In all of the talk of the Fed, let's not forget that there is a day after.
The rate hike that so many expect is not a death sentence for equities, but it is a body blow, compounded by the fact that most of the companies I deal with are in a soft patch when it comes to the numbers.
But let's not forget there are companies that can still take matters into their own hands and produce results, companies like Dentsply (XRAY), which announced a deal last night to acquire Sirona Dental (SIRO), a principal competitor that would make the Big Three of Dentsply, Sirona and Henry Schein into the Big Two.That's terrific for the gross margins in the business of dental equipment. This kind of deal for an industry that was already consistent and doing well could raise numbers for everyone.
Or how about the possibility of a deal between AnBev and SAB Miller, which would eliminate competition in the already not-all-that-cutthroat beer industry because of all of the combination in that business. This deal cannot get Justice Department muster unless it spins off its majority Miller stake, presumably to Molson Coors (TAP), which could be the biggest winner of the combination.
We know the biggest winner of the Anbev combination was Constellation Brands (STZ) because it got the Corona Modelo stake as part of a gift from the Justice Department to get that deal blessed. It's been an incredible horse and I think it will stay that way. The last quarters have been fabulous.
Now these deals can't make up for the damage that I think the Fed will cause with a hike. But I know that these combinations are fantastic for margins and that means that they are all logical places to go. I did like Henry Schein without this deal, having spoken with them many times as part of their usual routine.
I have not been a huge fan of Molson Coors because competition has hurt them. That competition goes by the wayside, so it will be a buy, too
You have to be resourceful ahead of a rate hike. You can't just sit there and decide nothing works. You can't just say, OK I don't want to buy the market because FedEx (FDX) just reported and guided down or because China was simply and obviously propped up at the last hour and how much money do they really want to waste as they buy stakes in what may be worthless companies.
But when you get combinations you get relief, as you can tell from the upgrades of all of the big HMOs -- Aetna (AET), which is buying Humana (HUM), and Anthem (ANTM), which is snaring Cigna (CI) -- at JPMorgan.
Consolidating industries means expanding gross margins. Expanded gross margins of companies like these, ones that have little to do with the economy -- we always need our teeth fixed, we always drink beer, we always need health care -- are logical places to go when the Fed does pull the trigger either Thursday or any Fed meeting going forward.
