When the economy sours and the business outlook drops, some companies look for an opportunity to increase their business with strategic acquisitions. Those companies can increase their industry dominance and become stronger over time, and shares will likely rally as the economy does.
As long as such deals pass regulatory muster, large companies that buy up other companies to grow through acquisition can likely see further growth in the years ahead.
One company making long-term strategic moves now is Oracle (ORCL). The database giant has received approval from EU regulators to buy Cerner, a healthcare information systems provider. That will make the company’s largest acquisition ever, but Oracle is confident it will add to the bottom line in 2023.
Shares of Oracle are down 10 percent in the past year, and may dip a bit further given the large acquisition. But the company is dominant in the database space, and shares trade at just 13 times forward earnings.
Action to take: Investors may like shares for the long haul. The stock also pays a dividend of 1.8 percent at current prices.
For traders, the December $85 calls, last going for about $2.20, should offer mid-to-high double-digit returns in the coming months. The strike date should be far enough away for the deal to close and for shares to rally.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.