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the years of have been trading and interacting with other investors of all
kinds, I have found that acquisitions can be a source of tremendous excitement;
more importantly they can be a breeding ground for horrendous mistakes,
especially by retail investors.
investors like Carl Ican, T. Boone Pickens, Daniel Loeb and others make a good portion
of their living through the various processes of mergers, acquisitions and
liquidations. Their actions or even
intentions alone can motivate thousands of ill-prepared investors to “coattail”
these trades in an effort to capitalize
on what they believe could be a home run.
But more often than not it’s either too late or the process turns out to
be a long drawn out one in which the investor bails on as their patience and
pockets run thin.
Dell Inc. DELL
has been at the center of a flurry of buyout activity and is attracting speculators
even though their profits are slipping away faster than a 16 cylinder Bugatti
Veyron burns fuel at full throttle (you’ll get about 1 mile per gallon).
I believe that DELL will most likely go private, it’s my bear of the day because
their fundamentals are going in the wrong direction, analyst are jumping ship
(on earnings growth estimates) and I don’t think that even the great Carl Icahn
can improve the situation in short order.
importantly, you should see the caution flags here and heed them unless you are
expert in merger and acquisition analysis.
For most investors, it might be a better move to avoid Zacks Rank 5 Dell Inc
and look to companies with better ranking and positive earnings growth like
Apple (AAPL - Analyst Report), Google (GOOG - Analyst Report) or Qualcomm (QCOM - Analyst Report), all of which are rated better than Dell.
Michael Dell wants to take the world's number
3 PC maker private for $24.4 billion. It’s
his belief that a needed transformation within the company would be done best
without the meddling, scrutiny and intrusiveness of the public markets (I agree
Michael Dell and Silver Lake agreed in
February to buy out shareholders at $13.65 a share; shares were trading at just
over $10 at the time and had traded as low as $8.69 in November.
Icahn and Southeastern Asset Management
(another major shareholder) are fighting Dell’s buyout offer, saying it’s too
cheap for a company trying to become a major provider of enterprise computing.
They are proposing new leadership and additional cash or stock for shareholders
(obviously they own shares much higher). They drew up a deal where shareholders
have the option to either receive $12 per share in cash or $12 in additional
shares valued at $1.65 per share.
recently reported that net income fell to $130 million from $635 million a year
earlier. Excluding certain items, income was down 51 percent to $372 million,
or 21 cents a share, from $761 million, or 43 cents a share, a year earlier.
missed the Zacks Consensus by 38.35%, expectations were for 34 cents in the
on a GAAP basis slid to 19.5 percent from 21.3 percent a year earlier, as total
operating expenses climbed 12 percent.
in its fiscal first quarter ended May 3 fell to $14.1 billion, higher than the
average analyst estimate of $13.5 billion.
are currently trading at 13 times forward earnings assuming flat sales growth
and an earnings increase of 2% in 2013. Looking
at the trajectory of analysts’ expectations, I think that might be a stretch.
that Mr. Icahn rode Netflix NFLX stock up135% for an over $800 million in
estimated paper profits; one would think that he might want to just let this
one (DELL) go. Based on past experience
it’s not his style to just walk away, but for most of you reading, that might
be the best medicine here.
you are looking for a turnaround, you might have a better shot exploring Hewlett-Packard
(HPQ - Analyst Report), although I’d wait for a pullback as its shares have already risen by leaps
Jared A Levy is one of the most highly sought after traders in the world and a
former member of three major stock exchanges. That is why you will frequently
see him appear on Fox Business, CNBC and Bloomberg providing his timely
insights to other investors. He has written and published two tomes, “Your
Options Handbook” and “The
Bloomberg Visual Guide to Options”. You can discover more of his
insights and recommendations through his two portfolio recommendation services:
Zacks Whisper Trader- Learn to
buy stocks likely to have robust earnings BEFORE they report.
Zacks TAZR Trader – Technical Analysis +
Zacks Rank. Best of both worlds approach to find timely trades.
Jared A Levy on twitter at @jaredalevy
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