"We continue, nevertheless, to hope for an elephant-sized acquisition."

Warren Buffett

2019 Annual Shareholder Letter

The stock of the day is Southwest Airlines (LUV), which is surging on rumors Berkshire Hathaway is considering a bid.  The stock is responding and trading higher on a huge jump in volume.

Buffett has $112 billion burning a hole in his pocket, and this acquisition story isn’t so farfetched.  It’s in the right industry, and at the right price, with Southwest currently trading at $30.0 billion market cap.  

Other Berkshire acquisitions:

• 2015 Precision Castparts, which produces parts for airplane makers $37.2 billion
• 2010 Burlington Northern $36.0 billion

The company doesn’t have the loot Buffett always prefers, although industry consolidation has left it with few competitors.   I like this a lot.  I normally don’t advocate rumors, but this is a very compelling story that I think is worth owning.

By the way, even if this deal doesn’t happen, I think we could see a strong up-tick in take-overs.

Watch Tesla

All eyes are on Tesla (TSLA), which must satisfy the conversation of convertible bonds that expire tomorrow.  And yesterday, Elon Tusk promised news today at 5PM EST.

There is great speculation on whether the company has the $920 million due even after the company announced $3.7 billion in its fourth quarter shareholder letter:

"Sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019."

Interestingly, investors would normally want the company to payout cash rather than increase the float, but with a potential 25% of cash pile being paid in one shot, this could crimp the company’s ambitious global manufacturing plans.

So how will the stock react to all of this?  I wouldn’t be surprised to see a short squeeze, which wouldn’t be the first time the stock crushed its critics (see arrows).

• October 23, Musk tweets out changes in Model S & X interiors, urging would-be buyers to make their orders immediately.  The stock rallied 34 points on the day and a week later was $94.00 higher.
• August 2, the company posted earnings that missed by $0.14, but it gave better guidance.  The stock surge 16% on the day and 23% in a week.

Rest of Session

I’m cool with this market moving sideways, but make sure you reassess your big winners or those names that have begun to spin their wheels.  We closed an idea like that in the model portfolio for less than we hoped to make, but we feel good and have some fresh powder.