Investing in stocks with reasonable valuations, strong management teams, and solid business models always makes sense, but if you want to put some extraordinary potential gains in your portfolio, it's worthwhile to consider companies that could be takeover targets. A number of high-profile deals have occurred in 2011, and with many corporations holding large cash balances that earn next to nothing, it makes sense for buyouts to continue.
There are a few companies that might be potential acquisition targets for a company like General Electric (GE). This global giant has a AA-plus rating, which allows it to borrow money at very low rates. This would allow it to lower the interest expense considerably at some of these companies. It can also expand marketing with its extensive resources and distribution systems worldwide for any company it acquires.
With that in mind, I have researched a few names that fit the criteria for a possible takeover, and are therefore more likely to be looked at as a buyout target. Some of these names have been considered to be buyout targets by multiple sources or analysts in the past. These are solid companies that appear undervalued and likely to rise whether or not they are acquired. Here are some of the names worth looking at:
Genworth Financial, Inc. (GNW) has pulled back sharply and is trading at $6.14. Genworth provides a variety of insurance and financial products like annuities, long-term care, mortgage insurance, etc. These shares have a 52 week range of $4.80 and $14.77. The 50-day moving average is $5.95 and the 200-day moving average is $9.23, so these shares have been trending lower. GNW has earnings estimates at 45 cents per share for 2011, and $1.27 for 2012.
GNW investors are concerned about earnings and the impact over continued mortgage insurance losses. These shares could take a while to move, but are worth considering on further weakness. Genworth was a spin-off from General Electric just a few ago, at about $20 per share. Now, GE could buy the company for a mere fraction of that value, hold it for awhile and then spin it off again in a few years.
Mueller Water Products (MWA) is trading at $2.03. Mueller Water Products makes and markets water infrastructure, flow control, and piping component systems for use in water distribution and water treatment facilities. These shares have a 52 week range of $1.94 and $4.80. The 50-day moving average is $2.45 and the 200-day moving average is $3.27, so these shares are trading well below support levels.
Estimates for MWA are for a loss of 4 cents in 2011, and profits of 7 cents per share in 2012. This stock is oversold and appears due for a rebound soon. Any signs of life could spark a major round of short covering due to the high short interest. Because water infrastructure has a solid long-term future, MWA could be an interesting takeover target for a company like GE.
American Superconductor (AMSC) is trading at about $3.84. These shares have a 52-week range of $3.21 and $34.22. The 50-day moving average is $4.15 and the 200-day moving average is $10.48, so the shares are trading well below these key support levels. Book value is stated at $4.05 per share. This stock fell significantly when a major customer refused shipments, however this company has quality products and technology which should be in demand in the long run. This stock will probably remain weak for the rest of the year due to tax-loss selling. GE is in the wind energy business, and AMSC could be a strong fit for this division.
MEMC Electronic Materials (WFR) is trading at $3.98. MEMC is a maker of silicon wafers for semiconductor and solar use. These shares have a 52 week range of $3.92 and $15.04. The 50-day moving average is $5.37 and the 200-day moving average is $8.66. Estimates for WFR are about 41 cents per share in 2011 and 60 cents in 2012. These shares have dropped hard recently, because margins for the solar industry have been impacted by excess inventory. General Electric (GE) has made new investments into solar, and some believe it will continue to do so.
General Electric (GE) is trading at $14.92. GE is a global leader in a variety of industries including medical, industrial, finance, energy, aircraft engines, and more. These shares have a 52-week range of $14.02 and $21.65. The 50-day moving average is $15.90 and the 200-day moving average is $17.88, so these shares are trading well below support levels. Estimates for GE are at $1.37 in 2011, and $1.57 in 2012.
GE pays a dividend of 60 cents per share, which yields about 4.1%. Book value is stated at $11.79. GE stock has been weak and is trading close to 52-week lows. There is a strong chance it will hit new lows soon, especially if the crisis in Europe continues an if a global recession becomes more likely. However, none of that is likely to keep GE from making acquisitions if it benefits the long-term outlook for the company.
Data sourced from Yahoo Finance and Stockcharts.com.
Disclaimer: 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 only.
Disclosure: I am long MWA, GNW.