State University’s School of Human Resources and Labor Relations, noted that language in union contracts is often intended to appease both parties.

The UAW counters that its contract authorizes strikes over plant closures and broken investment promises.

Stellantis, which has been slow to shift to increasingly popular lower-cost vehicles, has struggled this year. Its U.S. sales fell nearly 16% in the first half. Profits tumbled 50%.

Still, overall U.S. new-vehicle sales rose 2.4% through June. The union argues that GM and Ford are doing well and that Stellantis would be, too, if not for Tavares’ poor management.

Fueling angst on assembly lines is a February statement by Ford CEO Jim Farley, who said his company would rethink where it builds vehicles. Farley sounded that warning after the 2023 strikes shut down Ford’s largest and most profitable plant, which makes heavy-duty trucks in Louisville, Kentucky. In July, Ford said it would revamp a factory in Ontario to build the same trucks.

Before last year’s strikes, Farley said, Ford kept making pickups in the United States despite higher labor costs and competitors that build them in Mexico.

Fain scoffed at the notion that Detroit automakers will move production out of the U.S. because of a more aggressive union. He complained that over the past 20 years, automakers have closed or sold 65 factories during a period when the UAW was more cooperative.

“That’s hundreds of thousands of jobs that cost us,” Fain said.

In the meantime, the standoff with Stellantis over Belvidere has led the UAW to threaten to strike in October.

“We expect them to honor the commitment they made,” Fain said. “If they don’t, we put language in this agreement so that we can hold them accountable. And we’re going to.”

While it’s perfectly normal for a hot trend to be captivating the attention of Wall Street and investors, two buzzy trends at the same time are somewhat rare. In addition to investors piling into stocks associated with the artificial intelligence (AI) revolution, they seemingly can’t get enough of companies announcing stock splits.

A stock split is a tool on the proverbial utility belt for publicly traded companies that allows them to adjust their share price and outstanding share count by the same magnitude. Despite these nominal changes, stock splits are purely cosmetic and have no impact on a company’s market cap or its operating performance.

Although stock splits can occur in both directions — reverse-stock splits increase a company’s share price, while forward-stock splits reduce it — a majority of investors favor companies completing forward splits. Businesses undertaking forward splits are usually outperforming their peers in every respect, which is what propels their underlying stock higher.

In 2024, 13 leading companies have announced or completed a stock split, all but one of which is a forward-stock split. Today just happens to be the day one of these phenomenal businesses will be trading at its post-split price for the first time.

This nearly 125,000%-gainer just completed its sixth split since going public

Earlier this week, satellite-radio operator Sirius XM Holdings enjoyed its time in the sun as the only prominent reverse-stock split of 2024. But today, Sept. 12, it’s all about recognizing corporate identity uniform and business services provider Cintas (NASDAQ: CTAS).

Back on May 2, the company’s board announced plans to complete a 4-for-1 split following the close of trading on Sept. 11. With the company’s shares closing at north of $816 on Sept. 10, the largest split in the company’s history will reduce its share price to a shade over $200.

Since its initial public offering (IPO) in 1983, Cintas has delivered a total return (i.e., factoring in dividend payments along with the cumulative return of its shares) of almost 125,000% and completed a half-dozen stock splits:

The catalyst fueling this growth is, first and foremost, the growth of the U.S. economy. Although recessions are a perfectly normal and inevitable aspect of the economic cycle, history tells us that these downturns tend to be short-lived. Only three of 12 U.S. recessions since the end of World War II have lasted at least 12 months.

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On the other hand, most periods of growth endure for multiple years. An expanding economy tends to lead to higher demand for corporate uniforms and the various products and services Cintas provides, such as towels, floor mats, and safety kits.

Beyond macroeconomic catalysts, Cintas has also benefited from a steady diet of bolt-on acquisitions. Purchasing Zee Medical and G&K Services are perfect examples of Cintas expanding its product and service ecosystem, dangling a carrot for new clients, and providing itself the opportunity to cross-sell more of its products to existing clients.

Innovation is another key puzzle piece for Cintas. Ongoing product development for its line of rental uniforms, as well as its various business product lines, tends to keep customers loyal.

Last but not least, Cintas has more than 1 million corporate clients. This level of diversification all but ensures that no one single business is paramount to its success or capable of sinking the proverbial ship.

