Is it a potential takeover? It is a revaluation? Is it the animal spirits of the market? Is it Trump?
That's the prism I have to put all stocks through these days when I see them run up. Sometimes I feel like Peyton Manning who, after a few random "Omaha" screams, takes the snap and then checks down the receivers to find which one is open.
The best receivers, the ones who have separation, have the triple threat going -- repatriation of a foreign treasure hoard, winner in deregulation and beneficiary of lower taxes.
The industrials come to mind. The banks are winners in deregulation and lower corporate taxes. Apple's (AAPL) the quintessential low-tax repatriation name.
Still others will simply do well in a lower-tax world.
When you go through the check-down, you end up hitting a huge part of the S&P 500.
That's why the animal spirits are so vibrant. That's why so many stocks are Trump stocks.
But we can never overlook the gyrations of the stocks of individual companies either.
Case in point: Xilinx (XLNX) , a maker of programmable logic solutions that is truly a gem because it is responsible for so much of the technology behind the beautiful videos you see on your cellphones, but it isn't a cellphone play per se. It is a telecommunications equipment play and there's an arms race going on about who has the best video.
If you are a telecommunications provider, you may need Xilinx to stay up to date in a world where we can watch NFL football on our cellphones. At the same time, Xilinx chips have so many Internet of Things applications including automobiles, where you need their chips for infotainment and defense, where it's got remarkable proprietary exposure, and perhaps best of all, data centers -- think the incredibly fast-growing Digital Realty (DLR) , which hosts data farms. Those places are loaded with Xilinx chips.
Xilinx often goes head to head with Altera (ALTR) , with each one trying to get ahead of the other one with the latest and greatest. Last year, Intel (INTC) bought Altera for $16 billion to expand into data-center growth. Hmmm. Let's put two and two together: Xilinx has a $14 billion market cap and when I see it spike I do the Peyton Omaha triple-threat check-down and don't see much. But then, out of the corner of my eye, I see an open man, the takeover potential, and I think, yes, that could be going on. Why not? Any company that needs to diversify away from simple cellphones, a slowing cohort, could snap up Xilinx and immediately be diversified away from phones the way Avago did when it bought Broadcom (AVGO) and Qualcomm's (QCOM) doing with its pending NXPI (NXPI) acquisition. (Apple and NXPI are part of TheStreet's Action Alerts PLUS portfolio. Qualcomm is part of the Dividend Stock Advisor portfolio.)
Now, I never recommend a stock on a takeover basis if the fundamentals aren't any good, but in this case the fundamentals are very strong. The price to earnings multiple is steep, but it can easily be rationalized given its excellent growth. There's been so much takeover activity in the semiconductors, not just the Avago-Broadcom, or the Qualcomm-NXPI but also Analog Devices (ADI) and Linear Technology (LLTC) that you have to wonder what's Texas Instruments (TXN) up to, besides buying back stock, which has helped bolster its market cap to $72 billion. It's been six years since it bought National Semi in what in retrospect was a brilliant move. Maybe Skyworks Solutions (SWKS) tries a merger of equals as they are similar size and Skyworks badly needs to diversify from cellphones. Even the $20-billion-market-cap Micron (MU) , with its overdependence on flash memory and DRAMs, could make sense.
All these companies could handle buying a so-called expensive stock like Xilinx.
Conclusion? Voila. It's a trade.