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Monday, November 15, 2004
Market Recap
The stock market continues to make progress. Although gains were small today, there was no sign of sellers. It seems the masses want to own stocks and there is a lack of sellers in the crowd. After all, the other choices are Bonds or cash. Given the choices, I think stocks are the way to go right now. The Dow gained +11 points, the NASDAQ gained +8 points, and the S&P was flat with a fractional loss. A number of stocks are making 52 week highs daily. Some bulletin stocks making new highs today include ECST, XMSR, COGT, SNDA, TXU, FFIV, MSTR, EENC, TASR, ROXI, and VCLK. There are many stocks with super looking charts. Some stocks are breaking out and leaving their bases during today's flat market. Other stocks are resting and building nice bases to advance with the market on the next leg up. This action is very healthy and sets them up for big gains going forward.
Merger Mania
It has been a very robust year for mergers and acquisitions, not as good as it was back in the internet bubble years but healthy nonetheless. During the internet years, anyone with a website was issuing stock and investors were buying it up as if it were gold. That fueled a massive amount of buying between corporations. Companies IPO'ed with instant billion dollar market caps, even if they had no earnings. It seemed anyone with a name like “Isellnothing.com” could go public and soon their stock was trading at $400 a share. Some of these companies raised enough cash to actually buy out well established companies. Some companies fell victim to acquiring these over inflated dot bombs, and some dot bonds were on the receiving end of a great deal. Many of these dot bombs were bought out at over inflated prices, and the insiders took the money and ran as fast as they could. What is going on this year is nothing like those days of grossly over valued prices but there is some trickery going on in my opinion.
Lately we have seen stocks with great financial numbers getting slammed by the analysts. Those analysts work for the same firms that will be right in the middle of a merger deal. Remember that buying a company is not like picking up something at a yard sale. These brokerage houses act as a banker and an intermediary for companies who are scouting for a merger. You can bet they do a little shaking of the tree here and there to get the stock price closer to where the acquiring company wants it to be. They may toss in a few downgrades, and suddenly a company is on sale. What is always interesting is the so called premium that one company will pay for another. They always pay just a little more than the price the stock is trading to give the impression the company being bought out is getting a good deal. Very rarely do you see a company getting bought out for less than their stock is trading for.
Companies do not buy other companies blindly. They do a ton of research to arrive at an equitable value. A price they know is a good deal, yet sweet enough that it would not be turned down.
With all these cheap stocks in the market, mergers should continue to be plentiful in 2005. When a merger does occur, the stocks usually gap up to meet the tender price. There is some luck involved; you have to be a little lucky to be holding a stock that gets bought out. Watch for activity in the charts to help find potential take over targets.
If a stock being accumulated with insiders buying, and all of a sudden there is an analyst down grade, this could be a clue. There is more to it than simply accumulation, but that is certainly a good place to start. If insiders are buying, they must think the stock is under valued or they know another company is interested in making an offer. Some beaten down stocks may be huge bargains; those could be prime candidates for a buy out.
Oil in the News
Here is another interesting article on oil. You be the judge.
http://story.news.yahoo.com/news?tmpl=story&cid=20...
OTC BB Watch List
- UNWR
- AHOM: This one looks ready to rock
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