15 Possible Takeover Candidates

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 |  Includes: CNO, CSE, CTV, DFS, GRA, GT, HBAN, HIG, IDCC, INCY, IQNT, SPY, STX, SYMC, VECO, WDC
by: Kapitall

Should you be getting ready for merger mania? Judging by the massive number of call options that were purchased in the days after the Intel-McAfee announcement, options traders seem to think so.

A Reuters article named Symantec (NASDAQ:SYMC), Akamai Technologies (NASDAQ:AKAM) and U.S. Steel (NYSE:X) as possible targets, citing unusual volumes of call options being bought.

We decided to do our own screen on the options market, based on the following criteria:

  • Companies with large amounts of cash: When one company buys another, it can use the cash held by the acquired company to help offset the cost of buying that same company. Companies with significant cash positions are therefore far more attractive to the potential acquirer. In our screen, we only focus on companies with Price / Cash ratios below 4, and Price / Free Cash Flow ratios below 10.
  • Low Insider Ownership: Because it's common for the target company's management to lose their jobs during a takeover, management will often put up a fight. Companies with low insider ownership are therefore far less likely to resist a takeover. We've only selected companies with inside ownership below 5%.
  • Profitability: In order to be an attractive takeover target, a company must be able to generate large profits relative to its size. In this screen we only focus on companies with projected EPS growth of 5% or more over the next 5 years.
  • Very Low Put/Call Ratio: All of the stocks in our screen had Put/Call ratios below 0.65, which indicates call open interest far exceed put open interest (options data sourced from Schaeffers)

It's worth pointing out that Symantec also showed up in our screen. Here's an overview of the companies that match our criteria.

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1. Incyte Corporation (NASDAQ:INCY): Biotechnology Industry. P/C ratio at 3.53, and P/FCF ratio at 8.12. Put/Call ratio at 0.22 (call open interest at 11,686 contracts, vs. put open interest at 2,547 contracts). 5-year EPS growth projected at 25%, with insiders owning 1.25% of the company.

2. Goodyear Tire & Rubber Co. (NASDAQ:GT): Rubber & Plastics Industry. P/C ratio at 1.42, and P/FCF ratio at 3.26. Put/Call ratio at 0.29 (call open interest at 62,822 contracts, vs. put open interest at 18,049 contracts). 5-year EPS growth projected at 21.75%, with insiders owning 0.43% of the company.

3. Neutral Tandem, Inc. (NASDAQ:TNDM): Wireless Communications Industry. P/C ratio at 2.14, and P/FCF ratio at 9.9. Put/Call ratio at 0.27 (call open interest at 10,454 contracts, vs. put open interest at 2,817 contracts). 5-year EPS growth projected at 17.6%, with insiders owning 3.35% of the company.

4. CNO Financial Group, Inc. (NYSE:CNO): Accident & Health Insurance Industry. P/C ratio at 3.68, and P/FCF ratio at 1.92. Put/Call ratio at 0.18 (call open interest at 32,457 contracts, vs. put open interest at 5,845 contracts). 5-year EPS growth projected at 17%, with insiders owning 1.73% of the company.

5. Veeco Instruments Inc. (NASDAQ:VECO): Semiconductor Equipment & Materials Industry. P/C ratio at 3.22, and P/FCF ratio at 9.02. Put/Call ratio at 0.48 (call open interest at 85,245 contracts, vs. put open interest at 40,762 contracts). 5-year EPS growth projected at 15.67%, with insiders owning 1.14% of the company.

6. InterDigital, Inc. (NASDAQ:IDCC): Wireless Communications Industry. P/C ratio at 2.41, and P/FCF ratio at 4.43. Put/Call ratio at 0.43 (call open interest at 19,700 contracts, vs. put open interest at 8,377 contracts). 5-year EPS growth projected at 15%, with insiders owning 1.57% of the company.

7. CapitalSource Inc. (NYSE:CSE): Credit Services Industry. P/C ratio at 2.24, and P/FCF ratio at 9.64. Put/Call ratio at 0.1 (call open interest at 11,444 contracts, vs. put open interest at 1,183 contracts). 5-year EPS growth projected at 13%, with insiders owning 1.99% of the company.

8. CommScope, Inc. (CTV): Communication Equipment Industry. P/C ratio at 3.25, and P/FCF ratio at 5.92. Put/Call ratio at 0.3 (call open interest at 15,947 contracts, vs. put open interest at 4,808 contracts). 5-year EPS growth projected at 12%, with insiders owning 1.08% of the company.

9. Hartford Financial Services Group Inc. (NYSE:HIG): Property & Casualty Insurance Industry. P/C ratio at 2.98, and P/FCF ratio at 4.51. Put/Call ratio at 0.54 (call open interest at 96,442 contracts, vs. put open interest at 52,022 contracts). 5-year EPS growth projected at 11.8%, with insiders owning 0.12% of the company.

10. Seagate Technology PLC (NASDAQ:STX): Data Storage Devices Industry. P/C ratio at 2.13, and P/FCF ratio at 4.14. Put/Call ratio at 0.47 (call open interest at 206,870 contracts, vs. put open interest at 97,320 contracts). 5-year EPS growth projected at 11.2%, with insiders owning 2.21% of the company.

11. W.R. Grace & Co. (NYSE:GRA): Specialty Chemicals Industry. P/C ratio at 2.21, and P/FCF ratio at 6.23. Put/Call ratio at 0.37 (call open interest at 11,021 contracts, vs. put open interest at 4,093 contracts). 5-year EPS growth projected at 10%, with insiders owning 1.02% of the company.

12. Western Digital Corp. (NASDAQ:WDC): Data Storage Devices Industry. P/C ratio at 2.07, and P/FCF ratio at 4.69. Put/Call ratio at 0.65 (call open interest at 73,698 contracts, vs. put open interest at 47,645 contracts). 5-year EPS growth projected at 9.8%, with insiders owning 0.19% of the company.

13. Symantec Corporation (SYMC): Security Software & Services Industry. P/C ratio at 3.98, and P/FCF ratio at 7.72. Put/Call ratio at 0.61 (call open interest at 161,444 contracts, vs. put open interest at 98,451 contracts). 5-year EPS growth projected at 9.46%, with insiders owning 0.3% of the company.

14. Huntington Bancshares Inc. (NASDAQ:HBAN): Regional Bank. P/C ratio at 3.43, and P/FCF ratio at 3.8. Put/Call ratio at 0.41 (call open interest at 35,660 contracts, vs. put open interest at 14,523 contracts). 5-year EPS growth projected at 6%, with insiders owning 0.7% of the company.

15. Discover Financial Services (NYSE:DFS): Credit Services Industry. P/C ratio at 0.75, and P/FCF ratio at 2.42. Put/Call ratio at 0.47 (call open interest at 14,582 contracts, vs. put open interest at 6,836 contracts). 5-year EPS growth projected at 5.67%, with insiders owning 0.33% of the company.

Disclosure: No positions