The Year of the Deal Marches Forth

 | Feb 14, 2013 | 8:53 AM EST  | Comments
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It's the year of the deal. People just don't recognize it. Stocks have done nothing for years. The good ones have done nothing. The bad ones have done nothing. A handful of stocks stole the spotlight, and the rest have been dogs.

That's most certainly the rationale behind the Berkshire-Hathaway (BRK.A) deal to buy Heinz (HNZ). Five years ago -- five long hard years ago -- Heinz stock was at $52. Until very recently, no doubt until talks started to occur, it stood at $55. Yet the only thing that had happened to Heinz was that it had gotten better, stronger and more powerful. Gross profit, $3.5 billion back then, was on pace to reach $4.3 billion this year. $2.60 per-share earnings then, now $3.53.Can you imagine that much more gross profit, and that kind of EPS increase, yet the stock rallied just 3 points in five years?

It is absurd. It was only after the recent market run and the talk of so many takeovers out there that good things started happening to the stock.

I have always loved and pushed Heinz stock on everyone and anyone. It was the first stock I ever bought for my hedge fund. It was the first stock I ever sold as a broker at Goldman Sachs. I did it because my former partner, Jack Shepherd, made this point: No matter what you do, no matter where you are and no matter what happens, you will not see a bottle of Japanese or Chinese ketchup on the table. It will always be Heinz. I guess Warren Buffett knows that, too.

Today's second deal comes under the total-outrage have-to-buy category -- the U.S Airways (LCC)-AMR combination. This one really rankles, because all of the planes we fly are always full. The prices are almost never cheap. Now they are going to go up big, and the U.S. Justice Department can't do a thing because it doesn't want an AMR to liquidate.

The combination is so powerful, and the airlines now so few, and the barriers to entry so great that it makes a tremendous amount of sense to buy the combination. The Southwest Air (LUV) and United Continental (UAL) area, as well -- all are buys.

I have been screaming it from the rooftops: This is the year of the deal. It is happening. Huge, huge deals, like Dell (DELL), like Heinz. Gigantic ones. Big fees for bankers. Not one-off any more. Amazing -- and almost no one believes.

Random musings: Pepsico (PEP) is just doing much better than Coca-Cola (KO) is. Plain and simple. Kraft (KFT) looks more like Heinz than the others, but you can't chase.

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