Wall Street loves nothing more than a good rumor. Rumors about a potential merger often involve multiple companies. That includes the two companies that might merge, as well as any competitors or big institutions that might be investing.
Last week, a rumor broke that Intel (INTC) is looking to buy GlobalFoundries, a privately held firm. If that’s the case, shares might end up going on a winning streak once again.
That’s because GlobalFoundries is a big player in manufacturing semiconductors, which would compliment Intel’s design prowess.
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Intel was one of the original semiconductor plays and helped build Silicon Valley, but its focus on PC chips has kept a lid on growth. This merger, valued at potentially $30 billion, could also expand the company into new branches as well.
Action to take: The adage “buy the rumor, sell the news,” seems only half true here. The merger could add a lot of value, and shares of Intel are well off their 52-week highs of $68 per share.
Trading at 12 times earnings and yielding about 2.5 percent right now, shares look like a reasonable buy for investors, especially if Intel ends up inking any deal that gets it out of its current funk.
For traders, the January $60 calls, last going for about $2.50, could show a big move on any positive merger news in the next few months. The trade doesn’t have to be held to expiration to see if the rumor is true or not.
Disclosure: The author of this article has positions in the company mentioned here, and may make any further trades after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.