Looking for a safe bet in this crazy market? Well, sometimes a crazy market can create investment opportunities not normally available.
In an article today in the globe, Boyd Erman points out that "shares of takeover targets have dropped. He says that shares of
BCE Inc. have gone down along with the rest of the markets, leaving them well below the price at which they have agreed to be taken over at. So, assuming the take-overs go through as expected, a decent return is yours for the taking. In the case of BCE, you could make around 10% at the current share price of $39.42.
. . . BCE closed yesterday at $39.07 (Canadian) on the Toronto Stock Exchange, well below the $42.75 a share that a group led by the Ontario Teachers' Pension Plan has agreed to pay for the company in the largest leveraged buyout in history. Investors who buy BCE now will also get at least two more dividend payments of 36.5 cents a share if the deal closes on schedule in the first quarter of 2008.
Getting 10% in six months with little risk is a nice return, especially in a market where losses are common-place. As a conservative investor, I like the risk/reward ratio and have picked up some BCE shares as a result.
The declines are attributed to the "general slump in markets and contraction in lending: Many hedge funds that were betting on the takeovers have had to sell to raise money to meet redemption requests or margin calls on investments linked to subprime mortgages."
There is no such thing as a risk-free investment, it is all about measuring the risk against available data and your comfort level. As pointed out in the article, "an investor who buys in now is taking the risk that the turmoil in stock and debt markets will keep the deal from closing. . . But given that most of the deals pending have committed financing from banks, that risk is relatively remote because banks are unlikely to risk long-term damage to their reputations." We shall see!
Disclosure: I own shares in BCE for the aforementioned reasons - I believe the take-over deal will go through as planned. Remember, always do your own research before buying any stock.