Monday, July 21, 2008

Ladies and Gentlemen, Start Your Acquisitions

The world is coming to an end. We know that already.

But for a world that is coming to an end, a lot of companies are doing remarkably well. The current crop of earnings reports has been nowhere near as bad as many Wall Street observers—us included—might have expected.

Now, we’re not talking about the financials here. That group’s earnings have been pretty much as bad as anybody dreamed in their worst nightmare…despite the fact that Citibank’s $2.5 billion loss was somehow deemed “better than expected.”

It’s the IBMs of the world that have managed to continue to rack up sales and earnings despite the fairly hefty turmoil in the credit markets.

Yes, things might get worse. Costs are rising, sales are harder to come by, and credit remains tight.

But that’s how a business cycle weeds out the second-stringers from the starting lineup. Look at how many third-rate retailers are filing Chapter 11 these days—with Mervyns apparently now on the brink.

The weak are dying, the strong will survive.

And those that have shown they can manage through at least the first half of a credit crisis, it seems to us, are probably looking ahead to the end of the crisis. In particular, we’d bet they’re gearing up to make a deal.

Many deals.

After all, what better time to buy than now, when the credit market for private equity is more or less shut down and players like Apollo Group, which couldn’t pay enough for Huntsman back when money was free, now can’t back out of deals fast enough?

While we here at NotMakingThisUp never comment on the merits of individual stocks, we’d look for good franchises at cheap prices that just might get the attention of a bigger player looking to expand while the expanding is good.

Dow’s recent jaw-dropping bid for Rohm and Haas is, we expect, not the last of its type.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

No comments: