BY Dennis Hobein:

Contributor, Stock Traders Daily

Real Time Trading Reports:  Included are detailed trading reports designed to help investors realize opportunities in these companies.  The reports are linked to the stock symbols in the article below.

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(La Jolla, CA) Over the past month, rumors have swirled that networking equipment manufacturer Brocade (Nasdaq: BRCD) may be an acquisition target for a large, global IT company looking to add devices such as storage area network switches and routers to its product portfolio. This possibility was brought to the forefront when the Wall Street Journal reported on October 5^th that BRCD had “quietly put itself up for sale.” Given the high level of consolidation that has been occurring throughout the IT sector this year, this certainly didn’t seem like a stretch. Just a few of the recent, larger deals that have taken place include Cisco’s (Nasdaq: CSCO) acquisition of Tanberg, Oracle’s (Nasdaq: ORCL) proposed takeover of Sun Microsystems (Nasdaq: JAVA), Dell’s (Nasdaq: DELL) buyout of Perot System’s, and EMC’s (NYSE: EMC) stake in VMWare (NYSE: VMW). However, as more and more small companies get scooped up, the number of potential suitors begins to evaporate as capital expenditure budgets fill-out.

H-P No Longer An Option

After the market closed last night, Hewlett-Packard (NYSE: HPQ) announced its intention to acquire 3Com (Nasdaq: COMS) for $7.90/share in cash. HPQ also raised its FY10 EPS and revenue guidance, so shares are likely to be strong today. For those interested in entering an HPQ trade, you will find our free trading report on this stock to be helpful. HPQ was also widely noted as a likely candidate to buy BRCD when speculation began circulating regarding it’s intention to sell itself  So, when the news broke last night about HPQ-COMS, the fall-out was decidedly negative for BRCD shareholders that hoped for a handsome buy-out premium. This effectively eliminates HPQ as an option given the size of the deal ($2.7 billion) and the fact that COMS is also a networking equipment provider. If BRCD is indeed shopping itself, this wasn’t the first setback for the company. Larry Ellison, ORCL’s CEO, wiped out the notion that it was an interested party last month. Besides, ORCL has its hands full with trying to get European Union approval for its JAVA take-out.

BRCD Shares Now Vulnerable

With an acquisition looking like it’s off the table, BRCD shares could be at risk of a sharp sell off. The stock was likely pricing in some premium based on the aforementioned rumors. On the positive side, BRCD’s recent financial results have been solid as it has topped the Street’s earnings expectations in each quarter so far this year, and revenue growth has been impressive, at 64% in Q2. Also, its valuation is reasonable with a P/E of about 15x. Looking at its daily chart, BRCD has support at the $9 level, with $8.25 the next area of support below that. For a more comprehensive trading strategy on BRCD, or any of the stocks mentioned in this report, we recommend reviewing our free trading reports first.