Stock market investors seemed calm on Wednesday morning, with worries about economic slowdowns and a potential recession failing to hold back stocks from posting very small gains. As of just before 9 a.m. ET, futures contracts on the Dow Jones Industrial Average (^DJI -0.11%) had risen 18 points to 30,954. S&P 500 (^GSPC 0.02%) futures had inched higher by 2 points to 3,836, and Nasdaq Composite (^IXIC 0.10%) futures had climbed 9 points to 11,817.
Earnings season is about a week away, but companies are still making news in other ways that are resulting in higher stock prices. One well-known business seeing gains early Wednesday was Altria Group (MO 0.12%), which managed to stave off a painful hit at least temporarily. However, a different stock in the natural resources area saw much larger gains in premarket trading. Below, you'll learn which stock that was, but first, here's what Altria is celebrating.
The FDA pulls back
Shares of Altria Group were up more than 2% in Wednesday's premarket session. The cigarette giant got good news about a key investment, although it's unclear whether the long-term prospects will get any lasting boost.
Altria shares plunged last month when news came out that the U.S. Food and Drug Administration (FDA) had decided to impose a ban on e-cigarette products sold in the U.S. by Juul. Altria has a sizable minority stake in Juul, and so investors were concerned that an outright ban would essentially wipe out Altria's investment in the e-cigarette leader. Even a temporary stay of the ban by a federal appellate court didn't restore investor confidence.
However, the FDA announced late Tuesday that it would look more closely at the marketing application that Juul had submitted to sell its products. The question that Juul has posed is whether the FDA unfairly singled out its products after having approved similar e-cigarettes from other companies. With the agency now taking a closer look at the application and its accompanying scientific data, Altria shareholders clearly hope that the FDA will change its mind.
Juul has already failed to live up to Altria's best expectations. However, something short of a complete ban would still be at least a small victory for the tobacco giant and offer at least the prospect of longer-term success.
A Resolute buy
The big winner on the day, though, was Resolute Forest Products (RFP). The wood and paper specialist received a buyout bid that investors see as too good to pass up.
Privately held Paper Excellence Group and its Domtar subsidiary made an offer to buy out Resolute Forest Products for total value of $2.7 billion. Under the terms of the deal, Resolute shareholders would get $20.50 per share in cash. In addition, shareholders would also receive a contingent value right that would give them additional compensation if Resolute is successful in recovering refunds of softwood lumber duties that could add up to an additional $500 million.
It's because of that contingent value right that shares of Resolute soared 65% on Wednesday morning. Indeed, the current price is above the $20.50-per-share cash amount, showing that investors are placing significant value on the prospects of earning those refunds back pending resolution of a trade dispute between the U.S. and Canada.
With Resolute having earned $8 per share last year and projected to earn another $7 per share this year, the deal looks like a huge bargain. Yet major shareholder Fairfax Financial supports the proposal, and that makes it extremely likely that it will go through pending necessary approvals.
