The Year of the Takeover

Posted On Apr 30, 2018 By Dave Gonigam

  • Merger-and-acquisition frenzy: Three deals, $56 billion today
  • And Zach Scheidt says it’s only the beginning
  • Uh-oh: Fed finally approaching its inflation target
  • Next-gen wireless tech: Speedy but costly
  • Americans resume spending from an empty pocket… MoviePass adds to the fine print… readers unleash a torrent of scorn against our Facebook Messenger thing… and more!

Welcome to “Merger-mania Monday.” $56 billion in deals are making headlines as we write…

  • T-Mobile is buying Sprint in an all-stock deal for $26 billion. The Big Four wireless providers will become a Big Three, assuming the feds don’t object. (They did object in 2014, and a previous deal between the two firms was called off)
  • Marathon Petroleum plans to buy a pipeline and refining company called Andeavor for $20 billion in a cash-and-stock deal
  • Walmart is unloading its British arm, called Asda, to its rival Sainsbury for $10.1 billion. Walmart will own a 42% stake in the combined firm, which will be the United Kingdom’s biggest grocer.

The news affirms something our Zach Scheidt was telling his readers only last week…

“I’m expecting 2018 to be ‘the year of the takeover deal.’”

Reason? “Private equity companies are swimming in cash,” he explains.

“These investment companies collect money from their clients (typically uber-affluent individuals along with pensions and endowments) and then invest that money in specific opportunities.

“The companies typically have different strategies for how to invest the money. Some focus on real estate transactions, others on market opportunities in one sector or another and some buy out entire companies.”

It’s the buyout firms that Zach is watching closely. “They typically use cash to make the acquisition,” he explains, “and then use their contacts and expertise to improve the company that they bought. Ultimately, these companies will be sold again and the private equity company (along with their clients) will lock in huge profits.”

Check out this up-to-the-minute chart showing how much cash these buyout firms have on hand…

trillionincash

“Over the past several years, the amount of dry powder these firms hold has continued to increase. And in just the first three months of 2018, the available cash has jumped by nearly $100 billion!

“Investors in these private equity funds are not going to stand for their money to be sitting idle on the sidelines. The investors are paying private equity firms to DO SOMETHING with this cash.

“And with the market’s recent pullback, it’s going to be a lot easier for private equity companies to justify making some big investments!”

If you’re invested in a company that’s “buyout bait,” it can prove enormously lucrative.

“That’s because when a private equity company decides to take over a company, they have to offer a lot of money to get the deal done,” Zach explains.

“Typically, a private equity company will make a cash offer to buy all the outstanding shares of a company. If the offer is too low, the company’s management will reject the offer. And even if the management team accepts the offer, shareholders like you and me have to vote to accept the deal.

“In order to get deals done, private equity companies have to offer attractive prices. And those offers naturally send stocks higher.”

“When I look for buyout candidates, I have a few specific things that I like to see,” says Zach.

  • Large, untapped growth opportunities. “For instance, a regional company might have the potential to expand nationwide — if they simply had the resources to cover more ground. Or maybe they have a specific drug or technology that could be sold to a much larger audience”
  • Room for improvement. “Maybe the company’s balance sheet has too much debt. Or it’s possible that the management team isn’t skilled at a particular part of the business. This is important because a private equity firm could quickly fix these issues. So the company might be a great target to take over, make an adjustment and then sell at a higher price”
  • Company size: Smaller is better. “I typically look at the market capitalization of a particular stock. This is the dollar value of ALL the shares of a particular company. The lower the market capitalization, the easier it is for a private equity company to spend some cash and take this company over — even if they have to pay a premium price!”

When all those factors come together, the performance can be staggering — like 1,177% gains in a mere 17 hours.

Zach has a list of candidates that meet his criteria — every one of them with that kind of performance potential. Click here and learn how to capitalize on “the year of the takeover.”

The major U.S. stock indexes are starting the week flat — the Dow up a bit, the S&P 500 barely changed, the Nasdaq down a bit.

