Garmin Will Recover When Tele Atlas Deal Is Done

Although Thursday was an abysmal day in general, I think Garmin (GRMN) deserves some special consideration at these levels. Following the news that their major source of map content, Navteq (NVT) was to be acquired, the stock took a nosedive and I posited that the stock was oversold. This was on Oct. 1. Following that post, the stock rose 15% within 4 weeks versus a flat S&P500 performance.

Following 3rd quarter earnings that beat street estimates, the stock is down appreciably again, this time due to its projected bid for Tele Atlas to fill its map-making void. Excluding the effect of foreign exchange rates, earnings climbed to 89 cents per share from 50 cents per share versus an 82 cent concensus. You'd wonder why the stock would react in such a manner. Merrill Lynch postulated that Garmin would ultimately have to increase its bid for Tele Atlas given a likely bidding war with Tom Tom.

Regardless, if Garmin ends up paying an extra several million, the stock will pop when the deal is done. It is the uncertainty that is depressing the shares, not the actual pain it will feel from the deal. This is no different than the enormous runup RIM (RIMM) saw when the patent lawsuit over its technology was finally settled. Although they payed a tremendous amount of money to settle a suit that some would argue was bogus, once that uncertainty was removed, a sigh of relief buoyed the stock.

Another recent example is the double digit increase in Vonage (VG) shares following their announcement on patent disputes. To add some additional upside potential, the Financial Times reported that there are some interested acquisitive tech giants, including Microsoft (MSFT), that may be eyeing Garmin given the current situation.

Disclosure: Still long Garmin. Sold half of initial position in September, but still holding.