Lately, not a day goes by that we don't hear of another huge merger or acquisition. Last week there was a doozy when Microsoft
But, unlike the news-making financial crazes of the past, the billion-dollar buyout action isn't focused on U.S. shores. Cheap capital is fueling big acquisitions and mergers across the globe. Just take a look at Motley Fool Stock Advisor recommendation Cemex
Oddly, all that money that's driving up stock prices the world over can make investing harder, not easier. Consider the recent buyout of Chilean grocer Distribucion y Servicio
I've been watching it because it's got a strong presence, but its performance has been lackluster. Revenue growth has been trailing off, while earnings have actually fallen, and free cash flow is rare. Returns on equity and capital have been mired in the single digits for a long time.
In fact, that's exactly why I've been watching it, because laggard companies like this can be great investments -- if you get them at the right price, and you see a turnaround on the horizon. But DYS was never really selling at the bargain price you'd expect for a soggy grocer in a competitive market. In fact, it was already at a 52-week high when South American retail conglomerate Fallabella came along and snapped it up in a merger.
That seems to make sense, because it looks like the combined company will be able to ring up some of those (fingerquotes) synergies that are always alleged to make these deals worthwhile. However, unless you knew this deal was going to take place, there wasn't much of a slam-dunk case for buying DYS. It was a so-so company selling at a premium price. But shareholders who bought at the prior highs would still have made a quick 27% gain on the news.
At a time when there are fewer and fewer cheap stocks out there, a story like this is enough to make a value guy lose his discipline and bet on anything and everything.
Almost.
Seth is a member of the Motley Fool Global Gains team, which scours the world for the best investment opportunities. A free trial will show you what they're watching.
At the time of publication, Seth Jayson had shares of Microsoft but no positions in any other company mentioned. See his latest blog commentary here. View his stock holdings and Fool profile here. Fool rules are here.