But Alan Knuckman, our daily presence in the Chicago options trading pits, finds the market action constructive. “Corporate profits for the quarter are killing it,” he reminds us, “with earnings growth at 23%.”

Result? Stocks are less pricey than they were earlier this year. “Boosted earnings for the S&P 500 have brought down the price-earnings ratio of the S&P 500 to 16.3. That’s just above the broad market barometer’s five-year average of 16.1. Add that to the resiliency in stocks against all odds over the last few months and it is easy for us to be optimistic of the opportunities ahead.”

Gold is slumping to five-week lows at $1,313. Crude is steady at $68.12. Treasury yields are pulling back, the 10-year at 2.95%.

Hey, look — inflation is *this* close to reaching the Federal Reserve’s 2% target.

The Commerce Department is out this morning with “core PCE” — the Fed’s preferred measure of inflation.

After spending the latter half of 2016 close to the 2% target, the number fell off a cliff during 2017. After bottoming last August at 1.3%, the number for March is 1.9%.

inflation

The Fed has one of its every-six-weeks meetings tomorrow and Wednesday, by the way… but despite the acceleration, almost no one expects an interest rate increase this time. Big decisions like that come at meetings in the middle of the month… and a mid-June increase is a lead-pipe cinch by now.

Meanwhile, for the first time this year, Americans have resumed spending out of an empty pocket. Personal income grew 0.3% in March, but consumer spending grew 0.4%. Thus the personal saving rate dipped a bit to 3.1%. All of this is typical for the late boom phase of the boom-bust cycle.

“5G will be a quantum leap over current wireless,” says tech-trend maven Ray Blanco.

A prime driver behind T-Mobile’s attempt to take over Sprint, noted above, is getting a leg up in 5G.

Says T-Mobile boss John Legere, “We are going to drag the rest of the players kicking and screaming to the prize, which is American leadership [in fifth-generation wireless networks].”

As Bloomberg points out, “The two carriers have complementary wireless spectrum that may be a strategic advantage as the companies build a faster fifth generation or 5G network.”

But the build-out won’t be cheap — for T-Mobile or anyone else. “Implementing it will take years and cost billions,” Ray explains. “It will be one of the most massive deployments of new technology of all time.”

So what’s 5G technology, anyway?

Ray explains, “In addition to the wireless frequencies we use now, it will use new ones working at smaller wavelengths that can carry more data, called millimeter waves.

“Right now we use relatively spread-out cellphone towers and other locations to get our wireless connection,” he says, “But 5G will require many smaller access locations placed closer together.”

Capital-intensive? You bet. But the payoff for consumers will be huge. “5G wireless networks will be as much as 100 times faster than what you’re used to now.”

What’s more, “5G technology is considered critical for the growth of our economy,” Ray says.

“The Trump administration sees upgrading to the next level of wireless technology as a critical infrastructure improvement necessary for maintaining a leadership position in the world…

“Billions of dollars are being spent on the 5G rollout, with many billions more to go.”

The way to invest? Not the cell carriers that will be spending the billions with an uncertain payoff. Instead, Ray has identified a key player developing 5G technology. The cell carriers will beat a path to this company’s door. He spotlights it in the latest issue of Technology Profits Confidential. Along with the revolutionary “halo-fi” satellite technology he’s been spotlighting for months, Ray says, “5G is a trend the tech investor can’t ignore.”

“If you ever talk to someone who has not heard of MoviePass, and you explain it to them… they go, ‘That’s too good to be true… I mean, what’s the catch?’”

MoviePass CEO Mitch Lowe is getting defensive now that his business model is looking increasingly shaky and auditors are issuing the dreaded “going concern” warning. But he’s keeping up appearances for now. “I explain to them, ‘There is no catch.’”

No catch? Really?

MoviePass’ promise to moviegoers of “all you can watch in a month for $9.95” has two new catches since our last update — uhhh — only 10 days ago.

Catch #1: “MoviePass and iHeartRadio announced [a] bundled promotion April 13, when it was pitched as a new option for MoviePass subscribers,” reports the website IndieWire. “Users must dig deep into the MoviePass FAQs to learn that they will become paying iHeartRadio subscribers after the trial period if they fail to cancel.”

