Wall Street’s Latest Rumor Creates a Buying Opportunity (But Not Where You Think)

Merger and acquisition activity is alive and well. More importantly, even rumors of a possible deal are capable of moving shares of companies large and small alike.

  • Special: This Company’s Share Price has Increased 1650% Since 2016
  • That’s the case with Pinterest (PINS). News broke that the social media site might be acquired around $70 per share, at a valuation of nearly $39 billion. The potential buyer? Payment services company PayPal (PYPL).

    On its face, the deal doesn’t seem to make a lot of sense. These are two very different companies in different sectors. For now, the rumor remains a rumor. But Wall Street likes the potential deal, sending shares of Pinterest higher… and PayPal lower.

    That’s creating an opportunity, but in PayPal, not Pinterest. Shares of PayPal have now hit a six-month low on the rumor, and if it’s not true, could start to move higher once again.

    Action to take: The drop in shares has brought the company to 45 times forward earnings. While pricey, that’s the best valuation for the company in over a year. The company has a dominant position in mobile and online payments, and its growing offerings in buy now pay later (BNPL) and cryptocurrency purchases make shares a potential buy here.

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  • For traders betting on the rumor being false, a call option can play to the short-term news cycle. The January $270 calls, last going for about $11.00, have the potential for a mid-to-high double-digit bounce higher if the rumors are refuted in the coming days or weeks.

     

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