by Michael Williams
The difficult economy and constant volatility on Wall Street have put a considerable amount of pressure on a number of companies. Takeovers and failures have littered the business landscape, while other firms have looked to buyouts as an alternative. Many analysts expect this year to have its share of activity, and investors are smart to pay attention. Five of the top takeover candidates for 2012 are Cloud Peak Energy Inc (CLD), Radioshack Corp (RSH), GameStop Corp (GME), Clearwire Corp (CLWR) and Nokia Corp (NOK).
Cloud Peak Energy
It’s not uncommon to hear about potential buyouts in the energy sector. What is unusual is to find a company that looks as tempting as Cloud Peak Energy. On the radar of a number of analysts, CLD is a coal mining company that operates in the United States’ Powder River Basin. We noted a potential Cloud Peak buyout last year, and, if anything, the company has only gotten more enticing. With its market cap of 1.19 billion, the company’s $19.80 per share prices has it in the middle of its 52-week range (15.91 – 24.69) while it enjoys a 1-year target of 28.36.
While Cloud Peak’s metrics look quite strong, it is cash that could make this company very appealing to competitors like Peabody Energy Corp (BTU) or Alpha Natural Resources Inc. (ANR). The company is sitting on a tangible book value of over $673 million. In addition, Cloud Peak has a levered free cash flow of over $210 million. While Alpha Natural Resources may hesitate due to its May, 2011 purchase of Massey Energy, (MEE) a move by ANR might come before Cloud Peak stock can make its anticipated 30% climb in share price.
With over 90 years in the electronics business, Radioshack is a highly respected brand that has a solid business model. With a market cap of just over $976 million, the company has a strong PEG of 7.97 and last year it posted a 0.50 dividend and a 5.20% yield. The company has managed to stay relevant even while competing against the likes of Wal-Mart (WMT) and Best Buy Co Inc. (BBY).
With 2012 rolling around, Radioshack’s success might play a part in its status as a potential buyout target. Pinning its fortunes largely on cellular phones and other products in the consumer electronics, it could be fighting a losing battle as companies like Apple (AAPL) press its sales lower. Such competition could leave Radioshack vulnerable to a company like Target, (TGT), which could be looking for a way to enter new markets.
Capitalizing on the flourishing gaming market, GameStop has become a nationally recognized retailer of video games and systems such as the PlayStation and Xbox. The company has recently been a target of speculation by investors as some analysts see GameStop as a possible buyout target. After challenging the likes of Amazon.com (AMZN) and Best Buy Co (BBY), it may now become a target of a competitor looking for a profitable way to extend its reach in the gaming market.
As companies like Best Buy have entered the pre-owned game market and manufacturers like Electronic Arts (ERTS) offer more downloadable games, GameStop has felt the pinch. In November, the company lowered its earnings estimates to reflect the competition. In addition, it was revealed that nearly 40% of the company’s stock float was tied up in short positions.
In spite of the rumors, GameStop stock has remained steady trading near the lower end of its 52-week range and below its 200-day moving average. Sporting a PEG of over 3.00 and a 1-year target that reflects a 20 percent increase in price, GameStop is a good investment option while it is a buyout candidate.
The rumor mill has been buzzing about the prospects of a Clearwire Corp buyout by Sprint Nextel Corp (S). In August 2011, Bloomberg broke the Clearwire buyout story, stating that Sprint was looking forward to partnering with either Comcast Corp (CMCSA) or Time Warner Cable Inc. (TWC).
Clearwire is facing an uncertain year as it operates in the shadow of this news. Forbes recently reported that Kaufman Brothers reduced its rating on Clearwire, reducing its one-year target from $5 to just $2. This additional pressure and the desire of communications companies and cable providers to have a stake in the wireless broadband market make CLWR a very likely target.
Things change quickly in the cellular market. If anyone doesn’t believe that, they can simply look at the fortunes of Nokia Corp. The top manufacturer of cell phones for nearly a decade, the Finnish company found itself both succumbing to competition and subjected to buyout rumors as the Wall Street Journal suggested a Microsoft takeover of Nokia in June, 2011.
This buyout rumors refuse to go away as Bloomberg cited a Danske Bank report that Microsoft (MSFT) would acquire Nokia’s smartphone division in the first quarter of 2012. Although the denials have come from Finland once again, the story is taking hold. Nokia’s recent stock increase still has legs, (it is below both its 50-day and 200-day averages) its PEG stands at a whopping 96, and a majority of analysts are either upgrading positions or initiating new ones.
The Changing Business Landscape
The face of the business world is ever changing, and a smart investor should look for places to make a profit in the face of buyouts and mergers. Among the movers in the months ahead, Cloud Peak Energy Inc, Radioshack Corp, GameStop Corp, Clearwire Corp and Nokia Corp all look to be viable takeover candidates in 2012. Catching a company like this before the parties announce their intentions can often lead to solid gains.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.