The Zacks Analyst Blog Highlights: Chevron, Johnson & Johnson, Google, Coca-Cola and Automatic Data Processing

    The Zacks Analyst Blog Highlights: Chevron, Johnson & Johnson, Google,
                   Coca-Cola and Automatic Data Processing

PR Newswire

CHICAGO, June 20, 2013

CHICAGO, June 20, 2013 /PRNewswire/ -- announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Chevron Corporation
(NYSE:CVX-Free Report), Johnson & Johnson (NYSE:JNJ-Free Report), Google Inc.
(Nasdaq:GOOG-Free Report), The Coca-Cola Company (NYSE:KO-Free Report) and
Automatic Data Processing, Inc. (Nasdaq:ADP-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.

Here are highlights from Wednesday's Analyst Blog:

Labor Market's Loss = Investors' Gain: Worth It?

They say "one man's loss is another man's gain," and this seems to have been
proven true by recent economic data that exemplifies the trend of companies
splurging on investors through share buybacks and dividends instead of making
the required investments in their workforce.

Data from TrimTabs Investment Research, a leading independent institutional
research firm, reveal that companies have spent over $290.7 billion in share
buybacks year to date, but have remained overtly reluctant to hire more
workers or make significant capital expenditures to boost the job market.
Furthermore, S&P 500 companies have reportedly shelled out a record $37.5
billion as dividends so far this year.

Not denying the significance of companies boosting shareholder value, it is
also imperative for the broader economy to have a healthy employment rate as
much of the economic progress hinges on its labor market. Thus, with the
unemployment rate languishing at 7.6%, is it worth prioritizing only private

Is then the new monetary relation between investors and the labor market a
prelude to the impending economic woes of the country that is slowly finding
its feet after a prolonged downturn? Let's try to find a solution to this
simple, yet in some ways complicated, algorithm.

The Cash Pile

Conservative estimates reveal that the cash balance of non-financial firms has
currently swelled to $1.8 trillion, as most companies raked in huge profits in
2012. A sneak peek into the balance sheets of various companies reveals the
stark reality:

At year-end 2012, oil behemoth Chevron Corporation (NYSE:CVX-Free Report) had
staggering cash and cash equivalents of $20.9 billion, while healthcare
company Johnson & Johnson (NYSE:JNJ-Free Report) and techno-giant Google Inc.
(Nasdaq:GOOG-Free Report) had $14.9 billion and $14.8 billion in their
respective kitties. To add to the list, consumer goods giant The Coca-Cola
Company (NYSE:KO-Free Report) had an astounding $8.4 billion of cash reserves
as of Dec 31, 2012.

A majority of these companies are gradually opening their wallets to investors
and not to the labor force, which ironically may be the primary firepower
behind the stellar growth in cash reserves. As a result, real wages are
witnessing a downtrend and job additions have been few and far between.

According to data from business outsourcing solutions provider Automatic Data
Processing, Inc. (Nasdaq:ADP-Free Report), private payrolls increased by a
meager 135,000 in May 2013. Recent data from ISM Manufacturing and
Non-Manufacturing indices also portray a grim outlook and anticipate
relatively flat job growth.

Simple arithmetic, based on data from the Bureau of Labor Statistics, would
reveal that the total money spent on share buybacks and dividends could have
hired about 5.47 million new workers and sustained the average American worker
cost of about $60,000 a year for salary and benefits.

So what made these companies renounce such a lucrative option to build the
human capital and thereby contribute toward the broader improvement of the

The Corporate Excuse

The recession has taught some very intricate survival strategies to companies,
the primary one being stringent cost-cutting measures to increase corporate
liquidities during challenging macroeconomic environments. However, among all
the available options to reduce operating costs -- namely controlling
inventory levels, curtailing employee expenses and delaying technology
upgrades -- payroll costs are found to be the hardest to manage as companies
often cannot easily retrench a large workforce.

As such, companies have largely stopped hiring new employees, which was once a
routine affair to fill vacancies due to employee turnover. To make matters
worse, a dramatic change in the labor market has unruffled the ergonomics and
have tilted the equilibrium against hiring. As most Americans learnt the hard
way of survival through the pangs of a prolonged recession, wages have
declined and productivity has increased as a percentage of total product or
service costs.

According to the U.S. Bureau of Labor Statistics, the non-farm business sector
labor productivity increased at a 0.5% annual rate during the first quarter of
2013, while unit labor costs declined 4.3%.

The strategy of trimming costs also includes companies willing to pay lesser
for employee's healthcare benefits. According to the latest Milliman Medical
Index (MMI), healthcare premiums are likely to increase 6.5% in 2013 as a
family of four covered through a typical employer health plan will need to pay
out $9,144 on an average. A larger employee base automatically increases a
company's expenditures. Thus, most companies would prefer to reduce their
healthcare cost burden by having a minimal labor force.

Reaping the Harvest

A significant chunk of these corporate savings and higher cash reserves are
directed to the investors, as companies aim to further capitalize on some
chart-busting performances by equity markets through confidence-building
measures to further propel their stock prices. However, industry experts
believe such astronomical gains of the stock market are indeed an aberration
and are not sustainable, implying that the market is due for a correction.

Sir John Templeton once observed "Bull markets are born on pessimism, grow on
skepticism, mature on optimism and die on euphoria." The equity market perhaps
is currently passing through its stage of maturity and the euphoria is likely
to wane sooner or later.

Consequently, it should be worthwhile for corporate organizations to start
investing for long-term gains by developing the human capital through a strong
labor force rather than rewarding investors for a short-term gain.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of
the Day pick for free.

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