Portfolio one owns Comcast (CMCSA). We bought Comcast many years ago and it languished at a low price, without much of a dividend or return. Comcast then went on a run as it grew to be a dominant, seemingly well-run (from a financial perspective, at least) cable (and internet and phone) company. Comcast also owns a lot of its own content, so it makes money not only from distribution but from creating the original series in the first place (like NBC).
Comcast recently put in a big order to buy Time Warner Cable, and create a gigantic company. As a general “rule of thumb”, acquisitions are BAD for the company that MAKES the acquisition, and the company being acquired takes their premium as a gain (the sales price over the price directly before the merger). This is due to the fact that most acquisitions traditionally destroy value.
However, there are always exceptions to every rule, and even this “rule” has a lot of doubters (especially the high priced M&A folks that push for mergers or inorganic growth and well as the CEO’s who bet their shareholders’ money on these purchases). Maybe this deal will work out well, because there are cost savings (they can work together to bid for programming) and there isn’t much overlap between their cable systems (since they are geographic monopolies anyways).
Thus Comcast is a stock to watch and at least their stock didn’t plummet on the news of the merger. It went down a bit (while Time Warner Cable went up to about half of the stock premium, indicating that there is uncertainty in the market as to whether or not the government will let the deal go through). The “first day” indicator on the announcement is the most indicative of what the market thinks of the deal, and every day thereafter this becomes just another element in the stock market valuation story.
CLIFFS NATURAL RESOURCES
Cliff’s Natural Resources is owned by Portfolio Three. Recently an activist investor (an outsider) called for a new CEO and for changes in the stock. The company disregarded their suggestion and appointed an insider as CEO. The company also recently released earnings results (last night, Feb 13) which beat analyst estimates and caused the stock to rise 7% in after hours trading.
As a general rule activist investors are something to watch for your portfolio companies. They try to agitate for change and new strategies (such as spin offs of assets) to raise profitability, cash flow, or some other attribute that they think will cause the price of the stock to rise or reach its “fair value”. As a shareholder, competition for ideas and a focus on raising the stock price are good for you, although sometimes these activist investors’ ideas are no better (or worse) than those of current management. In any case it always seems to spark a discussion and focus since current management wants to keep their job.