As often happens when the market goes haywire, there's attempt to get as many what-can-I-do stories out as possible. And today's USA Today piece -- "Look out! 9 big stocks still aren't cheap." -- raises some eyebrows about its validity. It warns about stocks being overvalued, but fails to take into account takeover bid for more than half of those companies.
How'd they determine that they're overvalued? Nine stocks in the Standard & Poor's 500 are still trading above analysts' 18-month price targets, according to a USA Today analysis of data from S&P Capital IQ.
The problem? Again, most of those names are up because they will be bought.
We're wondering if these names were even checked beyond meeting a simple (and quite irrelevant) criterion like price targets when the companies in question are involved in deals. My gut tells me that this article may not have even been written if the analysis included these M&A facts.
While you could say the good intentions were there, the article is misleading.
So what did this article fail to tell you?
Sysco (SYY) just had an activist move and new board members from Trian. Nelson Peltz's Trian Partners has taken a more than 7% stake in the food service company, worth around $1.6 billion, about 42 million shares.
Pall (PLL) made the list closing yesterday at $126.27 vs. its 18-month target of $119.45. But there is no mention of the almost 30% surge in the name since early May after the water filtration systems maker announced that it had agreed to be acquired by Danaher (DHR) for $127.20 per share, or $13.8 billion. The target is worthless.
Sigma-Aldrich (SIAL) made the cut, too, but again, no mention that the stock has risen more than 30% since the German pharmaceutical company Merck KGaA said last September that it would pay about $17 billion to acquire the U.S. supplier of laboratory testing materials. Bogus target.
Even the injectable pharmaceutical drug company Hospira (HSP) made it on this overvalued list, with no mention of it rocketing over 40% since Pfizer (PFE) agreed to buy it in early February.
Only the natural gas distributor AGL Resources (AGL) got a cursory note about how utility Southern Co. (SO) said it would buy the company for $8 billion in cash this week. But the article mentions it as an afterthought, as if the bid was some sort of secondary piece of information and not the biggest single factor to consider when valuing this company. The stocked popped almost 30% yesterday on the news.
Of course these stocks are over their price targets here, not to mention that most analysts drop their targets (and ratings/coverage) often when a company is acquired.
When the markets get shocked, it's natural for the media to try and capture as much coverage as possible, even using fear to its advantage. Just walk in front of the NYSE, between yesterday and this morning and you'll see the make-shift TV sets have sprung up like Wall Street weeds. But c'mon, this is just wrong.
A little research goes a long way, and we'd be mindful to read between the lines, especially when sifting through the rank research (or lack thereof) and trying to assign new or relative value to stocks amid this selloff.
