Acquisition Rumors Boost Stocks
by Houghton and Atkeson 03/09/09
While the stock market falls, acquisition speculation heats up. Stock values may have finally fallen far enough to become bargains for companies looking to expand through acquisition.
Today, it appears option investors are buying Hershey Co. (HSY) March 35 (HSYCG) and April 35 Calls (HSYDG) more than 20,000 times. With the stock at its 52-week low, it may be cheap enough for Nestle to acquire the company.
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There has been speculation regarding this transaction in the past but we now have investors buying options with two weeks left before expiration.
Lexmark International Group Inc. (LXK) may also become an acquisition target in the near future. We are seeing unusual buying activity in the LXK March 17.50 (LXKCW) and April 17.50 Calls (LXKDW). Lexmark is down more than 42% year-to-date and is back to price levels last seen in 1997.
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
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