Ever wonder why shares of a stock jump when a company announces massive layoffs? Well, layoff announcements are usually accompanied by restructuring plans. If investors expect the changes to improve the company's performance, they may snap up shares, driving the price up. This was the case with sewing-machine maker Singer, which announced a few years ago that it was laying off 28% of its workforce and that it would be closing some plants to integrate its production units with those of a recent acquisition. Shares shot up 17% that day.
News like this doesn't always pump up share prices, though. When Eastman Kodak (NYSE:EK) made a similar announcement, its stock fell nearly 6%. (A little later, Kodak stock rose on news of further layoffs.) It all depends on whether the market believes the layoffs are a promise of greater operational efficiency or a sign of a long-term downturn in the business.
A more recent example is Ford (NYSE:F), which announced that about 38,000 workers, nearly half of its unionized workforce, had accepted early retirement or buyout offers. The company's stock didn't move much, because investors weren't exceptionally bullish or bearish on the news.
Layoffs and other issues that affect a company's employees are just a couple of the things our investment newsletter analysts look at to come up with promising stock ideas for their readers. To learn more about how you can use these ideas to improve your investment returns, take advantage of a free 30-day trial, which will also give you access to some of our research reports.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