Despite Cintas’s long-term success, additional near-term upside could be a tough ask

While Cintas has a pretty clear path to long-term growth, thanks largely to being tied at the hip to the U.S. economy, additional upside for shares of the company over the next couple of years could be a tough ask.

For one, there are mounting concerns that a U.S. recession is brewing. A couple of data points and predictive metrics, including the first notable decline in U.S. M2 money supply since the Great Depression, as well as the longest yield-curve inversion in history, suggest coming weakness for the economy and stock market.

Though stocks don’t move in-tandem with the U.S. economy, Cintas is undeniably cyclical. Most of its clients are liable to feel some degree of pain if economic growth slows or contracts, which would, in turn, be expected to slow down its own growth rate.

To build on this point, both the broader market and Cintas are historically expensive.

According to the S&P 500‘s Shiller price-to-earnings (P/E) ratio, which is also commonly referred to as the cyclically adjusted price-to-earnings ratio (CAPE ratio), the stock market has only been as pricey as it is now two other times, when back-tested to January 1871.

On Sept. 10, the S&P 500’s Shiller P/E, which is based on average inflation-adjusted earnings from the prior 10 years, closed at 35.33, or more than double than 153-year average of 17.16. More importantly, previous instances where the S&P 500’s Shiller P/E topped 30 during a bull market rally were, eventually (key word!), followed by declines of at least 20%.

Cintas ended Sept. 10 at roughly 54 times its trailing-12-month (TTM) earnings per share (EPS) and a nosebleed 44 times forward-year EPS. You’d have to go back to the late 20th century to find the last time Cintas was valued at 54 times TTM EPS.

While a forecast sales growth rate of 7% in the current and upcoming year is admirable for a company of its size, it doesn’t come to close to justifying a forward P/E ratio of 44.

This is a rare instance of a rock-solid business whose stock simply isn’t worth buying at the moment.

Should you invest $1,000 in Cintas right now?

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Sean Williams has positions in Sirius XM. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.

One of Wall Street’s Highest-Flying Stocks — a Nearly 125,000%-Gainer Since Its IPO — Has Officially Completed Its Latest Stock Split was originally published by The Motley Fool

Lumen (NYSE: LUMN) stock posted explosive gains in Thursday’s trading. The telecom company’s share price closed out the daily session up 10.1%, according to data from S&P Global Market Intelligence.

Lumen soared today following a new disclosure filing that was submitted to the Securities and Exchange Commission (SEC). The filing showed that an investor named Daniel Hagan now owns a large position in the company. Hagan is not a widely known public figure or a household name in the investing world, so why did the recent filing trigger such a big valuation increase for the stock?

A little-known investor stakes a huge bet on Lumen

Through the filing with the SEC yesterday, it was revealed that Hagan owned 55 million shares of Lumen, working out to 5.4% of the company’s common stock. When investors or institutions come to own 5% of a company’s stock, they must file a disclosure of their position. This suggests that Hagan has acquired a large amount of Lumen stock lately.

News that large investors are buying up stock can help spur additional bullish momentum, and there may be another reason why investors seem to be so excited about Hagan’s involvement. The investor has previously owned large enough positions in AMC Networks, Jackson Financial, and Lincoln National to trigger disclosure requirements, and subsequent divestiture disclosures suggest that he’s had a high rate of success with previous bets.

What comes next for Lumen stock?

Lumen stock has posted massive gains across 2024’s trading thanks to recent contracts wins to provide high-speed fiber-network solutions and support services for Microsoft and other players in the artificial intelligence (AI) space. Verizon’s recent announcement that it will be buying Frontier Communications has also provided a recent boost and new layer of support for the company’s valuation.

On the other hand, Lumen still has a big debt problem, and it’s going through a complicated restructuring and comeback process. While the stock could continue to soar if the business continues landing AI-related deals or attracts significant acquisition interest, it’s riskier than it looks despite the company continuing to trade at less than half this year’s expected sales.

Should you invest $1,000 in Lumen Technologies right now?

Before you buy stock in Lumen Technologies, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lumen Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

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Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $716,375!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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*Stock Advisor returns as of September 9, 2024

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Lumen Stock Soared Today was originally published by The Motley Fool