David Moenning's Daily State of the Markets 11/07
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The Urge to Merge
Good morning. With no fewer than nine public companies agreeing to be acquired or receiving takeover offers yesterday, traders quickly forgot about their worries over the election and the economy, and focused on the fact that those doing the buying obviously feel there are values to be had at current prices. And the fact that most of the deals came with substantial premiums to market prices was not lost on investors as the Dow shrugged off any and all concerns, and came roaring back to within 58 points of its all-time high.
Perhaps what is most encouraging about all the M&A activity yesterday was the fact that many of the buyers were those that know the company best � company management. For example, Four Seasons (FS) was bought by its management group for a premium of almost 30%, Swift Transportation announced that its former chairman and largest shareholder was making an offer for the company (at a 24% premium), and OSI Restaurants agreed to be acquired by a private investor group.
So, in short, investors ignored yesterday�s increase in oil prices, the potential shakeup in Congress, the recent jump in interest rates, and the fact that stocks had fallen for six straight sessions. Instead, the focal point was the fact that the majority of these deals are being done for a premium of close to 30% of current market prices.
Therefore, it doesn�t take a math whiz to figure out that if the investors with big bucks are willing to plunk down their cash, then there are obviously values to be found right now. And if the values are good enough to continue to attract mergers and acquisitions, then the bulls will argue that stock prices have additional room to grow.
For traders, the question now becomes whether yesterday�s big bounce put an end to what had been a very modest corrective phase. Given the fact that all of the major indices popped higher by 1% or more and breadth saw more than 2500 advancing issues, it is fairly easy to jump right back up on the bull bandwagon. And while the odds do seem to favor some additional upside, let�s not forget that yesterday�s volume was less than stellar and there is some overhead resistance to contend with in the near future.
Turning to this morning�s pre-market activity, there are no economic reports scheduled for release before the bell and frankly, things are pretty quiet. The markets are leaning modestly positive in the early going after yesterday�s pop, but it would appear that traders might be looking for some guidance this morning.
Running through the rest of the pre-game indicators, the major overseas markets are all a little higher this morning. Gold futures are little changed and are quoted at $627.70 right now. Crude futures are moving a little lower this morning with the latest quote showing oil down $0.13 to $59.89. Interest rates are pulling back a bit this morning with the 2-year currently quoted at 4.80% while the 10-yr is trading with a yield of 4.69% right now. And finally, with about an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently 22 points above fair value, the S&Ps are ahead by 1 point, while the NASDAQ is sporting a loss of about a point at the moment.
Stocks �In Play� This Morning:
Microsoft (MSFT) � WSJ reports company to begin offering movie and TV downloads to Xbox 360 users
CB Richard Ellis (CBG) � To replace FSH in S&P 500 on 11/9
Verizon (VZ) � WSJ reports company in talks with YouTube to bring content to cell phones
Tribune (TRB) � Downgraded at AG Edwards
Swift Transportation (SWFT) � Downgraded at Stifel Nicolaus, Upgraded at BofA, Bear Stearns, and Wachovia
TXU (TXU) � Downgraded at Citigroup
Marvel Ent (MVL) � Downgraded at Citigroup
Southwest Airlines (LUV) � Upgraded at Credit Suisse
Medimmune (MEDI) � Upgraded at Friedman, Billings, Ramsey
Ann Taylor Stores (ANN) � Downgraded at Friedman, Billings
Motorola (MOT) � Estimates and Targets cut at Lehman
DR Horton (DHI) � Downgraded at Merrill Lynch
Telefonica (TEF) � Downgraded at Merrill Lynch
Jet Blue Airways (JBLU) � Upgraded at Raymond James
Sierra Health (SIE) � Upgraded at UBS
E-Trade (ET) � Prudential initiates coverage with Overweight
International Game Technology (IGT) � Reported $0.35 vs. $0.34
Long positions in stocks mentioned: LEH, MER, BSC, FSH, ET, ITG
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning�s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM�s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
Good morning. With no fewer than nine public companies agreeing to be acquired or receiving takeover offers yesterday, traders quickly forgot about their worries over the election and the economy, and focused on the fact that those doing the buying obviously feel there are values to be had at current prices. And the fact that most of the deals came with substantial premiums to market prices was not lost on investors as the Dow shrugged off any and all concerns, and came roaring back to within 58 points of its all-time high.
