Many of you would have heard a very frequent term (“Strategic Alternatives”) where a company to divest it’s assets is often looking for a partner or an acquirer. If you skip the due diligence and purely go by stock analyst recommendations, you will lose money rather than making a quick buck.
In the following examples we look at stock price patterns to make sense of opportunities in this space when you hear “strategic Alternatives” often repeated in Quarterly or Annual Business updates by firms.
Following is our first chart GlobeImmune (Ticker: GBIM) which is a clinical-stage public biopharmaceutical company that develops therapeutic vaccines to treat cancer and infectious diseases. Company boasts a strong pipeline and even has tie-ups’ with Clegene in the cancer area, and has appointed Cantor Fitzgerald & Co. as a financial advisor to sell it’s assets.
Source: GBIM Website
The stock price displayed tremendous volatility and there were times when the stock jumped as high as $ 3 per share in NASDAQ, currently it trades at 0.42 Cents per share in the OTC Market. As you can see below, this stock was a good stock for smart traders but most likely the retail investor lose money as they can never time the market and are locked in to register losses as trade switches to a short sell opportunity and all they do is to wait for the stock price to reach their cost basis for this stock, which in most cases becomes a loosing proposition.
So, on the contrast lets look at a winning strategy. We will study the chart of Medivation (Ticker: MDVN) which was acquired by Pfizer last year. Sanofi made multiple offers which were rejected by Medivation Board, however finally Pfizer closed the deal with a $ 81.50/share price tag which made the total deal valued at $ 14 Billion.
To conclude, as you can see it’s very important to identify the right stock for investment, it’s better to pick a company which is wanted by many versus a company which is distressed and looking at ways to sell itself. Again, don't risk your hard earned money and invest in a stock which is going up purely on rumors and will likely make you always anxious about your investment based on the volatility.