Cracking open the shell
Q: What’s a shell company?
A: A shell company is a structure that has financial assets and engages in financial transactions but has little going on in the form of operations — that is, little or no production or sales and few employees. Both businesses and individuals can create and use shell companies.
Shell companies have a shady reputation because although they’re generally legal, they’re often used for illegal purposes, such as tax evasion or money laundering. They’re often established in countries with exceptionally business-friendly laws and/or low tax rates (such as Bermuda, the Cayman Islands or Switzerland), and they can help a company or person hide certain activities, disguise ownership or tuck away money.
Q: Which women lead S&P 500 companies?
A: It’s easy to list them all, because women recently headed only 24 of the 500 companies in the S&P 500 — not quite 5 percent.
They are: Mary T. Barra (General Motors), Gail Boudreaux (Anthem), Heather Bresch (Mylan), Michele Buck (Hershey), Debra A. Cafaro (Ventas), Safra A. Catz (Oracle — co-CEO), Mary Dillon (Ulta Beauty), Adena Friedman (Nasdaq), Michelle Gass (Kohl’s), Lynn J. Good (Duke Energy), Tricia Griffith (Progressive), Marillyn A. Hewson (Lockheed Martin), Vicki Hollub (Occidental Petroleum), Patricia Kampling (Alliant Energy), Margaret Keane (Synchrony Financial), Beth E. Mooney (KeyCorp), Phebe N. Novakovic (General Dynamics), Patricia K. Poppe (CMS Energy), Barbara Rentler (Ross Stores), Virginia M. Rometty (IBM), Susan N. Story (American Water Works), Lisa Su (Advanced Micro Devices), Jayshree Ullal (Arista Networks) and Kathy Warden (Northrop Grumman).
Here’s one reason that low number is a shame: A 2016 Credit Suisse report says, “where women account for the majority in the top management … businesses show superior sales growth, high cash flow returns on investments and lower leverage.”
Dear Fool: My dumbest investment was buying the stock of Delta Air Lines years ago. The company had been struggling, and its stock price had fallen. I couldn’t imagine that it would end up filing for bankruptcy protection — but it did.
I was so sure that some other company would just buy Delta, as the company seemed to be valued in the market for less than it was really worth. And I didn’t realize that when Delta emerged from bankruptcy, it would be with new shares of stock, with old shares like mine canceled and rendered worthless.
The Fool responds: It’s typically best to avoid investing in struggling companies. After the 9/11 terrorist attacks in 2001, many airlines had a hard time, facing a sharp drop in people flying coupled with a surge in the price of fuel.
Delta’s bankruptcy was preceded by those of US Airways and United Airlines and came at the same time as that of Northwest. Delta exited bankruptcy in 2007 after 19 months — and after cutting costs and jobs and eliminating many less profitable routes.
The company has been doing well lately, with its shares taking flight over the past decade. It has been investing aggressively in replacing much of its aging fleet, and newer planes with better fuel efficiency will help boost profit margins. Even the company’s pension deficit has been falling, reflecting improved overall financial health.
The Home Depot (NYSE: HD) is the world’s largest home-improvement retailer, and it keeps growing. Top-line sales rose 7.2 percent last year to $108.2 billion, while net earnings rose 28.9% to $11.1 billion.
While many retailers seem to be clinging to life support, Home Depot has been able to thrive, thanks in part to investments it made to maintain an online presence. Online sales grew 24.1% in 2018, and digital sales now make up 7.9% of the total.
Being the biggest gives Home Depot a lot of leverage when negotiating with suppliers, which makes it hard for smaller businesses to compete.
Home Depot’s size advantage will probably get even stronger over time.
Purchases over $1,000 are growing faster than sales from the average customer, and the company has already welcomed 100,000 Pro customers to a new business-to-business website just for them.
Home Depot repurchased (essentially retiring) around 3.8% of its shares last year, which drove earnings up 33.5% to $9.73 per share.
With fewer shares to make dividend payments to, the company felt confident enough to raise its dividend payout 32 percent, and the board of directors authorized a new $15 billion share-repurchase program.
The stock, recently yielding around 2.8 percent, isn’t a screaming bargain, but it’s likely to reward patient investors over the long run. (The Motley Fool has recommended the Home Depot.)