Use Acquisition News to Buy Great Companies on Sale

Companies are constantly merging with other companies, or selling off divisions to other companies. This news will typically lead to one company seeing its shares rise, and another fall. Usually, the company making the offer to buy a company or a division will decline.

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  • But over time, owning an additional source of revenue can be additive to the bottom line. That’s why many big-cap tech companies have grown through acquisitions in recent years. Other sectors are doing the same.

    One example is Honeywell (HON) buying the security business from Carrier (CARR). Honeywell shares dropped on the news, and Carrier’s rose.

    But Honeywell is building up its portfolio of smart home technology, which is still in its early stages.

    Shares have been a market laggard, down about 7 percent over the last 12 months. But revenues are trending higher, up 3 percent.

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  • And Honeywell has improved its profit margins to 15 percent. Further high-tech offerings could improve both those numbers further.

    Action to take: Honeywell shares currently yield 2.2 percent, and the company has a history of dividend growth. Adding in higher earning potential, and this could be a reasonable long-term buy at current prices.

    For traders, shares took a small drop on the acquisition news. The February 2024 $200 calls, last going for about $4.60, could see mid-double-digit returns on a trend higher in the next few weeks.


    Disclosure: The author of this article has no position in the companies mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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