We all hear takeover rumors on a daily basis as they seem to circulate on and off Wall Street on a 24/7 basis. Most of the time the rumors that we hear are really just 'idle chatter" or others "talking their book". However, we have found that from time to time takeover rumors can point us to companies, industries and/or trends that provide profitable investment opportunities that we might not otherwise have been exposed to.
Thus, we like to investigate those takeover rumors that we find plausible and then research the ideas that seem intriguing. We never recommend that anyone simply "buy the rumor", but rather our advice is to only take long positions in companies that we would like to own even in the absence of the takeover rumor. To that end, here are five stocks that have been subject to takeover rumors this month that we think represent compelling investments even without a takeover:
AGCO Corporation (AGCO)
AGCO manufactures and distributes agricultural equipment on a world wide basis and is based in Deluth, Georgia. AGCO has a $4.72 billion market cap and trades an average of 1.4 million shares per day. The company is best known for its Massey Ferguson products. AGCO is one of the few sizeable farm equipment companies around and thus has a certain "scarcity" value. If you believe in the long term commodity/food boom/cycle AGCO should be a great play. Players interested range from Caterpillar to any number of Japanese/Asian companies. AGCO is estimated to earn $5.06 this year and $5.29 next year. AGCO is down from its 52-week high of $59.91.
Joy Global, Inc. (JOY)
Joy Global is a $7.9 billion market cap company based in Milwaukee, Wisconsin, that manufactures heavy duty mining equipment for both surface mining and underground mining. The company has been mentioned in M&A circles since Caterpillar (CAT) acquired competitor Bucyrus Erie. The latest rumor has Deere (DE) looking Joy over. If you believe in the continuation of the long-term commodities boom, JOY should work out just fine for you in the long term (and in the short term if there is an acquisition). The stock is down from its 52-week high of $103.44. Current year earnings are estimated at $7.62 per share, with expectations of $8.70 per share next year.
Peabody Energy Corporation (BTU)
Peabody has a market cap of $8.2 billion and trades an average of 6.4 million shares per day. If one wants to buy just one coal stock, but yet get participation in both thermal and met coal (and get Australian exposure to Asian markets) this is your play. Peabody is the largest U.S. based coal company based on revenue. Rumors have been circulating that one of the big three (most likely BHP or RIO) are interested. Peabody is estimated to earn $3.13 this year and is estimated to make $4.43 per share next year. The stock yields 1.10% and is down from its 52-week high of $73.95.
Range Resources Corporation (RRC)
Range is a $9.3 billion market cap independent exploration and production company that is headquartered in Fort Worth, Texas. Range operates primarily in the Appalachian and southwestern regions of the United States. With onshore U.S. assets becoming more attractive by the day, Range is a prime target of big oil companies because of its attractive inventory of prime assets. Range has averaged 17% production growth over the last nine years and should have double-digit growth in both production and reserves for years given its large inventory. Prime assets include 1.1 million net Marcellus acres, almost 400,000 net Cana Woodford acres (over 2,000 locations), 125,000 net Mississippian acres (all in the oil region) and 100,000 net acres in the Cline Oil Shale Play. Range is off from its 52-week high of $77.24.
Walter Energy, Inc. (WLT)
Walter Energy has a market cap of $3.92 billion and trades an average of 2.8 million shares per day. Walter Energy is the sixth largest U.S. based coal company based on revenue. With recurrent M&A rumors constantly circulating about Walter, we think it very likely that the company gets acquired by year end assuming a healthy economy. In addition to industry players, private equity is said to have interest in Walter. The company is estimated to earn $5.10 per share this year and estimates are for $7.30 next year. The stock yields 0.80% and is off from its 52-week high of $143.76 per share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.