It's tough to make calls on particular stocks on a day like today, with everyone from United Technologies (UTX) to Johnson & Johnson (JNJ) all in the red. It's a stock picker's market now, the experts say, and the Russell 2000 is back in vogue. With that said, what I can do is give you a little insight into what I do know well: deals. Even though there are reasons to hate it, dealmakers tend to love volatility and you better believe that the bankers and dealmakers at the likes of KKR & Co. (KKR) Carlyle Group (CG) and other big PE shops are licking their lips thinking about the opportunities that could arise.
Activists and PE firms can better build stakes and identify undervalued companies. At the same time, corporates can really get a boost if they execute their M&A plans properly during times of volatility. Sure, the sheer number of deals may dip, as corporates can't rely on equity issuance to fund deals as well during times of volatility, but those willing to pull the trigger could be in for a large payoff. I harken all the way back to two weeks ago when Citi put out a note regarding M&A in times of extreme volatility-when, that is, the trailing quarterly average VIX exceeded 20. "Deals announced in periods of high volatility outperformed deals announced in less volatile periods," Citi wrote, adding that that the median deal announced in high-volatility periods had 9.4% two-year excess returns, compared to only 5.7% for deals announced in less volatile periods.
One thing that deserves further exploration is how take-privates and carve out deals will work in times of volatility. All signs point to more carve-outs as companies shift toward leaner, more pure-play ideologies that retail investors can understand and value accordingly. On the take-private front, with extreme volatility, dealmakers can find spots where retail investors simply aren't appreciating a company's solid fundamentals or growth potential despite whatever outside factors, be it inflation, trade war fears, or rising rates.
Back to the trading day: Markets went haywire again on Thursday as President Trump announced a long-awaited war on steel and aluminum imports, in an effort to protect two struggling U.S. industries that have seen significant drops in employment in recent years. No matter what the reason for the sell-off-fears of a trade war, the threat of inflation, stiffer than expected rate hikes as a result of the Fed's concern over that or of systemic financial risk-one thing seems clear: volatility is something we should get used to, at least in the near-term. At the same time, TheStreet's team of experts was busy trying to find good companies for the long-term.
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Photo of the day: What's ahead for Best Buy?
Best Buy (BBY) has had better days. They aren't selling Compaq computers anymore and they are not raking in money hand over fist or doing such a keen job at keeping Action Alerts PLUS holding Amazon (AMZN) at bay anymore. The electronics retailer said Thursday it would shutter all 250 of its smaller mobile stores, mostly located in malls. Cost cuts have been key in Best Buy being able to compete on price against Amazon while still pleasing the Wall Street beast, according to TheStreet's Executive Editor Brian Sozzi, it's just a matter of can the company keep this up or is is destined to go the way of Circuit City or Radio Shack. Read more
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