This is fun, gang. This is exactly the kind of stuff that makes financial junkies like myself take notice, and then maybe take action. On the chart of NXP Semiconductors (NXPI) - Get NXP Semiconductors NV Report , you can see the violently bullish moving average convergence divergence (MACD) crossover. You can also see the return to favor made by the firm's Relative Strength. Money flow still rots. Booo. Oh well, can't have everything. You may also notice that the stock price has been repelled at a 61.8% re-tracement of this issue's November swoon.
That would be important if the firm's playing field had not just been substantially altered. Consider that more than a year ago, NXP Semiconductors had agreed to sell the shop to Qualcomm (QCOM) - Get QUALCOMM Incorporated Report for $110 a share. Enter the Dragon. No, I mean enter activist investor firm Elliot Management. That operation released a letter on Monday that made the case that a (much) higher valuation should be made for NXPI, perhaps the industry norm of 18.6 times earnings. Currently the $110 take-out price comes to just 16 times. A valuation in line with NXPI's peers would place the equity price at something like $135.
The story is highly complicated from here. QCOM obviously feels that last year's price for NXP Semiconductors -- which, by the way, is held in the Action Alerts PLUS charity portfolio that Jim Cramer co-manages -- is fair. Regulatory hurdles to the deal are expected to clear either later this month or early next year (more likely). Then there's the fact that Broadcom (AVGO) - Get Broadcom Inc. Report has made QCOM the target of an attempted hostile takeover. Is NXPI a good deal for the investor at the last sale? My guess is that any risk is currently to the upside, even if the firm should be left to stand alone. I am long the shares.
(This is an excerpt from Stephen "Sarge" Guilfoyle's Morning Recon, which now appears exclusively on Real Money, our premium site for active traders. Click here for a free 14-day trial and receive Morning Recon every day, along with exclusive columns from Jim Cramer, James "RevShark" DePorre, technical analyst Bruce Kamich and more.)
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At the time of publication, Stephen Guilfoyle was long NXPI, although positions may change at any time.