In my previous post on the Allied-Ares merger arbitrage opportunity, I introduced a topic which I realized I’ve never quite talked about here on The Curious Investor. As I intend this blog for both beginning investors and seasoned investors alike, here’s a run down on the concept of merger arbitrage.

What is arbitrage? Rigorously speaking, arbitrage is the practice of taking advantage of a price differential between two markets which allows the arbitrageur, or person taking advantage of the arbitrage, to obtain a risk-less profit.

Technically speaking, an arbitrage refers to a situation where the same asset sells for a different price in two markets. For example, a textbook in the UK selling for $20 and a textbook in the USA selling for $100. The arbitrageur would buy the UK textbook and simultaneously sell the USA textbook and pocket the $80 difference.

...

Black & Decker Corporation (BDK) reported third-quarter earnings of 91 cents per share, above the Zacks Consensus Estimate of 89 cents and in line with its recently-updated guidance. However, quarterly earnings declined 43% compared to the previous year.

Revenue in the quarter was down 23.0% year over year at $1.2 billion. This includes an unfavorable currency translation impact of 3%. Black & Decker was initially expecting a 27%-28% decline in sales. Though there wasn't any significant improvement in its end markets, the company said that the quarterly sales were better than expected due to early shipments of promotional items in the U.S. industrial power tools and accessories business. These shipments were previously expected in the fourth quarter.

The company witnessed sales declines in all three segments. The Power Tools and Accessories segment posted a 21% decline in sales due to lower construction activity, weak demand for discretionary items and discontinuation

...

Weak global economic conditions and a downgrade of Well Fargo by prominent banking analyst Richard Bove spooked investors even as Morgan Stanley and Yahoo reported better-than-expected earnings.  The Dow Jones industrial average slipped below the 10,000 level yesterday as markets pulled back in the final hour of trading.

Bove of Rochdale Securities said earnings at Well Fargo (NYSE:WFC) were helped by mortgage-servicing fees rather than improving business trends, and trimmed his rating on the bank to “sell" from “hold."  However, Well Fargo and Morgan Stanley (NYSE:MS), which reported its first quarterly profit in a year, were behind the market’s strength earlier in the session.  Bove also cited accelerating loan losses at the firm for the downgrade.  After Bove’s cut, FBR slashed its rating on the firm to "underperform," questioning Well Fargo's earnings quality.

The Dow Jones industrial average fell below the psychologically important 10,000 level, declining 92.12 points, or

...

Although investors appeared hesitant and positioned themselves ahead of corporate earnings reports, the Dow Jones industrial average inched closer to the 10,000-level before some afternoon weariness saw indexes sinking sharply.  At the end of the session that was characterized by slow trading, the Dow managed to notch up some gains to remain in contention for the 10,000 mark – a level it last breached nearly a fortnight after Lehman’s fateful collapse in September 2008. 

The Dow Jones industrial average, which rose as high as 9931.82 points in the morning, gained 20 points to close at 9885.80.  The broad S&P 500 index rose 4.70 points, or 0.44%, to close at 1,076.19 and the tech-heavy Nasdaq ended the day little changed.  Bond markets were closed for the Columbus Day holiday.  On the New York Stock Exchange, 16 stocks were higher in price for every 14 that fell.

Eight of the ten

...

For Immediate Release

Chicago, IL – August 27, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: D.R. Horton (DHI), Ryland (RYL), Weyerhaeuser (WY), Louisiana Pacific (LPX) and Black & Decker (BDK).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Wednesday’s Analyst Blog:

New Home Sales: Very Good News

We are now almost down to a normal months supply, which is around six months, although during the boom years it was consistently around four months. Homebuilders like D.R. Horton (DHI) and Ryland (RYL) will be able to pick up

...

Raise High the Roofbeam, Carpenter! More good news on the housing front: new home sales jumped 9.6% in July to a seasonally adjusted annual rate of 433,000. In addition, June sales were revised up from 384,000 to 395,000. The jump in sales brought down inventories to 271,000 from 280,000 in June. This brought the months supply metric down to 7.5 months, a full month less than in June, and well below the 10.1 months of a year ago, when inventories stood at 419,000. That is a 35.4% year-over-year drop, far exceeding the 13.4% decline in sales from a year ago. We are now almost down to a normal months supply, which is around six months, although during the boom years it was consistently around four months. Homebuilders like D.R. Horton (DHI) and Ryland (RYL) will be able to pick up the pace of housing ...

When you invest in a stock, one of the best things you can see is analysts raising their expectations about what the company is going to earn for the current fiscal year. There are several ways of measuring this, but the following is a list of the companies with the biggest increases in their consensus earnings expectations for this year over the last month.

To make the list, a company had to have a current mean (average) estimate of over 50 cents, be a member of the S&P 500 and have at least three estimates for this year. The 50-cent restriction was put in to prevent small dollar changes that are huge percentage moves from dominating the list (going from a penny expected to a nickel). Having 3 or more estimates also helps insure it was not a fluke. The S&P 500 restriction was put in to make sure we

...

Believe it or not, but based on the classic Wall Street definitions, we’re in a new bull market. As of last Friday, all three major market indices recovered more than 20% from their March 9 lows.

Of course, we’ve been here before. Or as Yogi Berra liked to say, “It’s like déjà vu all over again.”

Recall, back in November of 2008 the markets began an impressive run-up, hitting the 20% milestone, too. Then all hell broke loose.

As a result, not every market observer, myself included, is completely convinced by the recent move. But I will say this - seven notable differences exist between then and now, leading me to believe this very well could be the start of a new bull market.

There’s hope for housing.

On Tuesday CNBC did a feature story on home sales in foreclosure central - California. In one suburb outside Stockton, where one out of every 67 homeowners

...

Monday:Economic Leading Indicators (-0.3%)Earnings Eaton (ETN), Halliburton (HAL), Mattel (MAT), American Express (AXP), Everest (RE), Hexcel (HXL), Logitech (LOGI), Netflix (NFLX), SanDisk (SNDK), Texas Instruments (TXN)Tuesday:Economic NAEarnings 3M (MMM), Caterpillar (CAT), Biogen (BIIB), BlackRock (BLK), Coach (COH), Fifth Third (FITB), M&T Bank (MTB), OptionsXpress (OXPS), US Banc (USB), Stanley (SWK), Broadcom (BRCM), CH Robinson (CHRW), Cree (CREE), Cerner (CERN), E*Trade (ETFC), Qlogic (QLGC), Sigma Aldrich (SIAL), VMware (VMW), XL Cap (XL), Yahoo (YHOO), Tupperware (TUP)Wednesday:Economic Weekly CrudeEarnings Air Prod (APD), Alleghany (ATI), AT&T (T), Boeing (BA), Conoco (COP), EMC (EMC), CNX (CNX), Genzyme (GENZ), McDonalds (MCD), Merck (MRK), WellPoint (WLP), Allstate (ALL), Amazon (AMZN), Amgen (AMGN), Baidu (BIDU), Chipotle (CMG), Citrix (CTXS), Core Labs (CLB), Lam R (LRCX), Nutrisystem (NTRI), Pulte (PHM), Terex (TEX), Ryland (RYL), Seagate (STX)Thursday:Economic Weekly ClaimsEarnings Altria (MO), Bunge ...