Alon USA Energy, Inc. (NYSE: ALJ) is the value stock of the day at Zacks.
Apache Corp. (NYSE: APA) Started as Buy at Deutsche Bank.
Carbonite, Inc. (NASDAQ: CARB) Started as Buy at Canaccord Genuity; Started as Outperform at Oppenheimer; Started as Outperform at William Blair; Started as Buy at BofA/ML.
Chesapeake Energy Corporation (NYSE: CHK) Started as Hold at Deutsche Bank.
Devon Energy Corporation (NYSE: DVN) Started as Hold at Deutsche Bank.
JinkoSolar Holding Co., Ltd. (NYSE: JKS) Cut to Neutral at Credit Suisse.
Logitech International SA (NASDAQ: LOGI) Cut to Sell at Goldman Sachs.
Marvell Technology Group Ltd. (NASDAQ: MRVL) Cut to Market Perform at JMP Securities.
MGM Resorts International (NYSE: MGM) Raised to Overweight at Morgan Stanley.
Molycorp, Inc. (NYSE: MCP) Cut to Neutral at JPMorgan.
Mosaic Co. (NYSE: MOS) Raised to Sector Outperform at CIBC.
PulteGroup, Inc. (NYSE: PHM) Raised to Buy at UBS.
SandRidge Permian Trust (NYSE: PER) Started as Outperform at Oppenheimer; Started as Market Weight at Wells Fargo; Started as Outperform at Baird.
SAP AG (NYSE: SAP) Raised to Outperform at Wells Fargo.
SM Energy Co. (NYSE: SM) named Bull of the Day at Zacks.
The Travelers Companies, Inc. (NYSE: TRV) Raised to Buy at Goldman Sachs.
VMware, Inc. (NYSE: VMW) Started as Buy at Merriman (Monday night).

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Xerox has a market cap of a mere $7.8 billion. The company’s primary reason for making the acquisition is that “Xerox becomes a $22 billion global company, of which $17 billion is recurring revenue – a significant boost to our profitable annuity stream.” The market is likely to drive Xerox’s stock into the ground.

The $2 billion premium that Xerox is paying is especially hard to prove because ACS is trading near its 52-week high of $52. In other words, the market has said the company is fully valued. And, it is. Last quarter ACS made only $97 million of net income on $1.7 billion in revenue, an awful margin.

Xerox, its business already only a shadow of what it was when the company was one of the top IT companies in the world three decades ago, may feel it needs a deal, but it cannot afford a bad one.

Douglas A. McIntyre

So we wanted to look through the technology sector and after we looked through the top 100 markets caps in our 24/7 Wall St. Real-Time 500 we added a few new additions in the tech sector that still had over $5 billion in cash.  Out if the $335 billion from those in the top twenty, we broke out Microsoft Corporation (NASDAQ: MSFT), International Business Machines (NYSE: IBM), Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), Cisco Systems Inc. (NASDAQ: CSCO), Intel Corp. (NASDAQ: INTC), Oracle Corp. (NASDAQ: ORCL).  Even after a huge rally, $335 billion and then some could go a very long way for strategic and bolt-on acquisitions as a positioning strategy for the next decade.  Now, going further down the list of the top 100 companies with $5 billion or more in cash from tech companies alone adds in Hewlett-Packard Company (NYSE: HPQ), QUALCOMM Inc. (NASDAQ: QCOM), EMC Corporation (NYSE: EMC), and Yahoo! Inc. (NASDAQ: YHOO). When we tally up all the cash, there is over $260 billion available from these few tech companies that could be deployed for mergers, acquisitions, or the good old dividends.  Again, that is before tallying up credit lines, factoring, debt sales, and other financing methods.

Hewlett-Packard Company (NYSE: HPQ) had almost $25 billion in cash and long-term investments.  Now that it has migrated away from just selling PCs and printers, we think that there will be a rather long lull before H-P tries to match its big buyout of EDS even if Dell is tip-toeing into IT-services and consulting with Perot.  But in the end, what we think may not matter.  Nearly $25 billion in cash when you know you will be profitable ahead leaves a lot of room to go out make purchases.

