Down Week Yet M&A Picks Up

Monday, August 23, 2010

Battle of the macro v. the micro

After bouncing early in the week before falling late in the week the S&P 500 ended with 0.7% in losses last week. The week was marked by more struggle between the macro and the micro pictures both vying for investors' attention.

The macro is not pretty and seemingly every data point alerts us to how weak the economic recovery is and justifies the slowdown worries. US first-time jobless claims on Thursday hit a psychological level of 500,000, the highest in 9 months and a strong signal of the recent slowdown the US economy has experienced in mid-2010. This data point steadily fell from the March 2009 highs of 651,000 until early February's low of 439,000 before now jumping back to 500k.

The micro story continues to look positive as we exit earnings season having seen another great round of earnings reports exceeding expectations and adding top line growth. Bespoke Investment Group has the final tally out on Q2 showing that 65.8% of companies beat on the bottom line and 63% beat on the top line. Not insanely stellar but far from disappointing.

Last week we saw a couple companies attempt to put their large strong balance sheets to work as BHP Billiton (BHP) ignited the fertilizer sector with its nearly $40 billion bid for PotashCorp (POT). PotashCorp immediately rejected the bid calling it "grossly inadequate" and shares are now trading $20 over the $130 bid price.

Intel (INTC) closed the week with a $7.7 billion bid for McAfee. With $2 billion in 2009 revenues and subtracting MFE's $700 million cash position, INTC is paying 3.5 times sales which doesn't seem unreasonable on its face. Regardless, on of my favorite bloggers, Eddy over at Crossing Wall Street, believes this deal is a mistake and he's probably right. While online security is and will be an absolutely crucial component for the future of computing, deals of this size rarely work well for shareholders in the long-run.

Keeping my eyes on Apple (AAPL)

While it's always fairly obvious that traders should watch the leaders for indications of the market's future moves, I think now is a time to watch AAPL with a keen eye. AAPL is the most exciting company in America and its stock represents the high momentum leader of the technology sector and the Nasdaq as a whole. Shares of AAPL have been in a tight range with volume falling off as it absorbs large recent moves and the consumer slowdown creates some uncertainty for future earnings.

blog comments powered by Disqus