Potential Takeover Candidates In The Technology Space; Oil Surges; Gold Tanks; Copper Riding On Expected Infrastructure Spending; What To Expect In Stocks For December
There were three articles in last weekend’s Barron’s, that I made no reference to because the length of my Sunday article would have been too long. The three articles that I felt may be of benefit — were with the titles above.
The first article: “Deal Bait For Big Techs: Pure Storage, Nutanix, Splunk, Veeva,” by Tiernan Ray. Mr. Ray surveyed the technology landscape and talked with technology leaders and innovators regarding potential takeover companies in the technology space. He wrote: “Among the first stops for big tech outfits, are three promising, young equipment vendors that have come public (IPO’d) in the last two years: Pure Storage (ticker; PSTG), Nimble Storage (NMBL), and Nutanix (NTNX). These companies all operate in the biggest growth areas of the data storage market: They use flash memory chips, instead of spinning disk drives,” he wrote.
Nutanix, a company that IPO’d this year; and I have a position in this company/stock in my 401K, “also has a hand in the networking and server-computer corners of information technology,” Mr. Ray noted. “Combining those two businesses with storage, gives Nutranix a way to sell all of the parts that a company requires to build out its central, data-processing needs.”
Mr. Ray writes that “Potential buyers for these three include two of the biggest enterprise suppliers: Hewlett Packard Enterprise (HPE) and, Cisco Systems (CSCO).”
“The case for buying, from a technology standpoint,” Mr. Ray contends, “is twofold. For one, Hewlett and Cisco are struggling for growth. In general, developing innovative technology is a lot better than buying other companies, given all the risks that mergers and acquisitions (M&A) bring, and the checkered history of M&A in [the] technology [space]. But, these companies’ [Hewlett & CISCO] own internal efforts haven’t cut it. Better, perhaps, to go after some proven public names,” Mr. Ray wrote.
“Second,” Mr Ray argues, “both the giants and the small fry are in the same pickle: Cloud computing is taking over IT. What that means,” as Mr. Ray notes that Barron’s has “relentlessly argued for the past three years running, is that Amazon.com (AMZN), Microsoft (MSFT), and Alphabet’s (GOOGL) are increasingly the dominant IT buyers. Big companies have reduced their IT purchases, starving Cisco and Hewlett of traditional streams of revenue, imperiling the pricing power of the smaller companies that must try and sell to just a few large buyers.”
Technology storage companies that are takeover candidates, according to Mr. Ray are: Splunk (SPLK), which helps companies sort and sift large amounts of data; Veeva Systems (VEEV), a $6.3B cloud computing software vendor who’a focus is on global life-sciences companies; and, helps them manage documents and business purchases; and, Atlassian (TEAM), on track for $600M of sales of software that facilitates collaboration of technology help-desks.” Mr. Ray writes that “it’s easy to imagine IBM (IBM), or Salesforce.com,” making a run at acquiring the company. With respect to Veeva Systems, Mr. Ray writes that Oracle (ORCL), or SAP (SAP) could find the company attractive. Mr. Ray gave no hint on who might acquire Atlassian; but, he wrote that a technology company that could be more attractive “may be ServiceNow (NOW), which moves those IT help desks into a cloud computing environment.”
Other young companies that have come public in recent years, may at some point be worth a look by larger suitors, according to Mr. Ray include: Box (BOX), a maker of enterprise collaboration tools; Rapid (RPD), the security technology vendor, Twilo (TWLO), a maker of mobile apps for the likes of Uber; BlackLine (BL), a maker of financial apps; and, Impinj (PI), which develops sensors and software for the Internet-of-Things (IoT).”
This article is very rich, with much to think about and do a deeper dive on. Having said that, I have positions in SPLK, VEEV, as well as in: CyberArk (CYBR), Nutanix (NTNX), and Nivida (NVDA). I have also bought and sold TWLO several times this year; and, will no doubt buy in again at some point in the not too distant future. I also like, have owned shares in, and will likely buy shares of: Adobe Systems (ADBE), and cyber security firm — Fortinet (FTNT).
Remember, there is no guarantees in any of these companies, you can and will lose money from time, to time, and you must do your own due diligence and research before taking a position.
