The Zacks Analyst Blog Highlights: Microsoft, Berkshire Hathaway Class B, Procter & Gamble, Coca Cola and Wal-Mart Stores

Oct 12, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Oct. 12, 2011 /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: Microsoft (Nasdaq: MSFT), Berkshire Hathaway Class B (NYSE: BRK.B), Procter & Gamble (NYSE: PG), Coca Cola (NYSE: KO) and Wal-Mart Stores Inc. (NYSE: WMT).


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Here are highlights from Tuesday's Analyst Blog:

Wages, Profits & Occupy Wall Street

As an investor, I have to love the rapid rebound in corporate profits. As a citizen, the fact that it seems to be coming at the expense of wage and salary growth makes me deeply uneasy. It also raises substantial questions of how long it can be sustained. Ultimately a company depends on having customers, and workers are also consumers. If the consumers don't have any money, they are not going to be very good customers.

Of course, if a big share of your business is overseas, it might not matter that the middle class here in the U.S. is broke. However, as a citizen I think it matters a great deal.

From 1957 through about 2002 corporate profits and wages tracked each other pretty well. The stock market managed to do OK with that. 

I think this goes a long way towards explaining what the Occupy Wall Street protesters are on about. To the extent that income has grown in this country, it has come from sources like higher dividends and capital gains, not from higher salaries. In fact, over the last decade, 80% of all income gains accrued to the top 1%. Yes, part of that is higher salaries for CEOs, but much more of it has come from higher returns on capital.

As unequal as the distribution of income is in this country, the distribution of wealth is far more concentrated. As capital produces more income, it flows to the owners of it -- the wealthy. A strong stock market tends to produce lots of capital gains income as well.

The Gini Index

Based on income, the U.S. has by far the most unequal distribution of any advanced economy. The best single measure of income inequality is called the Gini Index. Based on it (and the figures are calculated by the CIA, not exactly a liberal organization), the distribution of income in the U.S. more closely resembles that of Jamaica, Cameroon or Uganda than it does Japan, Canada or the United Kingdom.

From an investment point of view, the lesson seems to be: if you can't beat 'em, join 'em. Ownership of corporations is, quite frankly, the reason that the rich are rich. The increasing profitability of corporations is the key reason why the incomes at the top of the scale have been soaring while for everyone else they have been stagnant. You can "join the club" simply by buying some stock.

I'm not saying that buying 100 shares of Microsoft (Nasdaq: MSFT) will make you as rich as Bill Gates, or holding 100 shares of Berkshire Hathaway Class B (NYSE: BRK.B) will make you another Warren Buffett (well, 100 shares of Class A would be a good start). However, your income from dividends if you buy the sorts of stocks that Buffett buys for Berkshire is likely to rise more quickly than the income you get from your job.

Berkshire itself does not pay a dividend, but it holds large amounts of stock in firms like Procter & Gamble (NYSE: PG) and Coca Cola (NYSE: KO) that have healthy dividends and a long history of raising them each year. Not only that, but dividend and capital gains income is currently taxed at only 15%, regardless of your tax bracket from other income. That is the reason why Buffett (and the 400 highest-income Americans as a group on average) pay a higher percentage of their income than does Mr. Buffett's secretary.

Wal-Mart Stores Close in China

Retail giant Wal-Mart Stores Inc. (NYSE: WMT) has agreed to stop operations at 13 stores in southwest China, following the allegations of mislabeling ordinary pork as organic.

The municipal government of Chongqing in southwestern China has accused Wal-Mart of selling substandard food and thus fined the company with $420,000 and ordered to close 13 Wal-Mart stores for 15 days. In addition, many of its store managers were detained in Chongqing.

According to many analysts, large retailers in China have been penalized before, for mislabeling food products, particularly for selling expired items. Since 2006, Wal-Mart has been fined 21 times in Chongqing for deceptive advertising or for selling expired food. Also in January, Wal-Mart and Carrefour were fined for charging extra on promotional items.

Although Chinese government has become stricter in maintaining their standards of quality control, labor rights and other industrial issues for foreign companies than for Chinese-owned companies, it is expected that the re-occurrence of such issues is due to the lack of central (organic) certification authorities in China.

Wal-Mart had approximately 346 stores in China in August with more than 3,000 associates in Chongqing. Further, Wal-Mart generates about $7.5 billion of annual sales in China, which is growing at a double-digit pace.

However, the resignation of Wal-Mart's chief financial officer (CEO) and chief operating officer (COO) in China in May has posed difficulty for Wal-Mart. Nevertheless, Wal-Mart is trying hard to improve its operations in Chongqing and has also assured its customers to meet expectations in future.

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