If you are looking for outsized gains in your portfolio, it can help to be a strategic investor. One way to do this is by considering companies that have a higher than average chance of being a takeover target. Many corporations are sitting on billions of dollars which is currently earning very little and creating almost no shareholder value. After a cash-rich company has done the obvious, like buying back shares and paying a dividend, management often considers buying a competitor or another company that can add value.
It makes sense to focus on companies that could be takeover targets because it can lead to serious portfolio gains. In particular, considering takeover targets in the oil sector looks promising because the industry is healthy and oil prices remain elevated and likely to move higher. With that in mind, here are a few oil companies that have takeover potential:
According to one recent article, a Raymond James Financial analyst believes that BP (BP) or Exxon (XOM) could have interest in acquiring this company for at least $78 per share and another top analyst from UBS also believes in the takeover potential, he states:
"It's an attractive takeover candidate because it's the largest pure-play opportunity in the Marcellus shale," said William Featherston, an energy analyst at UBS AG. "Any large company looking to gain exposure to the Marcellus at a time when gas prices are weak would be interested in Range."
Range Resources shares have recently found support at around $54 per share, and it looks like an interesting way to add takeover potential to a portfolio at those levels.
Here are some key points for RRC:
- Current share price: $57.65
- The 52 week range is $50.55 to $77.24
- Earnings estimates for 2012: $1.08 per share
- Earnings estimates for 2013: $1.78 per share
- Annual dividend: 16 cents per share which yields 0.3%
Weatherford International, Ltd. (WFT) offers maintenance and a variety of other drilling-related services to oil and gas companies. Like most oil-related stocks, Weatherford shares have dropped from about $17 to around $14 per share. These shares look undervalued for long-term investors as it now trades for about 8 times forward earnings. Weatherford has been considered to be a takeover target by many analysts and investors. Some believe Halliburton (HAL) is a likely suitor for this company thanks to the international markets exposure that Weatherford offers. One analyst at Credit Suisse recently stated that the chance of a takeover has been reduced, but he still feels the stock is worth more and set a price target of $24 per share. Weatherford is now at the low end of the recent trading range and looks attractive even if no buyout occurs. The company has had accounting restatement issues recently, that could involve around $250 million. This could keep the stock below fair value until it is resolved. Weatherford shares have been acting weak and might trade down to about $13 which is where it found support in the past few months. Buying on dips around $13 or below is likely to reward long-term investors.
Here are some key points for WFT:
- Current share price: $14.20
- The 52 week range is $10.85 to $22.76
- Earnings estimates for 2012: $1.36 per share
- Earnings estimates for 2013: $1.84 per share
- Annual dividend: none
Exco Resources, Inc. (XCO) is an oil and natural gas company that has seen a sharp drop in the stock price as profit margins are impacted by weak natural gas prices. If any company with natural gas is going to bounce back, it will probably be this one since Boone Pickens and Wilbur Ross own stock in the company and hold a board position. The earnings estimates indicate that the company will remain profitable, but just barely. Because of the minimal profit potential this company appears to have over the next couple years, I would not rush to buy this stock. However, it is worth keeping an eye on for signs of a bottom. The stock trades of a mere fraction of the 52-week high and about a year ago, members of management team made an offer to buy this company, but the deal fell through. At some point, there is value or at least a trade here, but it is probably still too early now.
Here are some key points for XCO:
- Current share price: $6.32
- The 52 week range is $6.32 to $21.04
- Earnings estimates for 2012: 20 cents per share
- Earnings estimates for 2013: 5 cents per share
- Annual dividend: 16 cents which yields 2.5%
Data is sourced from Yahoo Finance. No guarantees or representations are made. 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.
Disclosure: I am long WFT.