Many investors are up in arms over the speculative note released by FBR & Co. tech analyst Daniel Ives the other day, in which he discussed Apple's (NASDAQ:AAPL) possible future acquisitions.
Wall Street was so confident that something was going to happen, that one of the acquisition prospects -- GoPro (NASDAQ:GPRO) -- saw its stock jump by 10% based solely on speculation. But should investors really be making decisions based on one analysts' thoughts?
A full transcript follows the video.
This podcast was recorded on Dec. 11, 2015.
Sean O'Reilly: So bring it back around because this is the Motley Fool and we help the world invest better. What does this mean? Should I buy into this? Should anybody act on it?
Dylan Lewis: Yeah, I think this is speculation and nothing more than that.
O'Reilly: I'm so surprised.
Lewis: You look at Apple's cash hoard of $200 billion, you know like the $200 billion plus the off-sided number, it just invites this kind of speculation. I think at a certain point analysts get bored and they just want to have fun fantasizing about what this company might do. Maybe they'll acquire some small players here and there. I don't see any of these four companies being acquired by Apple anytime soon.
And you touch on this a little bit more in the CG show that you do with Vincent Shen where you talk about some of the big mergers. But those are announced and both companies are in talks at that point, right? Like if you're talking about the SABMiller one, or [Keurig Green Mountain] buyout, that occurred recently, these are pretty far along in the process and shareholders know what's going on.
O'Reilly: In situations like that, you see the words, "Already in advanced talk." This is a guy throwing darts at a board in his office over at FBR.
Lewis: Yeah and it's I think in a lot of ways, it's kind of unfortunate that stocks moved this much in this kind of news. Because to me it's nothing more than speculation. And I think that's something that's important for investors to keep in mind.
So if you already own GoPro ...
O'Reilly: Good for you.
Lewis: You're happy that it went up 10%. This is not a reason to buy GoPro on the talks that hopefully they get acquired by Apple. I remember I used to work at this investment firm and they had a mergers and acquisitions little side project and it was like they rung a portfolio for a couple customers. And it was a merger arbitrage basically. And so one of the guys I worked with referred to that strategy and just trying to play mergers and acquisitions generally as picking up pennies in front of a steamroller.
O'Reilly: You'll make your 5%.
Lewis: Yeah but you'll get slammed sometimes. And deals will fall through for a variety of reasons. You want to keep your investment decisions focused on business fundamentals, companies that you like for the companies that they are currently, and that they will be independent of being grabbed by somebody else.