One of the great resources on the Web, in my opinion, is the Forbes column written by Ken Fisher. The CXO Advisory Group currently ranks Fisher No. 1 in its survey of over 35 media-based stock-market forecasters. He has an accuracy rate of 71% (Jim Cramer is at 47%).
Stock pickers will find a trenchant theme in his articles. As Fisher writes, “This is a great time to have part of your portfolio in the shares of takeover candidates.”
With the average earnings yield (inverse of the price-earnings multiple) considerably above 10-year U.S. treasury yields, there are incentives for private equity firms to launch leveraged buyouts of public companies. Income streams yielding 7% are waiting to be claimed by borrowing at an after-tax rate of 4%.
Companies have similar incentives to borrow and/or deploy their ample cash balances to take out rivals and other companies that will boost their bottom lines. They also have incentives to try and get their own stock up through buybacks so they don’t aren’t takeovers folder themselves.
If you want some takeover candidates in your portfolio, look for “cheap companies that lack controlling insiders.” Here is a list of the possibilities Fisher mentioned in his 2006 Forbes column (in chronological order, with price at date of recommendation). All remain in play except for Inco (acquired at nearly double Fisher’s price).
Converium Holdings $6 (NYSE:CHR)
Parker-Hannifin $72 (NYSE:PH)
H&R Block $24 (NYSE:HRB)
Principal Financial $49 (NYSE:PFG)
Bank of Ireland $72 (NYSE:IRE)
Tiffany $37 (NYSE:TIF)
Korn/Ferry International $21 (NYSE:KFY)
PerkinElmer $23 (NYSE:PKI)
Bausch & Lomb $68 (BOL)
Delhaize Group $71 (DEG)
Inco $49 (NYSE:N)
King Pharmaceuticals $18 (KG)
St. Paul Travelers $41 (STA)
ConAgra Foods $23 (NYSE:CAG)
National Grid $52 (NYSE:NGG)
Australia & New Zealand Banking $110 (ANZ)
Popular $18 (NASDAQ:BPOP)
Sodexho Alliance $47 (SDX)
First Horizon National $39 (NYSE:FHN)
Smithfield Foods $26 (NYSE:SFD)
Goodrich $46 (NYSE:GR)
Home Depot $38 (NYSE:HD)
Ciba Specialty Chemicals $31 (NASDAQ:CSB)