Practical analysis for investment professionals
24 April 2015

Weekend Reads for Investors: Merger Mania, Peak Profits, and Value Investing

Posted In: Weekend Reads

General Electric’s (GE) recently announced plan to repurchase $50 billion of its stock, the second largest such plan ever authorized by a US company, suggests that buying back shares remains one of the preferred ways for companies to boost shareholder value.

And while the buyback binge shows no signs of abating, CEOs have fully embraced mergers and acquisitions as another outlet for their cash and an avenue for growth. Thomson Reuters recently reported that the value of worldwide mergers and acquisitions activity during the first quarter of 2015 was up 25% from the same period in 2014 and at its fastest pace since 2007. It was the strongest first quarter in the United States in 15 years and the best start for Asia Pacific since record keeping began in 1980.

The burgeoning market for mergers is reflective of a lack of organic growth opportunities, cheap capital, and flush corporate coffers. Additionally, elevated stock prices provide buyers with a strong currency and sellers with a reason to cash in, which helps explain why mergers and acquisitions activity has tended to peak around market tops, most recently in 2007, and before that in 2000. So while the pace of deals may be a sign that CEOs and their boards are more confident about their prospects for growth, investors should be aware that their timing of late has been less than prescient. For those investors tempted to pick the next takeover target, the safer bet may be on the Wall Street bankers who are doing the matchmaking and financing. They always get paid.

Below are some other stories that caught my eye in recent weeks.

Strategic Thinking

Fixed Income

Innovation

Currencies

Wall Street

Live from Frankfurt

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/temmuzcan

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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