Microsoft’s Yahoo Bid Should Boost Google Valuation

Includes: AABA, GOOG, MSFT
by: Wall Street Strategies

Microsoft (NASDAQ:MSFT), one of the smartest companies on the planet, is willing to pay a 62% premium for a company that has heretofore been considered an also-ran. That's a buy signal. While there are obviously synergies, and this deal has been in the rumor mill for years, it bodes well for the market in general. Stocks are cheap, and the recovery period will bring incredible opportunities. I suspect there will be more consolidations across all industries. Moreover, recent deals have involved premium offers that critics call excessive. Yet, Rupert Murdoch, Ken Lewis, and now Steve Ballmer, feel it's worth paying extra even for broken brands to build for the future. There is a moral to this story that may be lost on the stock market which swoons at any misstep or "weak" quarter.

Investors have to grapple with darling Google (NASDAQ:GOOG) getting rocked in the after market after posting results that weren't spectacular enough (see conference call transcript). It didn't matter that some weakness was already built into the share price as the stock made the same knee-jerk move as Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN). (I think it would be crazy to sell the stock at a loss. In fact, I believe by the end of the year it will be well over $600.0 a share.) The great (or odd) thing about the market now is the old darlings are being swapped for the also-rans so fast it's making my head spin. It's like dumping a brand new X-Box 360 for one of those old Duncan yo-yos.

I think the reaction to Google was harsh, but became even harsher with the news of Microsoft and Yahoo (YHOO) hooking up. I wouldn't sell the stock in this weakness. One thing about the deal announced Friday morning is the premium Microsoft has offered Yahoo, a 65% increase from Thursday's close, suggest Google could actually be worth a billion dollars. Google shares will be under pressure because its earnings came up short of the consensus and now because its two key rivals are getting together.

The share prices of businesses that have soaked up enough gamma-rays to wipe out an entire state are rising like the Incredible Hulk instead. Companies we were told were on the verge of bankruptcy have posted two week gains that must have crushed more than a few shorts.

Retailers, homebuilders, and many financials have climbed so far off their bottoms the gains would make 99% of money managers envious.

Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies ( providing information to over 30,000 subscribers, in more than 60 countries as well as several of the largest bank/brokerage firms. Charles is a regular contributor to the Fox Business and Fox News Networks.

Disclosure: none