When the "smartest guys in the room" are itching to go public, it could be a clear sign of an approaching market top. We're talking both stock market top and commodity market top, as I'm sure you've noticed of late.
The last time the Dow (DJIA) was heading towards an all-time high above 14,000 in October 2007, Blackstone Group (BX) decided to go public. You may not remember some of the details.
Surely you remember Blackstone? Today, along with its subsidiaries, provides alternative asset management and financial advisory services worldwide. The company operates in four segments: Private Equity, Real Estate, Credit and Marketable Alternatives, and Financial Advisory.
Blackstone shares started trading back on June 22, 2007 for as much as $38. Then, the financial crisis hit, sending shares to less than $4 in February 2009. It didn't matter to the company's founders, who both pulled billions of dollars out of the market near the peak.
Chief Executive Stephen Schwarzman and his partner Peter Peterson started this company in 1985 with $400,000. They've worked hard for 22 years. And they're no dummies.
Wall Street tycoons have seen an artificially supercharged rebound in the credit markets before and like they did in 2007 they're once again are planning to "cash out."
If you missed shorting the Blackstone initial public offering (IPO), there just may be another opportunity that looks and smells a lot like the BX transaction.
Glencore International, which is one of the world's best and biggest commodity trading firms is reportedly preparing an $11 billion IPO this year.
The infamous Mark Rich started Glencore, then known as March Rich & Co. in 1974. Rich, as you may know, revolutionized the way the world trades oil. He virtually invented the "spot oil" market we use today.
Rich made his fortune because he and his firm knew more about commodities than anyone else in the world.
A group of employees forced Rich to resign from his company, and changed its name to Glencore. That's the abbreviated story of the company's origin. The point is, Glencore knows the commodity markets. And if it's going public, can a top be far away?
To add to that question, have you looked at six month charts of SLV and GLD lately. They're screaming "overdue correction" in a big and overpowering way. And the major gold and silver producers like Barrick Gold (ABX), Goldcorp (GG) and Pan American Silver (PAAS) are not participating in gold and silver's ascent.
Speaking of Barrick, announced that it has agreed to buy Equinox Minerals Ltd. for about $7.7 billion (7.3 billion Canadian dollars) in cash, topping a rival's offer earlier this month. The purchase price is $8.57 (8.15 Canadian dollars) per share. That's a nine percent premium to Equinox Minerals' last trade last week. It's also 16 percent higher than China's Minmetals Resources Ltd. offered earlier this month.
Barrick Gold, already the world's biggest gold miner, said the deal will put it in position for significant copper production growth in Chile, a country with some of the world's most promising copper-producing regions.
Barrick has such a large stake of the gold market that it needs to pursue copper mining if it wants to grow, said Elizabeth Collins, an equity analyst at Morningstar Research in Chicago.
"Their gold production is so immense in pure numbers and absolute terms that for them to move the needle and offset more mature mines, they need to develop massive projects," she said.
It would be difficult for Barrick to expand its gold mine holdings because the number of available projects is scarce. Companies are scrambling to get a piece of the business while the price of gold tops record highs every day -- hitting as much as $1,518 (1,509 Canadian dollars) Monday morning.
Collins said she predicts other pure gold miners will also expand to copper and other metals. That makes me wonder about the big, mainly gold miners like Goldcorp.
Have you looked at Goldcorp's balance sheet of late? It has trailing-twelve-months (ttm) of operating cash flow of almost $1.6 billion and its coffers are overflowing with levered free cash flow (ttm) of over $234 million.
Goldcorp is selling at slightly more than 20 times next year's earnings. ABX has a forward PE of only 12 for comparison's sake. Goldcorp would be a likely acquirer of a company that may want to expand its ownership of other metal producers.
It wouldn't surprise me to see them go after a company like Alexco Resources (AXU), whose production plans suggest that they will deliver nearly 3 million ounces of silver in 2011, and it may increase its Yukon-Keno Hill Silver District based silver production to around 5 million ounces by 2013.
Alexco projects that it will also produce 18 million pounds of lead and 8 million pounds of zinc. At current spot prices for lead and zinc ($1.12 and $1.26 approx.), that makes AXU enough money to pay for their production costs for all that silver.
If you factor in the other mining-related business that AXU has (environmental restoring of mining sites and "brownfields") you can see why it is no surprise that Alexco has over $46 million in cash and no long-term debt.
There are other big gold players who may like other producing multi-metal companies such as Hecla Mining Company (HL) which engages in the discovery and production of silver, gold, lead, and zinc.
HL owns a 100% interest in the Lucky Friday mine-unit located in northern Idaho; and a 100% interest in the Greens Creek unit located on Admiralty Island, near Juneau, Alaska.
The company also produces and sells lead, zinc, and bulk concentrates to custom smelters on contract; and unrefined silver and gold bullion bars to precious metals traders. HL has little debt and lots of cash.