Perhaps what is most encouraging about all the M&A activity yesterday was the fact that many of the buyers were those that know the company best � company management. For example, Four Seasons (FS) was bought by its management group for a premium of almost 30%, Swift Transportation announced that its former chairman and largest shareholder was making an offer for the company (at a 24% premium), and OSI Restaurants agreed to be acquired by a private investor group.
So, in short, investors ignored yesterday�s increase in oil prices, the potential shakeup in Congress, the recent jump in interest rates, and the fact that stocks had fallen for six straight sessions. Instead, the focal point was the fact that the majority of these deals are being done for a premium of close to 30% of current market prices.
Therefore, it doesn�t take a math whiz to figure out that if the investors with big bucks are willing to plunk down their cash, then there are obviously values to be found right now. And if the values are good enough to continue to attract mergers and acquisitions, then the bulls will argue that stock prices have additional room to grow.
For traders, the question now becomes whether yesterday�s big bounce put an end to what had been a very modest corrective phase. Given the fact that all of the major indices popped higher by 1% or more and breadth saw more than 2500 advancing issues, it is fairly easy to jump right back up on the bull bandwagon. And while the odds do seem to favor some additional upside, let�s not forget that yesterday�s volume was less than stellar and there is some overhead resistance to contend with in the near future.
Turning to this morning�s pre-market activity, there are no economic reports scheduled for release before the bell and frankly, things are pretty quiet. The markets are leaning modestly positive in the early going after yesterday�s pop, but it would appear that traders might be looking for some guidance this morning.
Running through the rest of the pre-game indicators, the major overseas markets are all a little higher this morning. Gold futures are little changed and are quoted at $627.70 right now. Crude futures are moving a little lower this morning with the latest quote showing oil down $0.13 to $59.89. Interest rates are pulling back a bit this morning with the 2-year currently quoted at 4.80% while the 10-yr is trading with a yield of 4.69% right now. And finally, with about an hour before the bell, stock futures in the U.S. are mixed. The Dow futures are currently 22 points above fair value, the S&Ps are ahead by 1 point, while the NASDAQ is sporting a loss of about a point at the moment.
Stocks �In Play� This Morning:
Microsoft (MSFT) � WSJ reports company to begin offering movie and TV downloads to Xbox 360 users
CB Richard Ellis (CBG) � To replace FSH in S&P 500 on 11/9
Verizon (VZ) � WSJ reports company in talks with YouTube to bring content to cell phones
Tribune (TRB) � Downgraded at AG Edwards
Swift Transportation (SWFT) � Downgraded at Stifel Nicolaus, Upgraded at BofA, Bear Stearns, and Wachovia
TXU (TXU) � Downgraded at Citigroup
Marvel Ent (MVL) � Downgraded at Citigroup
Southwest Airlines (LUV) � Upgraded at Credit Suisse
Medimmune (MEDI) � Upgraded at Friedman, Billings, Ramsey
Ann Taylor Stores (ANN) � Downgraded at Friedman, Billings
Motorola (MOT) � Estimates and Targets cut at Lehman
DR Horton (DHI) � Downgraded at Merrill Lynch
Telefonica (TEF) � Downgraded at Merrill Lynch
Jet Blue Airways (JBLU) � Upgraded at Raymond James
Sierra Health (SIE) � Upgraded at UBS
E-Trade (ET) � Prudential initiates coverage with Overweight
International Game Technology (IGT) � Reported $0.35 vs. $0.34
Long positions in stocks mentioned: LEH, MER, BSC, FSH, ET, ITG
** For More of David Moenning�s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com
The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning�s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM�s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.
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