Some investors say they already see signs of irrationality. David Einhorn of the hedge fund Greenlight Capital recently observed that some companies he is betting against — or selling short, in Wall Street parlance — have become the targets of takeovers, even though, in his view, they have significant weaknesses. "Companies we are short often have serious problems, of which the boards and management are probably aware," he wrote in a recent letter to investors in his fund. "This makes them more eager than usual to sell at any sort of premium."
Even so, analysts say that several of the big deals done this year make sense. Comcast's pending $45 billion acquisition of Time Warner Cable, for instance, offers a way for Comcast to gain a truly national presence, including in major cities like New York. And while Comcast's stock slumped after the deal was announced, suggesting shareholders were unnerved by the merger, it has since mostly recovered. In a sign that investors still have faith in this year's deal wave, shares of companies planning acquisitions have in general risen after their plans were made public, according to data from Bank of America Merrill Lynch. (Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.)
"This suggests investors are rewarding companies that are focusing on growth rather than returning cash to shareholders," Ms. Subramanian, the strategist, said, referring to the increase in stock buybacks in recent years.
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