Takeover Talk to Bring Investors Back to Market?

Jaded retail investors looking for signs they could reenter the market may finally be getting it, Cramer said Wednesday. After the “flash crash,” the proliferation of high-frequency traders and the overall commoditization of stocks, the return of takeover speculation just might offer them the confidence they need.

Those whispers are out there, Cramer said. He heard talk of Arcelor Mittal’s potential bid for US Steel . He even heard a price: $60 a share.

And that builds on top of what has already been an active year for merger activity. According to Bank of America Merrill Lynch, 2010 has outpaced last year with four months left to go. Just this week saw BHP Billiton’s bid for Potash, as well as a number of smaller deals. Onex is buying ResCare, FLIR Systems is picking up ICX Technologies, Dell is aquiring 3Par and IBM’s paying up for Unica.

When the average investor sees these deals happening, he gives the market a second look. He considers dumping that exchange-traded fund he’s been holding and buying individual stocks instead. Because if BHP is willing to shell out big bucks for Potash, he thinks to himself, then maybe the market isn’t all that expensive.

“You get takeovers,” Cramer said, “it changes the psychology of the market.”

Cramer thinks we could repeat a pattern seen after the crash of 1987. Once companies felt confident that the worst was over, they started making bid after bid after bid. Soon enough, the rest of the investing public followed their lead, embracing the market.

His proof? The 52-week high list. A good percentage of the companies on that list are takeover speculations: Hasbro , a potential private-equity takeout; Praxair , which looks like takeover target Airgas ; eye-care company Cooper , very similar to Alcon , which is being bought by Novartis ; and Polypore , which Cramer likened to Millipore, another company acquired last month for a huge premium.

So as much as this market is hated—the latest Investors Intelligence poll was especially negative—Cramer thinks that hatred is misplaced. Not that the S&P 500 is set to rally by any means, but given these deals and this trend in takeovers?

“I think the sellers and the negativists,” Cramer said, “will be proven wrong.”

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