QUALCOMM Inc. (NASDAQ: QCOM) was the 29th largest company as of Wednesday with a $74.12 billion market cap. If you tally up its cash, short-term and long-term investments, it is sitting on almost $15 billion in cash and equivalents as of last quarter.  After all the lawsuits that the Jacobs team are settled, it might consider a way to deploy capital to get around future patent cases.  If only it was possible, although anything is possible.

EMC Corporation (NYSE: EMC) is the 64th largest in the country with a $34.7 billion market cap, and it is sitting on very close to $10 billion in cash and short-term and long-term investments.  The issue is that it just made the $2.1 billion deal for Data Domain, Inc. (NASDAQ: DDUP), but it also has over 50% of the float of VMware (NYSE: VMW) and that company is worth $17 billion.  EMC is likely in such a storage leadership position that it has to make strategic deals.  In that notion, EMC could be making $1 to $3 billion buyouts every six to twelve months.

Yahoo! Inc. (NASDAQ: YHOO) was the 100th largest company mid-week with a $23.6 billion market cap.  The distant #2 search player is hard to call a definite buyer  now because of new management and because of a new direction and restructuring.  But the company is still generating cash every quarter even if Google has dwarfed it, and the deal with Microsoft is going to add cash.  Throw in its other strategic spin-outs and asset sales, and suddenly Yahoo! may have a real desire to go for broke.  At the end of Q2 it held about $7.5 billion in cash and short-term and long-term investments.  As Yahoo! wants to get further into profitable content and user-centric interfaces, you could probably pick a hundred names for it to buy.  Carol Bartz is no meager CEO and she could probably even get into the auto business if she could make the case that it would take back ten points in the company’s share of search.

Microsoft Corporation (NASDAQ: MSFT) is still #2 with a $230 billion market cap mid-week has more than $36 billion in cash and equivalents. There is always the concern that antitrust issues will arise in any Microsoft deal, but that has not been the case in the search pact with Yahoo! so far.  There are very few add-on plays here for its O/S and Office software.  Other software, media, search, advertising-related, audio and communications plays would be the most logical targets assuming all the cash doesn’t go for buybacks or another big dividend.

International Business Machines (NYSE: IBM) was #9 on the top companies list and had a market cap of $159 billion and $12.5 billion in cash after spending $2.4 billion in the last quarter alone for dividends and buybacks.  IBM would likely look at another people-intensive or service-intensive deal, although there are random hardware and storage and systems possibilities still out there.

Apple Inc. (NASDAQ: AAPL) is now #8 on the America’s largest and it has long been a puzzle about what it would do with all that cash.  Its market cap was $165 billion mid-week, and its hoard of cash and equivalents is more than $31 billion.  Buying back its own stock would be expensive and maybe just silly and integrating an outside company into Apple might be far from easy.  With Apple’s 909.16 million shares, it could pay out close to a $34.00 per share dividend if it wanted to take the cash balance down to Zero and start all over again.

Google Inc. (NASDAQ: GOOG) now has a market cap of close to $158 billion now that its stock went back over $500… and a cash balance of roughly $19.3 billion.  Google may have the “Do no evil” mantra, but Google will now get into trouble for any deal it makes that is beyond an expansion.  If Google chose the cash dividend route, it could pay close to $60.00 per share and just start over on its cash growth game.   Also keep in mind one thing: in acquisitions, Google has tried to stay as content-neutral as it can so that it can still claim fair and open search and preference of content on the web.

Cisco Systems Inc. (NASDAQ: CSCO) was worth close to $135 billion in market cap mid-week and despite making deals all along the way and buying back billions worth of shares, its last quarter ended with close to $35 billion in cash and equivalents.  Its expansion has been on many fronts, so where it could do a deal would depend on the climate and upon what would give it a leg up for the next generation.  It also has preferred to make small strategic deals since its old Scientific-Atlanta deal.