I suspect HL is on a few "takeover wish lists," and that list isn't all that long from what industry analysts tell me. It may include First Majestic Silver Corp. (AG), a Canadian-based company that mines for silver and other metals in Mexico.
It is run by legendary CEO Keith Neumeyer and has among its major holders billionaire investors such as Eric Sprott. If the current share price corrected somewhat it would reduce the market cap of the stock below $2 billion.
Thus a big gold company like Agnico-Eagle Mines (AEM) with an $11+ billion market cap (it would be part cash, part stock deal) or more reasonably a giant like Goldcorp which has close to a $44 billion market cap.
Technology Turns On and Heats Up
Apple nearly doubled its quarterly earnings from a year ago. Net income for the second quarter was $5.99 billion, up from $3.07 billion a year earlier. Sales increased 83% to $24.7 billion.
The iPhone and iPad 2 are responsible for the blockbuster numbers. Verizon (VZ) started selling the iPhone in February, helping Apple move 18.7 million phones in the quarter. (Analysts expected 16.3 million units for the quarter.)
After Apple introduced the iPad 2 on March 11, the company couldn't keep up with demand. It's ramping up production to launch the iPad 2 in 13 additional countries this month. COO Tim Cook said, "The iPad has the mother of all backlogs."
Intel also announced blockbuster earnings. The world's largest chipmaker announced first-quarter net income increased 29% to $3.16 billion from $2.44 billion a year ago. Sales jumped 25% to $12.8 billion. Sales of mobile devices including Apple's iPad are boosting demand for online services powered by Intel.
The company estimated current quarter revenue will be $12.8 billion, compared to analysts' estimate of $11.9 billion.
Intel stock jumped more than 6% on the news, and has soared over 13% since April 18th (7 days). It's now trading around 11 times earnings, which is still cheap for such a profitable business.
The dividend has been growing at nearly 23% a year. The business has maintained great margins for decades. It pumps out enormous amounts of free cash flow.
It reportedly owns 80% of the global semiconductor market. What total-return wouldn't want to own this "diamond" of a tech behemonth?
Well, how about the people who invested in smaller tech companies like NXP Semiconductors (NXPI). Take a look at their one-year stock price chart.
NXP Semiconductors N.V., through its subsidiary NXP B.V., provides mixed signal solutions and semiconductor components primarily in Japan, Europe, South Korea, Rest of Asia Pacific, and the Americas.
It offers small signal, power, and integrated discretes; and amplifiers, bipolar transistors, data converters, diodes, rectifiers, microcontrollers, sensors, and thyristors.
The company's products are used principally in automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting, and industrial applications.
It also develops audio and video multimedia software solutions for mobile phones. The company, formerly known as KASLION Acquisition B.V, was founded in 2006 and is headquartered in Eindhoven, the Netherlands.
Another investment "gem" whose stock performance has made Intel's stock look more like that of a good corporate "bond" has been Fortinet, Inc. (FTNT).
This is obviously not an "apples-to-apples" comparison with either INTC or AAPL, but these are company's who have so outperformed the aforementioned behemoths over the past 12 months that they glow in the dark.
Together with its subsidiaries, FTNT provides network security appliances and unified threat management (UTM) network security solutions to enterprises, service providers, and government entities worldwide.
The company's flagship UTM solution consists of FortiGate appliance products that offer a set of security and networking functions, including firewall, virtual private network, antivirus, intrusion prevention, web filtering, antispam, and wide area network acceleration.
Fortinet, Inc. sells its security solutions to various end-customers and industries, including telecommunications, government, financial services, retail, education, technology, healthcare, and manufacturing through its channel partners, such as distributors, government focused resellers, and systems integrator partners. The company was founded in 2000 and is headquartered in Sunnyvale, California.
FTNT has come a long way and it very richly valued (around 53 times next year's earnings), so be very careful with this one. Some think it's a takeover candidate that will be acquired by IBM (IBM) or another titan such as Microsoft (MSFT).
Time will tell, but that possibility is partially baked into the price of FTNT already. It is just another example of a small-cap technology company that has out-performed the big name tech stars, one of which will eventually gobble up FTNT and NXPI.
These are frothy and exciting times, driven mainly by large institutional investors, hedge fund traders and high-frequency trading programs.
The Fed's F.O.M.C. meeting this week and the way they announce their decisions (the careful wording) on Wednesday (April 27th) will determine how much higher the stock and commodities markets can climb.
The bottom line is that there are many reasons to be cautious right now. That being said the days of opportunity, takeovers, insider buying and upside potential are still with us ... at least for the moment.
Disclosure: I have positions in INTC, NXPI, MSFT, GG, AXU, HL and FTNT. I'm considering the purchase (an initial position) of shares of AEM and AG within the next 72 hours.