The takeovers are coming, the takeovers are coming.
My colleague David Faber reported that this morning on Squawk on the Street. Now I am analyzing it because of the movement in stocks, which shows that buying's good news for the acquirers, which is often the key for the next wave of acquisitions.
Let's start with Gilead (GILD) . Here's a company with a stock that has done nothing because the drug that Gilead has developed to fight hepatitis C is too good: It cures the illness. That makes it a cash cow but a short-lived one given that eventually everyone will be cured by the drug.
For years, people have waited for Gilead to put that money to work. I have endlessly described the stock as dead money until it does something.
Sure enough, on Monday it shelled out $12 billion for the loss-making Kite Pharma (KITE) , betting that its CAR-T formulations will get FDA approval to attack blood cancers, among other illnesses.
Gilead's stock has vaulted almost the equivalent of how much it spent to buy Kite, even as there is little hope Kite can be accretive for three years.
This purchase has started the chatter that Celgene (CELG) will buy Bluebird Bio (BLUE) , which is working on some promising gene therapies. As with Gilead-Kite, both Celgene and Blue Bird have been moving up. It's a virtuous circle.
Then there's the ongoing saga of when United Technologies (UTX) will buy Rockwell Collins (COL) . We have been behind both companies because they are part of one of the greatest bull markets of the era, the endless need for more planes because of the middle-classification of the world and the flush nature of many airlines, especially in the U.S. United Technologies' stock has been on a tear, as has Rockwell Collins'. There's the virtuous circle again.
My take? These moves make sense. Take a look at how well the stock of Johnson & Johnson (JNJ) has done ever since it bought Actelion for $30 billion in cash back in January. It's gained about 16 points off a $115 basis.
I think these moves are behind the action today in frequent takeover candidate Incyte (INCY) , another biotech company with cancer formulations.
It's not just aerospace and drugs. The stock of Tech Data's (TECD) been on the move ever since it bought Avnet's (AVT) service business for $2.6 billion in September 2016. That deal helped move Tech Data's stock from $69 to $108. The thought is that Tech Data's stock will move even higher when it reports tomorrow.
Finally there's the purchase of Neff (NEFF) by United Rentals (URI) for $1.3 billion earlier this month. Maybe this deal comes under the category that it is better to be lucky than good, but Neff, a very solid equipment rental company, has heavy exposure to the Southeast, exactly where capacity is needed to help clean up the monumental flooding in Houston. This stock's been on a jet propulsion ride ever since Houston's flooding began, and I think the move is far from over.
I think all these stocks demonstrate one salient fact: If the acquirers' stocks move up, then there will be a ton of acquisitions soon. There had been a sense that perhaps businesses should wait to buy because of something that could come out of the Trump administration that could influence tax policies and acquisitions. I think corporate America has given up on dysfunctional government and is now going full speed ahead on acquisitions. Ripe areas? Drugs, aerospace and even oils, if the price of oil were to drop to the low $40s. All bad news for the shorts and good news for the longs.
