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Buying Binge

August 20, 2010 – 5:01 pm

Intel buying McAfee may turn out to be a sea change for Intel. They are a chip maker moving into the software business. This is either a monumentally poor decision or a smart strategic maneuver.

When corporations are sitting on huge amounts of cash they feel the need to do something. Many times they consolidate their industry buying smaller players to gain market share. In Intel’s case that is impossible as they would be accused of monopolistic practices. That leaves increasing dividends, a stock buy back or stepping
out of their core expertise. That last choice is a high risk play.

What will Apple do with its billions or Microsoft? Apple has had a history of doing nothing whereas Microsoft a few years ago paid a huge one time dividend giving some of their cash horde to share holders.

You can be certain that over the next weeks and months corporations are going to do something with all that money. I expect more big mergers, but buy backs and raising dividends will be part of the mix. As earnings and guidance of growth of sales for most corporations continues it makes it a certainty that they will spend money. The hope is that all that cash will not result in poor acquisitions and Intel buying McAfee is one that could fall into that category.

Good Trading
Steve Peasley

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