Hostile takeovers are among the most compelling events in business. These events involve conflict between executives, courtrooms, and other elements seen in prime-time drama. Though interesting and entertaining, hostile takeovers do not necessarily afford attractive investment plays.
Investor attention is being drawn to the hostile takeover attempt by Martin Marietta Materials (MLM) for Vulcan Materials (VMC) which is being reviewed in court. Though this drama is good for the financial press, investors would do better by avoiding either company to focus on more boring alternatives with better fundamentals.
As alternatives to VMC and MLM, consider the following stocks with strong track records and solid credit scores:
Ticker | Company | Industry | 10-Year Average ROE | Altman Z-score |
Baker Hughes Incorporated | Oil & Gas Equipment & Services | 16.4% | 3.35 | |
Comtech Telecommunications | Communication Equipment | 13.9% | 3.67 | |
Columbia Sportswear Co. | Textile - Apparel Clothing | 16.7% | 6.54 | |
Emergent BioSolutions, Inc. | Biotechnology | 15.8% | 4.05 | |
HollyFrontier Corporation | Oil & Gas Refining & Marketing | 26.0% | 3.17 | |
Multi-Fineline Electronix | Printed Circuit Boards | 13.7% | 4.48 | |
Murphy Oil Corporation | Oil & Gas Refining & Marketing | 19.0% | 4.10 | |
National Healthcare Corp. | Long-Term Care Facilities | 13.8% | 3.46 | |
Reliance Steel & Aluminum | Metal Fabrication | 14.1% | 3.60 | |
Schnitzer Steel Industries | Steel & Iron | 15.6% | 4.10 | |
Encore Wire Corp. | Diversified Electronics | 14.0% | 12.15 | |
MLM | Martin Marietta Materials | General Building Materials | 13.0% | 2.87 |
VMC | Vulcan Materials Company | General Building Materials | 10.3% | 1.41 |
Unlike either target or acquiring company in the takeover scenario, these alternative stocks are all categorized as "safe" according to the Altman Z-score.* This indicates that they are not considered bankruptcy risks. Moreover, the average 10-year return on equity demonstrates how these alternative stocks have grown shareholder wealth at a respectable annual rate. It is clear from these two metrics that each of these five alternative stocks is a "high" quality stock capable of weathering bad times and delivering positive long-term results.
What's more, these stocks are cheaper and have sustainable dividend payout ratios.
Ticker | P/E | P/S | P/B | EPS growth past 5 years | EPS growth next 5 years |
BHI | 12.33 | 1.08 | 1.36 | -11.3% | 27.4% |
CMTL | 20.01 | 1.28 | 1.3 | 5.3% | 35.0% |
COLM | 16.19 | 0.98 | 1.54 | -2.1% | 13.3% |
EBS | 25.41 | 2.04 | 1.35 | -7.3% | 27.5% |
HFC | 5.86 | 0.48 | 1.45 | 24.8% | 22.2% |
MFLX | 18.27 | 0.78 | 1.53 | -0.5% | 20.0% |
MUR | 15.44 | 0.41 | 1.29 | 2.3% | 14.0% |
NHC | 11.33 | 0.82 | 1.04 | 6.5% | 12.0% |
RS | 12.54 | 0.53 | 1.37 | -1.0% | 11.2% |
SCHN | 10.9 | 0.32 | 1.04 | -1.8% | 12.2% |
WIRE | 14.02 | 0.6 | 1.54 | -15.1% | 12.5% |
MLM | 52.18 | 2.36 | 2.88 | -20.2% | 10.8% |
VMC | N/A | 2.3 | 1.56 | -50.4% | 8.8% |
Based on better price-to-earnings ratios, price-to-sales ratios, and price-to-book ratios, these stocks are cheaper than either MLM or VMC at current market prices. Better yet, these alternative stocks have better histories of growth and higher analyst estimates for future growth than either party in the hostile takeover.
Rather than try to play a hostile takeover by taking a position in MLM or VMC, consider a diversified mix of these 11 securities as a more attractive alternative.
Please read the article disclaimer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
