Sirona Dental Systems Merges with DENTSPLY
This is an update to our model portfolio report, 21 Stocks for March 2016.
On rare occasions our theoretical model sometimes picks up stocks that are part of pending M&A actions. Today Sirona Dental Systems (NASDAQ:SIRO) closed a merger today, March 1, with DENTSPLY (NASDAQ:XRAY) to form DENTSPLY Sirona .
As a result of the merger, the long position in SIRO has been assumed to have been converted under the merger terms into a long position in XRAY.
For the first day of trading in March, the theoretical long models are up 2.35% versus a 2.39% gain in the S&P 500. The theoretical long/short models are down -0.24%.
If this is the start of another sharp rally to the S&P 500 level of 2100 or above, it is likely that the low-quality stocks in the short model portfolio will outperform the high-quality stocks in the long model.
This is because when the market anticipates an improvement in economic prospects, low-quality stocks tend to quickly discount these improved assumptions from depressed price levels that had previously assumed worsening economic prospects.
We avoid forecasting rallies and declines by simply assuming stock positions and even an entire portfolio moves to cash when price targets are reached. This seems to work well on average.
For more details, including tables of our updated price targets and returns, visit us at jstephencastellano.tumblr.com.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: There are limitations inherent in our theoretical model results, particularly with the fact that such results do not represent actual trading and they may not reflect the impact material economic and market factors might have had on our decision making if we were actually managing client money.