The Walgreen Company (WAG) agreed to buy Internet retailer Drugstore.com (DSCM) for $3.80 per share in cash. The deal was valued at about $409 million for Drugstore.com. These shares surged, more than doubling on the news from about $1.79 per share on March 23, 2011, and closed at $3.89 on Friday, March 25, 2011. As this deal shows, investing in small cap stocks with reasonable valuations, and solid business models can result in another company acquiring them outright, and huge potential gains for shareholders. You can read more about the deal here.
With many companies holding huge amounts of cash on balance sheets and interest rates still near record lows, it is likely that more companies will be acquired in 2011. With that in mind, I have researched a few names that fit the criteria discussed above, and are therefore more likely to be looked at as a buyout target. Some of these names are considered buyout targets by multiple sources or analysts. These are solid companies that appear undervalued and are likely to rise whether or not they are acquired. Here are some of the names worth looking at:
THQ Inc., (THQI) shares are trading at $4.82. THQI is a leading video game company. It reported earnings that disappointed the market and shares dropped from about $5.60 to current levels. The 50 day moving average is about $5.49 and the 200 day moving average is about $4.82. Earnings estimates for THQI are for a loss of 29 cents per share in 2011 and profit of about 30 cents for 2012.
Why THQI could be an attractive target: THQI stock has a book value of $3.67 per share and the shares have dropped to what might be bargain levels for the long term. The low share price could appeal to a number of major gaming companies, some of which have plenty of cash sitting on their balance sheets. THQI recently announced that it's "Homefront" video game has sold more than one million units so far. This game has received mixed reviews and that is partly responsible for the stock falling.
FXCM, Inc., (FXCM) shares are trading at $11.61. FXCM is an investment brokerage company specializing in foreign currency exchange. The 50 day moving average is $12.82 and the 200 day moving average is unavailable since this company went public recently. Earnings estimates for FXCM are about $1.02 per share in 2011 and $1.01 for 2012 so the PE ratio is about 11. FXCM pays a dividend of 24 cents per share, which is equivalent to a 1.9% yield.
Why FXCM could be an attractive target: These shares are trading at a discount to other investment brokerage companies in terms of PE ratio/valuation. By comparison, Charles Schwab (SCHW) is trading for about 20 times earnings, which are estimated at 82 cents for 2011, and the dividend is lower than FXCM's dividend yield. Also, FXCM shares have fallen from about $15 since the beginning of this year, which might be an opportunity to buy at a very attractive price. Schwab (SCHW) just announced it would acquire Options Express (OXPS) for about $1 billion, so we know this sector could be ripe for further activity.
Force Protection (FRPT) shares are trading at $4.90. This defense contractor is based in South Carolina. The 50 day moving average is about $5.29 and the 200 day moving average is about $4.91. Earnings estimates are about 37 cents for 2011 and 44 cents for 2012. This gives FRPT shares a PE ratio of only about 12.5 times earnings. This maker of armored vehicles has a very strong balance sheet with about $150 million in cash.
Why Force Protection could be an attractive target: Force Protection could be an interesting target for a major defense contractor, many of whom have substantial cash balances. According to Yahoo Finance, FRPT has about $150 million in cash on the balance sheet and a market cap of about $346 million. This substantial cash balance and lack of debt would make FRPT easy to acquire. Like Drugstore.com, Force Protection has been a rumored takeover target for a long time, one of these days it just might happen.
Smart Balance (SMBL) shares are trading at $4.49. Smart Balance is maker of specialty food products. The 50 day moving average is $4.20 and the 200 day moving average is $4.01. Earnings estimates for SMBL are just 19 cents per share in 2011 and 27 cents for 2012.
Why Smart Balance could be an attractive target: Smart Balance looks undervalued if you consider the book value is $5.23. Smart Balance has had buyout rumors in the past. The belief is that a large food company could squeeze a lot of expenses out of this company since it is rather small, as well as expand the brand and develop more products.
Why GT Solar could be an attractive target: SOLR might be an interesting target for a major company, [perhaps Applied Materials (AMAT) or MEMC (WFR)], many of whom have substantial cash balances. The solar industry has seen growth in 2010 and the future looks bright especially after the crisis in Japan is raising serious doubts about nuclear power.
Hanwha SolarOne Company (HSOL) shares are trading at $7.54. Hanwha SolarOne is a leading maker of wafers and solar modules and is based in China. The 50 day moving average is about $8.47 and the 200 day moving average is $9.47. Earnings estimates for HSOL are expected to be $1.32 for 2011 and $1.34 for 2012. This stock looks cheap and is trading below the book value, which is stated at $10.70.
Why Hanwha SolarOne could be an attractive target: HSOL might be an interesting target because it already has found an interested buyer. This company used to be called Solarfun Power Holdings Co., but recently changed its name to Hanwha SolarOne after Hanwha Chemical of Korea bought a 49.9% stake in this company last year. Some believe it will eventually buy the remaining 51.1% of the company one day.
Synovus Financial Corp. (SNV) shares are trading at $2.47. Synovus is a regional bank located in Georgia. The 50 day moving average is about $2.66 and the 200 day moving average is about $2.47. Earnings estimates are a loss of 22 cents for 2011 and a profit of 18 cents for 2012. This gives SNV shares a PE ratio of about 13 times forward earnings. The dividend is 4 cents per share per year, which is a yield of about 1.6%.
Why Synovus could be an attractive target: SNV might be an interesting target for a major bank looking to expand in this region. This company has been considered to be a buyout target by many and regional banks continue to see a wave of buyout deals. See: "Is Synovus About to be Swallowed?"
Disclaimer: The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.