The top stocks to watch today (Friday, May 19) are also three of this morning's biggest early movers.
One stock is up nearly 20%, while another is down over 9% this morning. Merger and acquisition news is sending the first stock soaring, while earnings are moving the other two stocks today.
Top Stocks to Watch Today: Dynegy Inc. (NYSE: DYN)
Dynegy stock is up 19.8% to $8.70 in early morning trading after Vistra Energy Corp. (NYSE: VST) announced it was in talks to take the company over.
There are no details at the moment. The merger of the two energy producers would be a consolidation of the market in Texas, where both companies are located.
Dynegy emerged from Chapter 11 bankruptcy in December 2012, but the move did not solve the company's debt problems. Since March 2013, Dynegy's debt/equity ratio has been rising. It started out at 0.585 in March 2013 and is now 3.841. According to Investopedia, the upper threshold for the debt/equity ratio is 2.
The company is probably entertaining Vistra's buyout bid due to its increasing debt load. The buyout could help the company avoid another bankruptcy.
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Why DYN is a must-watch today: While a deal is far from official, keep an eye out for the official purchase price. Investors are clearly anticipating a buyout bid of at least $8.70, since that is how high they have bid up the stock price this morning.
Top Stocks to Watch Today: Foot Locker Inc. (NYSE: FL)
Foot Locker is tanking this morning following a disappointing earnings report. The retailer is down 9.2% to $64.00 per share.
The company's net income was down 6% compared to last year, coming in at $180 million, or $1.36 a share. This decline in profitability came despite a sales increase of 0.7% to $2 billion.
Both net income and revenue narrowly missed expectations. Analysts expected net income to be $1.38 per share and revenue to be $2.02 billion.
Today's dip is an excellent buying opportunity for those bullish on FL stock. The average price target from Wall Street analysts on FL stock is $82.95. From today's price of $64 per share, that's a potential gain of 29.6%.
Why FL is a must-watch today: While Foot Locker's sales growth is slow, it is still profitable. Money Morning views this as a good opportunity to buy FL stock.
Top Stocks to Watch Today: Alibaba Group Holding Ltd. (NYSE: BABA)
Alibaba stock is up 1.22% after announcing a huge revenue beat for the quarter.
Alibaba is often referred to as the Amazon.com Inc. (Nasdaq: AMZN) of China, because it's the biggest e-commerce company in the country. Alibaba grew revenue by 60% from last year to $5.6 billion. Analysts were only expecting $5.2 billion in revenue.
Earnings, however, were a slight miss despite growing 45%. The company posted EPS of $0.63 while analysts expected $0.65. The miss is largely due to higher than expected taxes. The company had an effective tax rate of 23%, well above the 14% last year.
Despite this narrow miss on earnings, Money Morning Chief Investment Strategist Keith Fitz-Gerald recommends Alibaba as a "Buy." Since he recommended the company in September 2014, it has risen nearly 30% to trade at $121.27 a share.
With the phenomenal earnings and revenue growth, the company has a price/earnings (P/E) ratio of 29.41. Baidu Inc. (Nasdaq: BIDU), a comparable company, has a P/E ratio of 33.3.
Why BABA is a must-watch today: Growing revenue by 60% when you are such a large company is a huge challenge. Despite the growth rate, Alibaba's P/E ratio is significantly lower than its competitors. This low P/E ratio coupled with high growth is why Money Morning is bullish on the stock.
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