Intel Corp. (NASDAQ: INTC) had a market cap of roughly $109 billion mid-week and has close to $19 billion cash equivalents before closing a recent deal.  It also had close to $6 billion in receivables and inventories.  Intel has been somewhat active via its ventures and in acquiring units or bolt-on companies like Wind River recently.  Intel has to be careful where it treads on anything processor-related, but there are dozens of core related technologies in computing and in communications that it would not fall under harsh antitrust reviews.

Oracle Corp. (NASDAQ: ORCL) had over $12.5 billion in cash at the end of last quarter that could be used for a deal if its Sun ambitions are thwarted by the dopes at the E.U. who think that Sun should keep losing money.  If that deal is somehow blocked, you know at least how much Larry Ellison is willing to dole out for a money-losing operation.

As a reminder, these market caps and figures were snapshots mid-week.  The top market caps were taken from our own 24/7 Wall St. Real-Time 500 list of American companies with the 500 largest market caps in the country.   There is also sometimes a discrepancy in the formal figures on the books and what companies state in their conference calls, and we have attempted to smooth that data as a result.

You can join our open email distribution list which goes out several times per week to be notified of key merger news, key analyst calls, top early morning day trader alerts, along with news of IPO’s, key offerings, guru investor data on Buffett and others, mergers, and more.

JON C. OGG
SEPTEMBER 25, 2009

Reuters:   The G20 is looking to nurture the recovery and add financial safeguards.

Reuters:   Taxpayers may never get back all of their US bailout funds.

Reuters:   The Fed says the recovery in under way.

Reuters:   A new AIDS vaccine protected a number of people in a trial.

Reuters:   The tech world believes that IPOs will return soon.

Reuters:   The SEC is planning insider trading charges in the Dell (DELL) deal to buy Perot Systems (PER).

Reuters:   Airbus may need extra cash for new planes.

Reuters:   Citigroup (C) will focus branches in six cities.

Reuters:   Moody’s (MCO) may bear the brunt of ratings agency mistrust.

WSJ:   Investors and participants at the G20 are worried about the dollar’s future role

WSJ:   GMAC is using capital to compete more effectively with large banks.

WSJ:   Boeing (BA) is beginning to fix early flaws in the 787.

WSJ:   Nintendo cut the price of the Wii.

WSJ:   Hewlett-Packard (HPQ) is using its size to undercut rivals.

WSJ:   Russia’s largest car maker OAO AvtoVAZ will cut more than 26,000 jobs.

WSJ:   Marvel’s (MVL) CEO got options ahead of the Disney (DIS) deal.

WSJ:   AOL (TWX) and Yahoo! (YHOO) are competing more directly.

WSJ:   South Korea will get the Apple (AAPL) iPhone.

WSJ:   Honda (HMC) will build a unicycle for the elderly.

WSJ:   China’s sovereign wealth fund made a $1.9 billion investment in debt issued by Indonesia’s Bumi Resources.

WSJ:   Steel and paper are going to be part of the next trade dispute with China.

WSJ:   The FASB approved an accounting rule that will help tech company earnings.

WSJ:   Hedge funds are still not cutting fees.

WSJ:   Russia’s richest man is buying control of the New Jersey Nets.

NYT:   Oil companies are finding new fields at a rapid rate.

NYT:   Ford’s (F) new small car should help it with Asian buyers.

NYT:   E-commerce is helping to get Chinese consumers to spend more.

FT:   Microsoft (MSFT) says that top game publishers are developing software for its new game controller.

Bloomberg:   The stock rally is bring buyout firms back into the market.

Douglas A. McIntyre

Reuters:   A Senate panel took up healthcare legislation.

Reuters:   Bank of America (BAC) missed a deadline for supplying information from Congress and now faces another threat from the SEC.

Reuters:   Proposed net neutrality rules for wireless systems drew criticism from carriers.

Reuters:   The FDIC may tap US banks to increase its funding.

Reuters:   Sun Microsystems (JAVA) is losing $100 million a month, according to Oracle (ORCL).

Reuters:   Dell (DELL) will buy Perot (PER) for $3.9 billion.

Reuters:   The Fed is in not hurry to raise rates.

Reuters:   US mortgage delinquencies set a record.

WSJ:   The Deutsche Bank (DB) chairman had information on a plan to spy on a board member.

