NewsWire: You want to invest in growth…
From the Stansberry NewsWire team:
We continue to see reasons to highlight the opportunities domestically. Yesterday, semiconductor developer Broadcom (AVGO) announced plans to acquire corporate software maker CA Technologies (CA) for $18.9 billion. The deal was all cash. This was a move in a different direction for Broadcom… And investors were surprised.
However, the deal highlights U.S. growth prospects. CA receives 67% of their revenues from the U.S. Another 21% comes from Europe, while the remainder comes from the rest of the world.
But CA has been a serial underperformer. Many on Wall Street view this name as a second-or third-tier player. CA’s customer base is large enterprises. Their focus is to develop applications for cloud and mobile computing.
Analysts questioned this move by Broadcom, despite a solid track record by the company’s CEO, Hock Tan, when it comes to acquisitions. They wondered why Broadcom was branching out in such a different direction.
The answer is value and growth.
Broadcom tried to purchase Qualcomm (QCOM), an attempt that was highly publicized and denied. The company is looking for increased exposure to the best-performing major economy, and data out of Europe and China are underperforming that of the U.S. One need look no further than the dollar for evidence… The currency is near a 52-week high.
In CA, Broadcom sees an opportunity. The company’s revenue has languished for the last few years. Free Cash Flow has been stagnant as well. But the company is not overly burdened with debt. Their cash levels are on the rise. Tan sees an opportunity to pick-off low hanging fruit.
Supporting this case was commentary yesterday from Federal Reserve chair Jerome Powell. Powell was conducting an interview with American Public Media’s Marketplace and spoke on the economy. He thinks it’s in a good place. He stated the recent tax cuts and spending should be enough to support the economy for the next few years. He believes the Fed’s inflation target has yet to be fully achieved, and the U.S. labor market is strong by any measure.
Powell is like a mechanic looking at your car’s engine… I don’t know about you, but I can look at my engine and that’s about it. If it exploded and stopped working, I could tell you there’s a problem. Otherwise, working equals fine.
A mechanic has a better understanding of what it’s supposed to look and sound like. He can tell you if something’s wrong. Powell is telling us that the country’s “engine” is running well, based on his experience as a financial “mechanic.”
These examples should continue to highlight the fundamental strength of the U.S. economy. They should help to provide underlying support for the stock market and demonstrate why investors want to have their money invested here. Expect these trends to continue to support the S&P 500 Index, the Dow, the Nasdaq, and the Russell 2000.