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Deal Stocks Remain Market Bright Spot

NEW YORK ( TheStreet) -- Takeovers have been a boon to some company stock prices regardless of what markets are showing about recession, a Eurozone banking crisis and global government indebtedness.

While stock markets are trading down over 4%, commodities plummeted and bond yields hit record lows on Thursday, Goodrich (GR) rose 11 percent, above $120 for the first time in company history on news that it would be bought by United Technologies (UTX - Get Report) for $127.50 a share.

The contrast is striking for previous M&A targets.

Lubrizol (LZ), Temple-Inland (TIN), NYSE Euronext (NYX), Constellation Energy (CEG), Petrohawk Energy and Goodrich all hit new yearly highs when takeover talks broke about each company. They also hit their highest point since the worst of the financial crisis in 2008, and the subsequent Great Recession.

Earlier in the year, blockbuster deals like AT&T's (T) now stalled acquisition of T-Mobile pulled merger and acquisition markets to pre-recession levels. In January, Thompson Reuters reported in its review on M&A activity that mergers increased 23% in 2010 to $2.4 trillion, putting deal making at the highest level since 2008. Merger activity continued to roll in the first half of the year, rising 30 % from 2010 to $1.19 billion.

Recently, market fears have taken the wind out of the market.

So far in the third quarter, mergers are down 10.3% to $492.3 billion, according to data compiled by Bloomberg. With bank financing gone and fear rising, mega-mergers are unlikely to continue, but smaller ones may still be in the cards.

But for some investors that have seen their shares plummet with every new twist in our slow economic recovery, takeovers may be their best hope for a decent return. The key for investors is to sit back and think about what types of deals companies are going to do to withstand a continued economic slowdown.

"I don't think we are going to see a situation where M&A activity lifts the markets," says R.J. Hottovy a research director at Morningstar who focuses on merger activity. "We don't think the M&A market is dead," Hottovy adds. He expects "small all cash deals to continue throughout the remainder of the year," even if larger deals are put on hold.
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