Featured StoryGeneral Motors Corp. (NYSE: GM) reported today (Thursday) its biggest annual profit ever for 2011, but weakness from Europe could dull the share-price rally.
Net income for the 2011 fiscal year hit $7.6 billion, 62% higher than the $4.7 billion GM earned a year ago and more than the previous record of $6.7 billion in 1997. Revenue increased 11% to $150.3 billion.
Net income for the quarter hit $472 million, or 28 cents a share, down from $510 million, or 31 cents a share, a year ago.
North America was GM's biggest income driver, accounting for $7.2 billion of the year's profit. GM suffered a $747 million loss in Europe, where consumer spending is struggling.
"We clearly have work to do in Europe," GM Chief Financial Officer Dan Ammann told reporters. "We have work to do in the South America business. Frankly, we have work to do all around the company in terms of cost opportunity."
Investors remain wary over how successful GM will be at maintaining its profit rise as long as Europe remains weak - and looks increasingly weaker.
"Just because things were looking OK at the end of last year doesn't mean that they will continue to look OK," Richard Cookson, chief investment officer of Citi Private Bank, told MSNBC. "Our best guess is that conditions will continue to deteriorate. This is going to be unpleasant, to put it mildly."
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Five Companies to Avoid Until the Eurozone Debt Crisis is Over
U.S. companies with significant exposure to Europe will take a profit hit regardless of how the Eurozone debt crisis shakes out.
The financial strain of Europe's efforts to avert default among its troubled members - Portugal, Italy, Ireland, Greece and Spain (PIIGS) - has set the Eurozone on course for a recession even if its efforts succeed.
Yesterday (Thursday) the European Commission dropped its forecast for growth in the Eurozone to just 0.5% from its previous estimate of 1.8% in May. The commission blamed austerity measures, which were aimed at lowering budget deficits, but ended up eroding investment and consumer confidence.
"The probability of a more protracted period of stagnation is high," said Marco Buti, head of the commission's economics division. "And, given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded."
Falling consumer demand has already begun to affect the bottom lines of many U.S. companies that derive large portions of their revenue from the Eurozone bloc.
"In light of cutbacks in government spending, tax increases and waning business confidence, there already has been some [company] commentary on slipping appliances, bearings and heavy-duty trucks demand," Citigroup equities analyst Tobias Levkovich told MarketWatch. "In many respects, these early remarks are a worrisome sign."
For example, General Motors Co. (NYSE: GM) on Wednesday said the debt crisis would prevent it from breaking even in Europe this year. And Rockwell Automation Inc. (NYSE: ROK) on Tuesday warned of declining capital spending in Europe next year.
Although sales to Europe account for only 10% of revenue for the Standard & Poor's 500 as a group, several sectors have far more exposure to the Eurozone.
The auto sector derives 27.6% of its sales from Europe, followed by the food, beverage and tobacco sector at 22%, the materials sector at 19.8%, the consumer durables and apparel sector at 16.2% and capital goods at 16.4%.
"Europe is a major component to the U.S. economic engine and it is a concern," Howard Silverblatt, an analyst with S&P Indices, told MarketWatch. Silverblatt noted that while a European recession may not necessarily take down the U.S. economy, "it has an impact that will move stocks."
Here are five U.S. stocks that have significant exposure to Europe and leveraged balance sheets high - making them risky investments until Europe gets back on its feet:
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Seven Potential Employment – And Profit – Opportunities
With the U.S. unemployment rate steady at 9.1% and President Obama's jobs plan creating more conflict than opportunity, it's hard to believe there are U.S. companies that are hiring.
But there are.
Even taking into account the gloomy economic outlook, these companies project growth into next year that will increase revenue and require more employees.
That's good news for job seekers, but it benefits investors as well, since they will have the opportunity to profit from the higher share prices that come as a result.
So here are the sectors the most hiring right now, as well as seven companies that could parlay employment opportunities into higher profits.
Real Job Growth vs. Temp HiresSome of the biggest hiring increases are coming from the U.S. auto industry.
Ford Motor Co. (NYSE: F) recently announced plans to hire as many as 7,000 new workers by the end of 2012. Many of the new positions will help develop new battery-powered cars, but they also reflect the company's improved earnings. After losing $30.1 billion in the period from 2006 through 2008 and borrowing $23.4 billion to survive, Ford earned $9.28 billion over the past two years.
Ford's improvement spilled into the rest of the auto sector, with both General Motors Co. (NYSE: GM) and Chrysler Group LLC (which is now partnered with Italy's Fiat SpA) ramping up hiring over the past year.
Healthcare, medical, and drug companies also have picked up hiring in a trend that is expected to continue into 2012. According to human resources publication Benefits Pro, healthcare jobs now account for 10.8% of the total U.S. workforce, including 30,000 new positions created in August when overall U.S. job growth was flat.
Healthcare stocks have responded to the sector's growth. MSN Money on Oct. 4 posted the top performing stocks so far this year, which included five companies in the medical/healthcare sector boasting gains of 30% or more.
Still, you must be aware of potential traps when searching for the job-adding sectors. Some companies are only hiring seasonal or temporary workers, and their short-term payroll increases won't translate into stock-price gains.
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U.S. Automakers Getting Back on Track at Just the Right Time
Just two years after two of the "Big Three" U.S. automakers declared bankruptcy, Detroit's favorite sons have grown strong enough to steal sales back from their Japanese rivals.
For the month of September, sales for General Motors Co. (NYSE: GM) were up 20%, sales for Ford Motor Co. (NYSE: F) were up 9% and sales for Chrysler Group LLC were up 27%.
Meanwhile, sales for Toyota Motor Corp. (NYSE ADR: TM) plunged 17.5% and Honda Motor Co. Ltd. (NYSE ADR: HMC) fell 8%.
It's quite a reversal from the late 2008-09 period, when both GM and Chrysler declared bankruptcy and took government bailout money to keep from closing their doors. Toyota at that time took the crown of world's largest automaker from GM. And the U.S. auto industry collectively shed 120,000 jobs.
"The image change for Detroit in the last three years probably has been more than any of us in the industry anticipated," Jesse Toprak,vice president for industry trends and analysis at TrueCar.com, told USA Today.
The Japanese automakers lost market share this year as they were pounded by the devastating earthquake and tsunami that rocked the island nation in March. Disruptions to manufacturing have caused lapses in inventory that have hurt sales.
However, the American automakers have taken full advantage of the opportunity to get car buyers to give them a chance.
Both GM and Chrysler picked up 1.7 market share points in September compared to the previous year, while Honda lost 1.7 points and Toyota lost 3.8 points.
Jeff Schuster, executive director of global forecasting and analysts for J.D. Power and Associates, thinks that the Japanese automakers may find it hard to win back those lost customers.
"[The March earthquake] created a more open environment coming out of the recession," Schuster told Bloomberg Businessweek. "I think buyers are more open to looking at other brands now."
Advantage DetroitSeveral factors are working in favor of the U.S. automakers now that they've regained their financial footing.
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