Corporate America is engineering mergers and spinoffs at a frantic pace right now — and I’ve got two more deals to report to you today.
First, the biggie: Semiconductor behemoth Intel (INTC). After scuttling negotiations earlier, Intel is buying Altera (ALTR) for $16.2 billion in cash. It’s a steep price, but the transaction catapults Intel into the field of programmable logic devices (PLDs).
As computing shifts more and more to the cloud, data centers — the buildings that house computer systems and related infrastructure to serve cloud clients — are growing by leaps and bounds. Data centers make extensive use of Altera’s PLDs to save on power consumption.
For 2016, Wall Street analysts aren’t expecting the Altera acquisition to add more than a couple of pennies to Intel’s earnings per share. However, we can afford to be patient.
This deal may be just what Intel needed in the long run to stay ahead of the curve in chip technology. Buy INTC on a pullback as its current yield is 2.9%.
Our spinoff du jour is Talen Energy (TLN). Talen was formed by combining the wholesale power-generating businesses of PPL Corp (PPL) and privately held Riverstone. The resulting entity will own and operate electricity plants (coal, natural gas and nuclear) principally located in the mid-Atlantic states and Texas.
We originally bought PPL for its generous cash payout. That thesis still applies, with PPL’s dividend rate ($1.49 per share annualized) working out to a current yield of 4.7%.
In fact, PPL now makes an even better investment than before, because it’s a safer company, focused exclusively on serving retail electric customers in Pennsylvania, Kentucky and the U.K. (Standard & Poor’s, recognizing this positive development, recently boosted PPL’s credit rating two notches). Income-seekers can continue to buy PPL.
The remaining question: What to do with the TLN shares you received in the spinoff? (Note that the total value of your post-spinoff PPL shares plus your TLN shares is approximately the same as your PPL shares before the spinoff.)
Talen is in a much more volatile business than PPL. When you generate electricity and peddle it wholesale to utilities, you subject yourself to huge price fluctuations.
Over the past few years, those fluctuations have had a definite downside bias. I don’t really expect a sustainable pickup in wholesale power prices until 2017.
On the other hand, relative to other independent power producers such as AES Corp (AES) and NRG Energy (NRG), TLN looks undervalued, trading at an enter
But I would sell on a run-up and will track TLN in the meantime.
Outside the arena of mergers and divestments, the Australian dollar has dropped sharply over the past two weeks, hammering the Lucky Country’s stocks in U.S. dollar terms. With the Aussie dollar bumping along near longer-term support in the 75-77 U.S. cents range, though, I sense a bargain-hunting opportunity for deep-value investors.
Westpac Banking (WBK), the only Aussie bank with a Big Board listing, is yielding an ample and reasonably safe 5.9%, well above most U.S. or European peers. Better yet, the dividend should remain exempt from Australian withholding tax as long as the payout continues to be covered out of WBK’s current profits.
WBK issues dividends semiannually. The record date for the latest dole was three weeks ago. So, you’ll have to wait another five months to qualify for the next payout. If you’re OK with that timetable, buy WBK stock.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