WSJ:   Cadbury is softening its stance toward Kraft’s (KFT) offer.

WSJ:   Insurance companies are raising prices to help battered balance sheets.

WSJ:   Harbinger reduced its stake in The New York Times (NYT).

WSJ:   Facebook has set up a partnership with Nielsen.

WSJ:   The Fed will miss an October 1 deadline to provide Treasury a broad review of the agency’s operations.

WSJ:   Google (GOOG) Voice may draw FCC review.

WSJ:   AIG (AIG) is showing signs of stabilizing.

WSJ:   The EU published details of its antitrust case against Intel (INTC).

WSJ:   Bank of America (BAC) will end a loan loss sharing arrangement with the government.

WSJ:    Netflix (NFLX) awarded a $1 million prize.

WSJ:   Infrastructure funds are not immune to the credit crisis.

WSJ:   Net neutrality may be a good idea but building the Internet is not free.

NYT:   Hyundai is building market share with through price and quality.

NYT:   The Asian Development Bank said that the region is quickly recovering.

NYT:   The G20 is being urged to raise bank reserves.

NYT:   Leading indicators rose for the fifth month.

FT:   A growing rift between the US and Europe may hurt results from a climate summit.

Bloomberg:   Vivendi may sell its 20% stake in NBCU (GE).

Bloomberg:   China’s stimulus package may be delaying efforts for the consumer to lead its economy.

Douglas A. McIntyre

Delta Petroleum Corporation (NASDAQ: DPTR) is getting whacked and battered today on poor well results.  It was a very bad weekend as shares are down 35%.

Amgen Inc. (NASDAQ: AMGN) is up over 2% and actually close to 52-week highs on positive study data.

Perot Systems Corp. (NYSE: PER) is up huge by 65% or more, but traders are selling as this is a huge premium and above what many would have expected.  Dell Inc. (NASDAQ: DELL) is going to be accused of overpaying.

Lennar Corp. (NYSE: LEN) is down 4% on somewhat active volume after posting wider losses.

Potash Corp. of Saskatchewan (NYSE: POT) is down almost 5% and not as much as it could have been… Lower guidance is hurting shares, look at Mosaic Co. (NYSE: MOS) on this one as well.

You can join our open email distribution list which goes out several times per week for top day trader alerts, analyst upgrades and downgrades, IPO’s, key secondary offerings, guru investor data on Buffett and others, mergers, and more.  We also have an affiliate offering a top 10 trading lessons sign-up.

JON C. OGG

Dell is substantially overpaying to get into the technology and IT infrastructure business, industries where it is far behind rivals including IBM (IBM) and HP (HPQ). Dell may believe that it has no choice other than to pay a financial premium that it cannot defend on an ROI basis because of a strategic need that it cannot fulfill within its current operation. Dell has been criticized on Wall St. for relying too much on PC and server sales, where margins have come under more and more pressure.

Dell will pay Perot shareholders will pay cash for a company that made only $31 million last quarter on $628 million in revenue. That revenue was down from $705 million in the same period the year before. Net profit for that period was $30 million. In other words, Perot is shrinking.

Perot’s two major lines of business did particularly poorly in the quarter ending in June. Revenue from its healthcare business fell 8% to $302 million. Revenue from its commercial segment was down 21% to $173 million. The results also show how heavily Perot relies on one industry. Healthcare sales are almost half of the company’s total.

Perot also has a very modest balance sheet $260 million in cash and equivalents and $316 million in long term liabilities.

Dell investors should be outraged at paying such a large sum for such a small, vertical operation.

Douglas A. McIntyre

Accenture (ACN) Started as Outperform at Baird.
Anadarko Petroleum (APC) Raised to Outperform at FBR.
Apple (AAPL) Started as Outperform at William Blair.
Cubic (CUB) Raised to Overweight at JPMorgan.
International Rectifier (IRF) Started as Buy at Merriman Curhan Ford.
Nanometrics (NANO) Started as Overweight at Piper Jaffray.
Perot Systems (PER) Started as Outperform at Baird.
Rackspace (RAX) Started as Buy at ThinkEquity.
Zumiez (ZUMZ) Raised to Outperform at William Blair.

