Companies Right-Sizing May Lead to Big Profits Now

Tech layoffs have dominated headlines since the start of the year. However, many of these companies vastly increased their hiring during the pandemic, and may have overshot to the upside. So while layoffs and workforce reductions now sound painful, it may allow companies to lower their spending and lead to bigger profits.

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  • That could be a boon to investors now, especially given how much share prices have declined for big-name tech stocks.

    That advantage could be even further compounded by companies buying back shares at a steep discount to their old highs.

    One such company is Meta Platforms (META). The owner of Facebook and Instagram has laid off about 13 percent of its workforce in the past year, and may be planning another round now. Yet, thanks to its recently-announced buyback, shares could prosper in the months ahead.

    Meta share shave rapidly closed their underperformance in the past few weeks, and have now returned about as much as the stock market on average in the past year.

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  • Action to take: While the company has struggled with losses lately, cutting costs could lead to a return to profitability. Revenues only dropped about 5 percent in the past year, and the share buyback could still make the company look attractive as it grows earnings per share.

    For traders, the September $240 calls, last going for about $9.55, offer investors mid-double-digit returns on a continued rally higher for Meta shares.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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