Good News or Bad News?

Is the following good news for MXIM investors? I don’t think so. Read on if you want to understand why.

What to do when the news is like this?

One of the advantages of my Seeking Alpha account are the email notifications I receive about positions in my various “portfolios.” Yesterday I saw a notification regarding ADI’s plan to acquire MXIM. I owned shares of MXIM since 2017 but this morning I sold my shares pre-market. There are good reasons to do this.

A Bit of Perspective

I purchased my first 100 MXIM shares in October 2017, 100 more in November 2017 and the final 100 in May of 2018. I liked MXIM because of the dividend growth and their industry. During the time I owned the shares I received eleven dividend payments totaling $1,410. The profit from my sale this morning was $6,439, so my total profit from MXIM has been $7,849. Because my original investment was $16,345.95, I made a total profit of about 48% in less than three years.

Buy quality companies, but don’t be afraid to sell them and reinvest elsewhere. Always remember that the profits you get in dividends are dollars you can use or reinvest elsewhere. That makes the profit potential even greater if you are wise with your incoming dividends.

When a company is being acquired there are far too many unknowns. Will the deal close? If not, the share prices are likely to drop. Will the shares of the acquiring company drop in value before the deal closes? Who knows? In other words, even though there may be some long-range benefits and synergies from the combined company, in most cases it pays to be skeptical.

Will I buy Analog Devices (ADI)?

One decision I might make with the $22,784 I received from selling my MXIM shares is to buy shares of ADI. That might sound strange. I could have received 0.630 shares of ADI if I had held onto my MXIM shares. ADI is a good company with growing dividends. But perhaps I can buy ADI on a dip. Furthermore, I might only buy 100 shares of ADI, instead of receiving the 189 shares the deal as presented would have given me. ADI shares are, as I type this, down from Friday’s closing price. Patience is a virtue. (UPDATE: At market close the MXIM’s share price was $69.29, so my sell price of $75.95 was a good thing.)

The Trade Process Pre-Market

The following images show the process I used to sell my MXIM shares pre-market using Fidelity’s application “Active Trader Pro.” The first shows the bid-ask prices with relatively low volume. The next shows my holdings and their value at the Friday closing price. The third image shows I entered my order to sell 300 shares with a sell limit price of $75.95. This image also shows my average cost and the estimated gain I would receive if someone bought my shares. The fourth and final screen shows my profit, not including the dividends I mentioned in “A Bit of Perspective” above.

As you can see I entered this order pre-market open. That is what TIF Day+ means. I wanted $75.95 for my 300 shares.
My cost basis is shown as is the closing price on July 10, 2020. Note the BID/ASK prices!
My order was pending, but it didn’t take long for someone to be tempted.
My profit without dividends was $6,439 in less than 3 years. 39% is a good three-year return.

Profits Unlimited

As it turns out, this morning I also received an update from Paul Mampilly (Profits Unlimited) recommending that his subscribers sell their positions in ADI and MXIM. I agree with his reasoning and conclusion. I sold my shares before I saw his recommendation.

MXIM or ADI? For me the answer is like Mr. Mampilly’s.