There are more than 300 takeover rumors every year. The stocks that were the subject of takeover rumors initially jump by an average 2.9% but lose 1.2% in the following month. The reason is simple. Only about 15% of takeover rumors are real and the remaining 85% are just speculation. Insider Monkey discussed a strategy that will return 22% annually by shorting takeover rumors.
In general it doesn’t make sense to blindly buy all the stocks that are subjects of takeover rumors. However, in certain cases buying these stocks in advance of takeover announcements may yield enormous returns. We believe imitating hedge funds may be one of the safer ways of playing takeover rumors. Compared with individual investors, hedge funds have access to better resources and they can assess the odds of takeover rumors more accurately. That’s why we compiled the list of stocks that were subjects of takeover rumors - and that hedge funds already have significant investments in. Here are 8 takeover rumors hedge funds are betting on:
- Abercrombie & Fitch (ANF): According to a March 11th article on TheStreet, ANF is a takeover target. “Wall Street has estimated that Abercrombie & Fitch could garner $60 a share, while other experts are predicting it could fetch as much as $75 a share.” TheStreet says. Ray Dalio’s Bridgewater and Lee Ainslie’s Maverick already have sizable positions in this stock.
- Agco Corp (AGCO): According to Barron’s Agco can be a takeover targer under right circumstances. The farm-machinery company is the third largest in the world and benefit from growth in emerging markets and increasing food prices. Jim Simons’ Renaissance has a $37 Million position in the stock.
- Akamai (AKAM): In early February Akamai missed its earnings estimates and projected lower for the rest of the year. Its stock price collapsed. “One of the interesting things to consider with regards to AKAM, however, is that as the share price falls, the company becomes a more attractive takeover target. Akamai has long been viewed as a potential acquisition target, and this chatter could very well pick up as the share price and company's valuation come down to more reasonable levels.” Benzinga speculated on the day of the earnings announcement. Andreas Halvorsen’s Viking Global had a $177 Million AKAM position at the end of December.
- Banner Corp (BANR): This is another takeover candidate according to Benzinga. “Over the past month, Banner Corporation saw its short interest decrease by 24%. This bank could be a takeover target according to some analysts.” Benzinga said. Tom Brown’s Second Curve has a relatively large position in BANR.
- CapitalSource Inc (CSE): CapitalSource has started looking for a buyer earlier this year, but potential buyers don’t seem to be very interested. Ray Dalio, Seth Klarman, and Mohnish Pabrai are among the hedge fund managers who are bullish about CapitalSource.
- EMC Corp (EMC): Rumors resurfaced earlier this month that CSCO is going to acquire EMC. Given that CSCO is struggling recently, there might be some truth behind these rumors. Bill Miller and Andreas Halvorsen are among the prominent investors with EMC holdings.
- Salesforce.com (CRM): Business Insider identified CRM as a takeover candidate. There are mixed feelings about the future prospects of CRM though. CRM is one of Jim Simons’ largest positions. CRM is also one of the 10 stocks Whitney Tilson is heavily short. CRM’s earnings per share has been growing at a 50+% over the preceding five year period, and it is expected to grow 25+% over the next five years.
- Power-One (PWER): The nuclear crisis certainly put the alternative energy stocks in the spotlight. Even before that Investopedia speculated that PWER may be acquired by GE (GE), Honeywell (HON), or Emerson Electric (EMR). Chase Coleman’s Tiger Global has a large PWER position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.