Catch #2, and this is the big one: MoviePass’ $9.95 per month subscription has morphed from unlimited movie tickets to… just four tickets per month.

Oh, and you can’t see the same movie twice.

It’s there in the new terms of service, in all-caps: “THE SERVICE PROHIBITS REPEAT VIEWINGS OF THE SAME MOVIE.”

One thing held over from the old terms of service: MoviePass reserve the right to change the terms of service at any time. Heh…

To paraphrase that Ancient Aliens guy, we’re not saying this is the beginning of the end for MoviePass, but… this is the beginning of the end for MoviePass.

“OK, admittedly I am one of those ‘old fogeys’ who still likes email for important things,” reads the first of many emails giving the side-eye to our new presence on Facebook Messenger. “I also am getting educated in cybersecurity, though, on a daily basis — so it balances out in my humble opinion. Keep the old that works, constantly learn the new.

“So I have to admit my heart skipped a few beats in a momentary panic when I thought you might be ending the email distribution and going to Facebook. Thank God you’re still sending the mail.

“I put The 5 at the top of my email reading list, but often it waits until the end of the day when I have time to stop and focus on reading it, along with a few other must-read newsletters. Facebook? That is built around short attention spans. I am curious to see what your click-through rate will be with millennials, who typically can’t be bothered if it isn’t contained in a meme. I truly wish you well and hope it is worth your while, but I’m not sure the sound-bite culture will really appreciate what you guys do here.

“For my part, thank you again for not completely ruining my night. I will, as always, look forward to your missives in my email inbox.”

“Hypocrite much?” writes another, getting straight to the point.

“You inform your subscribers on how evil and Orwellian Facebook’s algorithms and data collecting methods are… then you proceed to tell us you’re adding Facebook Messenger to your distribution?!?!

“I don’t suspect you know your readers quite as well as you think. Maybe that’s a testament to that your company doesn’t purchase gobs of personal data on its subscribers? I like to think most of your readers fit this mold… educated (institutional or self-taught), hardworking, motivated, red-pilled and woke for the most part. We aren’t the sheeple. We are the shepherds.

“I read Jim Rickards, Bill Bonner, Doug Casey, Tim Sykes and more on a daily basis. Then I take said information, apply it to my personal life and methods and attempt to inform others of the true condition of this world.

“With that being said, I don’t have Facebook, Twitter, Instachat, Snapgram or any of that other garbage. And shame on any of your subscribers that do. Get off the electronics and live. My weekend plans include working in my garden, flower beds, shooting big guns and playing with my son. Better than anything social media ever did for me. I love The 5 and Agora Financial… but I sincerely hope your Facebook plans fail.”

“I understand your dilemma,” says a third — “The 5 Min. Forecast… email versus Facebook.

“I for one very much enjoy The 5 as currently delivered — wait for it — but I wouldn’t read it on Facebook. No way, not ever!

“It would be interesting to ask your readers which they prefer. I could be wrong, but really, how many millennials read your publications?”

The 5: The number is modest but growing. Over the last three or four years, our marketing folks have figured out how to profitably distribute our promotional messages via Facebook, Google and the various “ad networks” out there. As a result, we’ve been recruiting new types of readers. The typical profile of a newsletter subscriber — overwhelmingly 55 and over and male — is changing, for sure.

Anyway, as we said Friday, distribution of The 5 via Facebook Messenger is an experiment. Experiments are not guaranteed to succeed. But failure is guaranteed if we don’t try…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. For a few more hours, you have an unusual opportunity to “upgrade” your account with us.

It could be one of the best things you do for your bottom line all year.

It’s such a big deal our customer care director pulled himself away from the phone long enough to record this important message. We urge you to follow this link and check it out, because it has to do with something happening today.


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New Daily Issue Posted 9 Hours Ago By Dave Gonigam

While the market sorts out the latest presidential pronouncements, we’re going to spend most of today exploring some random items that crossed our desk this week. They’re all related somehow to business or finance or commerce… and they all come under a category we’ll call “You Are Not Free.”

Read This Daily Issue