Stocks continue to fall as investors focus on the risk that the U.S. government won’t be able to pay its bills after hitting its borrowing limit this week.
Stocks surged to an all-time high Sept. 18, after the Federal Reserve unexpectedly kept its bond-buying program intact, but the market stalled last week amid fears of the looming budget and debt-ceiling crises.
Bond yields have dropped sharply since the Fed’s decision to maintain its $85-billion-per-month monetary stimulus. Rate-sensitive utility stocks have performed nicely since the decision, while financials and cyclical stocks have underperformed.
Stocks are no longer cheap. Improved earnings growth is essential to fuel any meaningful gains, and investors must regain confidence in the government.
Two Town Crier “50” stocks scored headlines last week.
• Applied Materials Inc. (AMAT; $17.63) reported Sept. 24 that it plans to purchase rival Tokyo Electron Ltd. in an all-stock transaction valued at $9 billion.
The merger will produce a combined capitalization of approximately $29 billion. The move is intended to accelerate the development of equipment for production of semiconductors, solar panels and flat-panel display technology.
“We are creating a global innovator in precision materials engineering and patterning that provides our new company with significant opportunities to solve our customers’ problems better, faster and at a lower cost,” said Gary Dickerson, CEO of Applied Materials, the largest manufacturer of chip-making equipment.
As the shift from personal computers to mobile devices like smartphones and tablets continues, the parts that hardware developers need are changing. Analysts believe that the merger will give both companies access to markets and research not previously available.
The Santa Clara-based Applied Materials acquired telecommunications equipment maker Varian Semiconductor Equipment Associates Inc. in 2011. With the latest acquisition, both Applied Materials and Tokyo Electron look to expand their global market share.
The merging of the two companies aims to create “a global innovator” in semiconductor and display manufacturing technology, according to an Applied Materials press release.
“This combination ... brings together complementary leading technologies and products to create an expanded set of capabilities in precision materials engineering and patterning that are strategically important for customers,” the release stated.
• Agilent Technologies Inc. (A; $51.28), maker of scientific-testing equipment, has long straddled the divide between health care and technology. The Santa Clara-based company last week announced plans to split into two publicly traded companies. While it may be nearly a year before the split takes effect, investors cheered the news.
One company – devoted to life sciences, diagnostics and applied markets – will retain the Agilent name, and the other yet-to-be-named enterprise will comprise Agilent’s portfolio of electronic-measurement products.
“Agilent has evolved into two distinct investment and business opportunities, and we are creating two separate and strategically focused enterprises to allow each to maximize its growth and success,” said Bill Sullivan, Agilent president and CEO.
After the announcement, Agilent stock rose 6 percent, and ISI Group issued an upgrade from buy to strong buy.