By now you might be thinking: This is a blog about the stock market, yet the stock market itself will not be a factor in any of the super-stock takeover situations we discussed. Every one of these super-stocks generated a profit for reasons totally unrelated to the trend of the general stock market.
Which is precisely the point. When you’re dealing with super-stocks, pegging your stock selections to specific events or “catalysts” related to a particular company that are likely to force the stock price higher, for the most part you’re removing the behavior of the general stock market from the equation.
When you begin to think in terms of the new paradigm, you’ll find yourself zeroing in on news items that relate to the stocks you’re holding or to other stocks that could become potential superstocks. You’ll find yourself paying attention to “micro” news items rather than “macro” news items. You’ll become less interested in grandiose generalizations concerning the big picture and more interested in specific news items that will impact individual stocks you’re following. For example, you’ll find yourself paying more attention to CEO interviews (“We believe the consolidation in our industry will continue and we intend to be one of the major players by making additional acquisitions”), merger announcements (“We will continue to look for opportunities to grow our defense electronics segment”), or “shareholder rights plans” (“Although we know of no specific plans to acquire our company, this shareholder rights plan will ensure that our shareholders will receive fair value in the event of a bid”). You will find yourself taking note of stock buybacks (“We believe our stock is undervalued”) in consolidating industries. You will be paying close attention to 13-D filings that indicate an outside beneficial owner has increased his or her stake in a company. And your ears will perk up when you hear that a company plans to spin off one of its subsidiaries to “enhance shareholder value,”especially if the parent company or the subsidiary operates in an industry where takeovers are proliferating.
You will even notice when an outside beneficial owner receives a hostile takeover bid, because one way the beneficial owner can ensure protection from such a bid would be to turn around and make an acquisition itself—and therefore, what company would be a more logical takeover candidate than a company that is already partially owned by the outside beneficial owner?
On the other hand, you’ll pay less attention to durable goods orders, the consumer price index, the trade deficit, and whether Alan Greenspan might have gotten up on the wrong side of the bed this morning before he presided over the Federal Reserve’s Open Market Committee meeting. You would be more interested in the fact that WMS Industries has announced that it will spin off its three Puerto Rico hotel/casinos as a separately trading company because you will have noted a takeover wave in the hotel/casino industry. Therefore, while the TV talking heads are wringing their hands over what Greenspan may or may not do, you’ll be more interested in the possibility that the WMS spinoff might become a takeover target once the hotel/casinos are trading separately as a “pure play.” (It did.) You will also begin to realize that if Rexel S.A. plans to make a takeover bid for Rexel Inc., it will make the bid whether or not housing starts were up last month, and it won’t matter to Rexel S.A. if Apple Computer missed its earnings estimates by a penny. And you will know that Rexel S.A. is not going to scratch its takeover plans because some market strategist who has been bullish before now believes we may be headed for a 10 percent correction. The superstocks you’ll be tracking will be marching to their own drummers, and you’ll pay less attention to what “the market” is doing and more attention to the stream of information and scattered clues and evidence that directly impact the themes, trends, and specific superstocks you’re tracking.