If you wish to be notified by email when the top analyst calls hit, along with each morning’s top day trader alerts, along with news of IPO’s, key offerings, guru investor data on Buffett and others, mergers, and more, you can join our open email distribution list which goes out several times per week.

Jon C. Ogg

About a week ago, Dell and Perot Systems Corp. (NYSE: PER) announced a strategic alliance to provide fully-integrated virtualized healthcare technology solutions which are aimed to cut down on costs and to improve patient care.  In January, Dell acquired Microsoft IT consulting and solutions segments of Allin Corporation for $12 million in a stock purchase agreement. These are not the only services-oriented launches that the company has launched, but these are arenas which we would expect the company to grow deeper and further into.   Then today came an announcement that the company was unveiling a nationwide managed services dolution for small and mid-sized businesses.  All of these are baby steps, but in today’s climate that might have to be about as good as it gets.

We have frankly been expecting Dell to make a transformative acquisition into IT-services and consulting for months now.  We think there are two major reasons the company has not gone this route.  Michael Dell stepped back in and has been trying to turn this ship around at a time when the economics and tech trends have gone against his efforts.  We cannot blame a recession nor an industry migration to sub-$1,000 and even sub-$500 computing on the company.  But the company’s share price did not hold up at the same time the company was throwing money away in stock buybacks.  This in turn took away its currency to make any strategic and game-changing acquisitions such as when H-P acquired EDS.

The good news is that Dell’s stock is back above $10.00 and its market cap is back above $20 billion.  The bad news is that it lost almost two-thirds of its value from shortly after the return of Michael Dell.  So it has been unable to do any sort of acquisition which could have rivaled that H-P and EDS transaction.  EDS was a doubling effort by H-P and it was essentially a $13.9 billion acquisition.

Dell does over $10 billion in liquidity and has thge ability to raise cash if needed.  The company also recently sold $500 million in debt.  As of March 14, 2009, Dell had 1,951,045,734 shares outstanding.  Its 2009 annual report noted that the company is authorized to issue up to 7 billion shares of common stock.  It can also issue 5 million preferred shares, but no shares were listed as being issued or outstanding.

Dell can do a deal if it wants to.  The question is if it is willing to risk the dilution or the hit to the stock with shares this low.  It’s $20+ billion market cap also makes it difficult for the company to take a huge company over.  Besides this being a branching out and diversification play, having IT-consultants and services allows more chances for on-the-spot sale of PC’s and other equipment.

JON C. OGG

• Accenture Ltd. (NYSE: ACN), although maybe too large;
• CA, Inc. (NYSE: CA);
• Computer Sciences Corp. (NYSE: CSC);
• Affiliated Computer Services, (NYSE: ACS);
• Perot Systems Corp. (NYSE: PER);
• Unisys Corp. (NYSE: UIS);
• Acxiom Corp. (NASDAQ: ACXM);
• Bearingpoint, Inc. (NYSE: BE)…..

If we took the mid-point of the pricing at $12.5 Billion we would have a rough share price of $25.00 per share on EDS.  At that rough price, you would have a company that analysts expect to be priced at 18.2 times DEC-2008 earnings and 0.55-times revenue estimates.

Any such deal for EDS would likely have to come in the form of a friendly buyout.  This company doesn’t protect itself as hard as other companies, but Capital IQ does note the following tools the company has:

• Removal of directors only for cause;
• Board can change size of members;
• Advanced Notice for director nominations;
• Move by 50% of shareholders to remove directors;
• Board Indemnification;
• Blank Check Preferred Stock.

EDS is seemingly involved in more aspects of IT outsourcing and consulting than it isn’t.  Because of the rate that IT-workers come and go inside the Indian IT-outsourcing companies and because of laws restricting total foreign ownership in India, we did not include the public Indian-IT operations in this report 

You can join our open email distribution list to hear about other mergers, IPO’s, spin-offs, secondary offerings, and other special situations.

Jon C. Ogg
May 12, 2008