Oil Had Its Best Day In Well Over A Year — After OPEC Ministers Agreed To Cut Production By 1.2M Barrels Per Day, Or 4.5 Percent — Where The Pros Are Investing
To the surprise of many, OPEC oil minsters voted today to an oil production cut of 1.2M barrels per day, or about 4.5 percent to 32.5 barrels daily. The devil of course, will be in the enforcement regime, and most traders expect some cheating, but still at least 60 percent of the production cut to be honored. Every drop of 500K barrels per day, results in a $3-$5 price per barrel increase. Doug Terreson, ISI’s Head of Energy Research, and the number one ranked oil analyst on Wall Street, was interviewed on CNBC today to get his take on what happens now with respect to the price of oil and, where investors may want to consider investing in the energy space.
Mr. Terreson said he was somewhat surprised by the OPEC decision; but, he considered it ‘Judgment Day’ for the petroleum organization, because of the depressed price of oil since the 2008 financial meltdown; and, the longer term outlook in the 2020 time-frame — as the shift to electric cars and alternative fuels could be the beginning of the end for crude’s prominence (my words, not Mr. Terreson’s). Mr. Terreson said that there were some important unknowns, especially with respect to a compliance regime; and, he added that past production cut agreements generally peaked out around 60 percent of the agreed upon total, as cheating is just part of the game. Mr Terreson, who has been advising clients to allocate a good portion of their portfolio to the energy sector; and, he told the CNBC audience that he remains “unrepentantly bullish” on his outlook for oil and energy stocks going forward into 2017. Mr. Terreson has a target price per barrel (oil) of $55 in 2017, and $65 in 2018 — though there are several big Wall Street firms who have price targets in the $70 range.
Mr. Terreson’s top picks in the energy space going into 2017 are: Shell, with a price target of $65; British Petroleum (BP) with a target price of $43; Exxon Mobile (XOM) with a price target of $95; and Chevron (CVX), with a price target of $112 per share. Or, if you prefer, there is the XLE ETF which has risen 22 percent year-to-date.
Gold Tanks, Copper Surges
Not surprisingly, with the Federal Reserve virtually certain to raise interest rates by .25 basis points next month (Dec.) (maybe surprise with a .50 basis point), the strengthening dollar, and POTUS-Elect Trump’s focus on a more friendly, pro-business approach — gold is getting hammered. Indeed, November has been the worst month for gold in three years (2013) , and is down about 11 percent year-too-date. And, more weakness is almost a given. Hovering near the $1175 mark, many see gold falling to $1100 or below in the next 12 months.
On the other hand, Copper, has had its best month since 2009; and, most traders think the cooper trade is just getting started, as POTUS-Elect Trump and a Republican dominated Congress lay the foundation for a major infrastructure spending campaign in 2017. If you are looking for a copper ETF, then you may want to look at MAR.
What To Expect In Stocks In December
The Wall Street analytical firm, Kensho, who is a CNBC Contributor, looked at the past 20 years (1996-2016) to see if there were any patterns or companies that more often than not — shinned, or experienced a Santa Claus rally. What they found: The S&P 500 index averaged a +1.23 percent gain for the month of December, 70 percent of the time; the DOW is +1.2 percent, 65 percent of the time; the NASDAQ is +1.65 percent, but only 50 percent of the time. The Russell 2000 is the real star of the show, averaging a +2.83 percent gain, 80 percent of the time.
Sector wise, Utilities had an average gain of +2.41 percent, 55 percent of the time; while the IT sector rose an average gain of +0.35 percent, but only 45 percent of the time.
Individually, since 2010 — FINSAR (FNSR) saw an average gain of +17.92 percent in December, the CIENA Corporation (CIEN) had an average gain of +17,38 percent, 67 percent of the time; and, the KeyCorp (KEY), is +5.88 percent — 100 PERCENT of the time.
Of course, past performance history does not guarantee that — history will repeat. But, as Mark Twain once said, it often rhymes. You should use this data to help guide your investment decision; but, by no means should it be the sole source that guides your investment choice/s. Do your due diligence. With that caveat, good luck. V/R, RCP.