Weekly Market Assessment
Bring on the consolidations! Low interest rates have spurred a rush for acquisitions and are bringing competitors under one roof. Just over this past month numerous deals have been announced; Google bought Songza, Apple acquired Beats, Valeant is in a hostile takeover of Allergan, Whiting Petroleum bought Kodiak and now Zillow is in talks to buy competitor Truila. Along with these acquisition we are also seeing some companies announce that they "may" go private. Cheap money is out there and the big boys are taking full advantage of it. When the companies cash flow yield exceeds debt interest (if they take it on), while also being able to capture a larger percentage of their market, then why not! Another benefit of low rates has sparked the public-to-private leverage buyout, where companies who no longer want to deal with meeting wall streets expectation and can focus on running the company to their way. Dell was as of recent, the first major company to do this and now Rackspace, Lululemon and Sodastream are looking at heading in this direction.
Is this just the beginning or are we nearing the end of this most recent rush to acquire your peers and expand through synergies instead of organic growth. Have these companies reached an inflection point where organic growth is no longer achievable through cost cutting or the newest fade tax inversions. This constant and relentless demand from investors and institutional investors keeps a constant foot on the throats of these public companies to perform at its highest levels through the year. A slip up on one quarters earnings starts the never ending questions and the one question in particular that no company wants to hear is the dreaded, are they done growing?!
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -As mentioned last week I sold a Vertical "CALL" Spread at 1985/1990, as this looks to be resistance and its former 52 week high. market sold off on Friday and the SPX ended the week at 1978, giving me an option gain of 6%
Amazon (AMZN)- Reported earnings on Thursday after the close and disappointed on both the top and bottom line. As usual AMZN posted a loss of $0.27 compared to analyst expectation of a loss of $0.15. AMZN sold off over 10% to $317.20. I have purchase a Vertical "CALL" Spread at $320/322.50. I need AMZN to close next week above 322.50 to collect the entire option gain.