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What Investors Missed in the Market This Week

By Daniel Miller – Apr 14, 2017 at 8:41PM

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Between Tesla's CEO channeling his inner Donald Trump, a new stake in WFM, and a smart merger, this week had plenty of action despite markets being closed Friday.

The Dow Jones Industrial Average and S&P 500 both dropped lower this week, and both closed below their 50-day moving averages for the first time since November on Wednesday. Markets traded slowly into the holiday-shortened week, as they closed in observance of Good Friday. Still, there were some companies making big headlines or big moves. Here are some highlights. 

Be careful what you wish for!

It's been a trendy topic to poke at Tesla's (NASDAQ: TSLA) absurd valuations over the years, or to poke at its controversial acquisitions, but the markets keep on devouring what Musk is selling, sending Tesla stock to new highs recently.

American flag hanging from the NYSE.

Image source: Getty Images.

However, an influential group of investors is applying a bit of pressure to Tesla in hopes of adding two board directors with no ties to Elon Musk -- a hint that there are concerns regarding the company's direction. Currently, five of six board members have personal or professional connections to Musk, and a group of investors is hoping to get yearly director elections, rather than vote every three years, in addition to the two independent board members.

Seemingly irritated over the development and constant prodding about anything from Tesla's valuation to the company's strategy, Musk did his best to channel his inner Donald Trump and took to Twitter. "This investor group should buy Ford stock," Musk posted on Twitter, Wednesday. "Their governance is amazing."

While Tesla has the potential to turn an industry on its head by skipping dealerships and selling directly to consumers, as well as creating an energy empire on top of its electric vehicles, Musk should be careful what he wishes for. Ford Motor Company (F -7.61%) is putting $4.5 billion into electrifying its vehicle portfolio, it's developing smart mobility projects to contend with start-ups such as Uber, and it's trading at a ridiculously cheap valuation with a 5.3% dividend yield. Investors could do a lot worse than purchasing shares of Ford at these prices.

A shiny new stake

Whole Foods Market (WFM) was a wild success story for its investors between 2009 and 2014, but over the past couple of years, the stock price has gained little to no traction. Yet shares were up about 10% on Monday as activist investor firm Jana Partners disclosed a new 8.8% stake in Whole Foods Market, citing the following, according to the 13D filing with the SEC:

JANA has substantial experience analyzing and investing in the grocery sector and more broadly across the food and retail sectors, and the other Reporting Persons collectively possess significant operational, financial, and nutritional expertise, including, for some of the other Reporting Persons, experience creating significant shareholder value in the food and grocery sectors.

At first glance, this new stake by Jana doesn't materially change the investment thesis for Whole Foods Market, but a Wall Street Journal report hinted that Jana will push for operational improvements and a potential sale of the company. Investors who have held on over the past couple of years might as well ride this out. If management and its new activist partner can help drive operational improvements and increase its private-label penetration to increase margins, then a sale for a decent premium to its current price -- perhaps to the mid-$40 range -- is a possible and valuable outcome.

When two became one

In other news, shares of Knight Transportation (KNX -1.85%) and former rival Swift Transportation (NYSE: SWFT) traded higher starting Monday after announcing the companies would combine. The stocks then gave back some gains over the course of this week.

Looking at the details, the companies announced an all-stock transaction that will create the largest full truckload company. When the dust settles, Swift shareholders will control about 54% of the stock, despite Knight actually being named as the "accounting acquirer." Swift Chairman Richard Dozer said in a press release:

This is a terrific opportunity for our stockholders, who stand to benefit from the significant upside potential of this transaction. Indeed, by coming together under common ownership, the companies will be able to capitalize on economies of scale to achieve substantial synergies.

The combined company will generate about $5 billion in annual revenue and expects to generate $15 million in cost savings this year alone. The synergies are expected to save roughly $100 million in 2018 and $150 million in 2019. For two companies operating as rivals in a low-margin industry, this absolutely is a merger for investors to be cheering.

John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Daniel Miller owns shares of Ford. The Motley Fool owns shares of and recommends Ford, Tesla, and Whole Foods Market. The Motley Fool has a disclosure policy.

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