Acquisitions Are Coming

Today Exelon, a power company, made a bid to buy NRG, another power company. This acquisition attempt may result in a prolonged battle and it may never occur. However, it is just another Tea Leaf we have been discussing. Well capitalized strong companies, like individual investors, are searching for bargains in the stock market. These corporate acquirers set values in the market that the rest of us can use when analyzing stocks. Novartis also indicated today that they are scouring the markets for small biotech companies to buy. The market is developing a bottom and it will become more clear as other acquisitions are announced.

Today, the DOW and the S&P 500 were both up about 4.5%. Investors are getting more bullish as the credit markets appear to be functioning a little bit better and the bailout plan has some positive momentum. We even had some positive news out of the California housing situation as new home sales increased 65%, albeit at very low prices and many of the houses were foreclosures. Any good housing news seems to be a positive as the market would like to see the inventory of homes decline.

We cannot forget our key motto: It Is All About The Economy. Mattel and Hasbro both reported today and indicated toy sales are not going to be that strong this Christmas season. They are praying to pick up market share but one should not invest or run a business on hope. In fact, Hasbro's stock traded down today and left us a little concerned that their inventories may be a too high if the December quarter is weak. (Full disclosure: we have been short Hasbro stock). Google, a stock we love for the long term (and own), made some cautious comments today about potential softness in their business also. American Express reported today and their numbers surpassed analyst expectations but the company expressed concerns about the economy in the next few quarters. In the technology sector, Texas Instruments reported weak numbers and a dour forecast while Sun Microsystems had similar thoughts. Tomorrow the market will be waiting to hear from Apple and Yahoo.

The market could continue to run up but it is likely to come down again. Keep buying quality and don't chase upward moving stocks. Wait to be an aggressive buyer when the fear is back and the market is dropping a few hundred points. As long as you buy strong companies with good balance sheets, the returns will be there in three to five years.