Investors returned from the long weekend in the mood to sell on Tuesday, with stocks moving sharply lower in the morning, but largely recovering in the afternoon. The Dow Jones Industrial Average (DJINDICES:^DJI) closed nearly flat and the S&P 500 (SNPINDEX:^GSPC) had a small loss.
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Renewed selling of materials stocks sent that sector lower; the SPDR S&P Metals and Mining ETF (NYSEMKT:XME) fell 1.6%. Utilities were the strongest sector, with the Utilities Select SPDR ETF (NYSEMKT:XLU) posting a 0.5% gain.
Amazon hits $1 trillion
Amazon became the second U.S. company in history to achieve a market capitalization of $1 trillion, as shares of the online retail giant pushed through the $2,050.27 needed to hit the milestone in interday trading, before dropping back to close up 1.3% to $2,039.51.
Amazon's market value dwarfs that of the next-largest retailer, Walmart, which has a market capitalization of only $281 billion, despite having generated over twice as much revenue -- $510 billion to Amazon's $208 billion -- in the last 12 months. The big difference in how investors are regarding the stocks is rooted in the tremendous growth at Amazon.
For years, Amazon focused on building its massive online store, logistics infrastructure, and web services business with seeming disregard for profits. But now the company is leveraging its scale to crank up the profit machine, generating $2.5 billion in net income last quarter, as compared with only $197 million in the quarter a year ago. And that mammoth profit growth was achieved without a hiccup in sales, which jumped 39% in Q2.
Joining Apple in the trillion-dollar club is mostly symbolic, but investors have every reason to believe that Amazon still has a long way to run.
Transocean buys some more rigs
Transocean announced plans to buy deep-sea driller Ocean Rig UDW in a cash-and-stock transaction worth about $2.7 billion, sending shares of Ocean Rig up 12% to $30.32 and those of Transocean down 6.7%. Transocean will issue 1.6128 shares and pay $12.75 in cash for each share of Ocean Rig, valuing the deal at $30.97 per share of Ocean Rig as of the market close. Based on closing prices on Aug. 31, the offer represents a 20.4% premium to Ocean Rig's 10-day volume weighted average share price.
Transocean will finance the acquisition with a combination of cash on hand and new debt, after which the former Ocean Rig shareholders will own 21% of the combined company. The deal, which has been approved by both boards but still faces shareholder and regulatory approvals, is expected to close in the first quarter of 2019. Ocean Rig's fleet consists of nine high-specification, ultra-deepwater drillships, two harsh environment semisubmersibles, and two ultra-deepwater drillships under construction.
"[A]dding Ocean Rig's premium assets to our industry-leading fleet provides us with an increased number of the modern and highly efficient ultra-deepwater drillships preferred by our customers, and better positions us to capitalize on what, we believe, is an imminent recovery in the ultra-deepwater market," said Transocean CEO Jeremy Thigpen in the press release.
The deal will add $740 million to Transocean's industry-leading backlog and strengthens the company's deepwater fleet at a time when its stock is particularly cheap.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of Amazon and AAPL. The Motley Fool owns shares of and recommends Amazon and AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.