This week manager Leif Eriksen added Western Digital Corp (NYSE:WDC) to his portfolio. In order to understand this decision fully, it’s important to consider Eriksen’s overall approach to choosing investments for his portfolio.
Eriksen practices a fundamental approach in his portfolio. That means he looks at the financial health of a company as well as its management. Additionally, and this is especially important when looking at the WDC addition this week, he looks at any competitive advantage the company may have in the market.
The technology sector is always moving ahead and it can be difficult to figure out whether the company you are researching has a technological addition that is going to be adopted by the marketplace, ignored, or surpassed by another company’s development prowess. This week, Western Digital introduced a live, HD media player that allows consumers to watch Netflix and YouTube videos, listen to Pandora and Live365, access major broadcast and other podcasts, and view Flickr streams on their televisions with a simple media playing device called WD TV®. Easier to use and navigate than a laptop or other computer, it is likely to enjoy more mainstream adoption across broader market segments than other tech gadgets. The best part about this product is that it is striking while the Internet media iron is hot. Unlike earlier devices meant to make Web browsing and streaming video easier on technophobes, the WD TV® is being released at a point when entertainment has never been so easy to access online.
On the heels of the Comtech Telecommunications Corp (NASDAQ:CMTL) announcement of a possible acquisition of CPI International Inc (NASDAQ:CPII), model manager Atlas MergerArb bought shares of CPII. The Atlas MergerArb portfolio focuses on U.S. companies that are prime candidates for a takeover or for whom takeovers have already been announced. He screens the company’s liquidity as well as share price in order to determine whether or not it is a good fit for his portfolio.
The Comtech/ CPI International deal is said to provide CPII shareholders with $9.00 in cash per share of CPII stock they hold along with a fractional share of CMTL for every whole CPII share. The amount of the fractional share is supposed to depend on the closing price of CMTL during a defined period of time but will not be more than 0.2382 or less than 0.2132 shares. Attorneys Bull & Lifshitz, LLP are currently looking into the deal to make sure that the cash and fractional shares are of a reasonable value and fair to shareholders. CPII’s earnings per share and price to sales ratio are relatively low, so the acquisition by CMTL could be beneficial to investors. However, to really gauge the value, investors must consider the price of both CPII and CMTL compared to the price per share and fractional shares they would receive after the merger and the potential future earnings and growth of the company. It is possible, if the timing of buying and acquisition are just right, that this change could set the stage for arbitrage.
