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Many leading tech companies have billions in cash on balance sheets earning very little in this low-rate environment. Management at these companies needs to find ways to create shareholder value with this asset. Letting that kind of cash sit around in money market funds is not what top CEOs are paid to do. A number of top tech companies made significant acquisitions in 2011, and 2012 is setting up to be another big year for tech deals. A recent Bloomberg article sums up the current situation and states:

In a bid to transform that torrent into profits, a cash rich industry is poised to surpass 2011's almost $200 billion volume of announced mergers and acquisitions as companies such as Cisco (NASDAQ:CSCO) and International Business Machines Corp. (NYSE:IBM) search for deals that will boost their capacity to provide new storage, analytics and security services to enterprise customers.

With cash-rich companies on the hunt for another takeover target and with a number of tech stocks trading at reasonable valuations, it makes sense to consider owning a basket of stocks that could be next in line for a buyout. With that in mind, here are a few tech stocks that are considered to be potential takeover targets by some analysts and investors:

Brocade Communications Systems, Inc. (NASDAQ:BRCD) designs and manufactures networking and data storage equipment. This company has a solid balance sheet and the book value is $4.50 per share. Brocade shares hit a 52-week low in the past few months, but it has been rebounding, in part due to beliefs that a private equity company could launch a buyout deal. Cisco Systems is also believed to be another possible suitor as it makes similar networking equipment. Cisco has acquired many companies in the past several years and it has the resources for more acquisitions. Buying Brocade shares on any dips makes sense.

Here are some key points for BRCD:
Current share price: $6.04
The 52-week range is $3.18 to $7.30
Earnings estimates for 2011: 53 cents per share
Earnings estimates for 2012: 58 cents per share
Annual dividend: none

Acme Packet, Inc. (NASDAQ:APKT) provides Internet solutions that enable businesses to deliver and optimize content. This company has seen solid growth over the last few years and the stock traded for nearly $85 in the past year. Now, the stock is trading for almost a third of that level, and it still remains a possible takeover target. Acme Packet should benefit as carriers shift from 3G to 4G, and of course from the growing mobile market. This stock has been weak lately, but now just might be the time to pick up some cheap shares.

Here are some key points for APKT:
Current share price: $34.07
The 52-week range is $25.20 to $84.50
Earnings estimates for 2011: $1 per share
Earnings estimates for 2012: $1.31 cents per share
Annual dividend: none

Riverbed Technology, Inc. (NASDAQ:RVBD) offers solutions for optimizing wide area networks and other information technology products. This company is in a fast growing segment of the tech sector which means it could make it more prone to a buyout. Riverbed has been the subject of takeover speculation in the past, and with the stock trading way below the 52-week high, it looks even more attractive now.

Here are some key points for RVBD:
Current share price: $27.37
The 52-week range is $18.33 to $44.70
Earnings estimates for 2011: $1.04 per share
Earnings estimates for 2012: $1.30 per share
Annual dividend: none

Yahoo!, Inc. (NASDAQ:YHOO) owns valuable Internet assets both in the U.S. and in Asia. The company seems to be in play and a number of directors have recently left the company, including Jerry Yang, the co-founder who many have blamed for blocking the offer from Microsoft (NASDAQ:MSFT) to buy Yahoo. This company has a solid balance sheet and new management might be able to better monetize Yahoo's assets. A number of outside parties seem to think Yahoo has upside potential and have shown interest in buying parts or all of the company. This stock is a low-risk way to invest in tech and possibly end up with the gains that a takeover would provide.

Here are some key points for YHOO:
Current share price: $15.80
The 52-week range is $11.09 to $18.84
Earnings estimates for 2011: 82 cents per share
Earnings estimates for 2012: 93 cents per share
Annual dividend: none

F5 Networks, Inc. (NASDAQ:FFIV) offers information technology solutions that allows its customers to optimize networks. This company is seeing fast growth that larger, more established companies would like to have. F5 has been considered to be a takeover target by many investors and analysts. It appears that a company like International Business Machines, or Cisco could be likely suitors. As the article (linked above) indicates, F5 has become a much more affordable target and the company continues to grow.

Here are some key points for FFIV:
Current share price: $125.62
The 52-week range is $69.01 to $129.92
Earnings estimates for 2011: $4.48 per share
Earnings estimates for 2012: $5.29 per share
Annual dividend: none

Data sourced from Yahoo Finance. No guarantees or representations are made.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Source: Tech Stocks: 5 Potential Takeover Targets