On Tuesday’s Mad Money, Jim Cramer reiterated his bullish stance on U.S. stocks and said that he believes that the S&P 500 is headed for 1200. Among his top reasons for his optimistic view is the recent trend in mergers and acquisitions.
“In what is usually the sleepiest week of the year, the week before and of labor day — … All last week they’re like napping. Suddenly they say no, no, Baker Hughes is going to buy BJ Services wait a second, we’re going to do another one. Disney’s going to buy Marvel Entertainment diversify away from TV advertising. Dainippon Sumitomo. Who the heck are they? They’re acquiring Sepracor. An American drug company that may be very cheap because of worries about Obama’s health care plan.
And biggest of all, mac and cheese buying chocolate. Kraft’s $16 billion run at Cadbury yesterday to give the whole food industry a jolt. You wouldn’t get these kinds of deals unless stocks are cheaper, not more expensive than we think. I always say nothing like real companies buying other real companies to demonstrate the worth of stock.” — CNBC’s Mad Money 9/8/2009
He makes an interesting point here, and it also flies in the face of the latest data about insider trading. As we have chronicled over the last few months, corporate insiders have been selling off stock far more than they are buying it (Pace of Insider Sales Continues to Escalate). This trend has intensified as the rally has continued, which seems to suggest that insiders have lost faith in this rally. However, with the string of big acquisitions announced over the last few days, we see a different side of the story.
The fact that companies are looking more aggressive from the merger and acquisitions perspective suggests that at least some corporations still believe there are great buys out there. To be fair, this trend of M&A deals only comprises 4 aggressive corporations, while the insider selling is far more widespread. That being said, it is a valid point as no company is motivated to buy another company unless they believe they are getting a compelling value. Some of the underlying value in these deals, like in the case of Kraft (KFT) and Cadbury (CBY) may be in the form of synergies and the ability to cut costs and redundancies, but it is a somewhat bullish trend nonetheless.