Investors would do well to remain skeptical when it comes to buying the stock of highly acquisitive companies. Especially the big acquisitions, despite all the rosy promises about synergies and growth, often turn out to be nothing more than money pits. The synergies are usually far less than expected and even when they do materialize, the interest expense from such debt-financed deals offsets them completely. It is enough to mention AT&T’s purchase of Time Warner or Bayer’s deal to acquire Monsanto to illustrate the point. Chemicals and specialty materials company Celanese is another example.
In 2022, Celanese acquired the Mobility & Materials business of DuPont for $11B, financing the purchase with borrowed money. As a result, the company’s debt load rose from $3B to over $13B and its interest expense more than quadrupled in 2022, before nearly doubling again in 2023 as the Fed raised rates. The DuPont deal added billions to Celanese’s total revenue, but little in terms of profitability. In the end, it was common shareholders who paid the price. The stock plunged 39% in 2022 and even 2023’s notable recovery was entirely erased by 2024’s 55% selloff, most of which came in a single week in November after the company’s disappointing Q3 earnings report.
As of this writing, Celanese stock is back to 2015 levels, showing how one stroke of the CEO’s pen can translate into a lost decade for investors. Now, let’s turn our attention to the Elliott Wave chart below and see if the recent crash fits into a recognizable pattern with predictive value.
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As a general rule, such long, fast and sharp moves usually stand for a third wave of an impulse pattern. In Celanese’s case, the post-Q3 earnings selloff fits in the position of wave 3 of C of a larger A-B-C zigzag correction, which had been in progress since January, 2022. It began with an impulsive decline in wave A from $176.50 to $86.70.
According to the theory, every impulse is followed by a three-wave correction in the other direction. And indeed, wave B took the shape of a deep a-b-c recovery up to $172.16, where the five sub-waves of wave ‘c’ are also visible. Wave B was a bull trap, however, because the complete 5-3 Elliott Wave cycle pointed to more weakness ahead.
Wave C is supposed to evolve into a five-wave impulse, as well, but waves 4 up and 5 down are still missing. This means that we can expect a recovery to the mid-$80s followed by a decline to the mid-$50s, before the entire A-B-C retracement is over and Celanese stock bulls can return.
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