5 Attractive Takeover Candidates

Includes: AKS, ATU, CLD, RAX, VMW
by: Stock Croc

Investors have a unique opportunity to take advantage of when they can identify companies which are on the verge of a potential takeover. Not only does this prove beneficial for investors holding the company being taken over, but it can also allow for growth within the investing company. To aid in providing insight into taking advantage of this opportunity for your own investing goals, the following are five attractive takeover candidates for 2012.

Actuant Corporation (NYSE:ATU) - One of the most difficult elements for a smaller company to face is seen with the success of its major competitors. One of Actucants main competitors, Eaton Corporation (NYSE:ETN), recently released the fourth quarter earnings, displaying a 30% improvement over the same quarter of 2010. This is incredible growth for a business which represents the market leader in diversified machinery. Actuant has only experienced a 2.20% growth in annual sales over the past five years, with limited expectations for the next five years. With an attractive price to earnings ratio of around $14.50, and an additionally attractive price to free cash flow of $11.36, this may display signs of a strong cash flow, which is not being properly allocated. As more companies in the energy and industrial industries seek to cut costs, the acquisition of Actuant could be a promising asset to rely on when attempting to accomplish this goal.

Cloud Peak Energy Inc. (NYSE:CLD) - Cloud represents one of the largest producers of coal in the US, identifying itself as a Powder River Basin [PRB] pure-play company. What makes Cloud an ideal company which is primed for takeover is found with the currently weak coal market this business so heavily relies upon. In November of 2010, exports of thermal-coal were down 23%, a crushing result, considering this single market was the only element maintaining strength for companies such as Cloud. This is likely the result of a weakened European market which accounts for 45% to 50% of US exports, a situation which will not resolve itself in a short time period. As alternative energies, such as natural gas, continue to decrease in price, Cloud competitors like Peabody Energy (NYSE:BTU) are in a better position to maintain strength in the market. Declining coal interests and decreased pricing in alternative energy resources set Cloud as an attractive coal asset another business could incorporate into larger energy plans.

VMware, Inc. (NYSE:VMW) - VMware is a technology-based business which is currently represented as a leader in virtualization and cloud infrastructure solutions to enable businesses to succeed in the new era of the cloud. In January of 2012, VMware introduced its VMware Solution Exchange, which is an online virtualization and cloud marketplace for consumers to converge and simplify the process of selecting business solutions. With VMware representing a frontrunner in this type of technology, the business is seeking to match the success Oracle (NYSE:ORCL) had a decade ago with SQL databases. With a stock which is predicted to outperform by Oppenheimer, currently undervalued at $95 per share when it should be closer to $107 per share, the company has had such an impact on current technology that it has set itself up as either being an industry leader or a target for takeover by larger competitors in the marketplace, such as Microsoft Corporation (NASDAQ:MSFT).

Rackspace Hosting, Inc. (NYSE:RAX) - Rackspace is a business which is currently on the precipice of either finding significant growth through information technology services such as the cloud, or will be overshadowed by successful competitors, such as VMware. The company is currently outperforming its target price of $46 per share, so a decrease in value is imminent when the market adjusts accordingly. With an overwhelming high price to earnings ratio of $99, combined with the additionally high price to free cash flow of $98.05, these signs point to a company with poor financial performance. When a leading technology company supports these less than impressive financial statistics, it displays an opening for competitors to take over the business.

AK Steel Holding Corporation (NYSE:AKS) - Stock prices of AK Steel seem to be regularly on the decline, as the company is hit by a series of negative elements which would make it an ideal candidate for takeover. The company specializes in the production of coated, cold rolled and hot rolled carbon steel with close ties to the automotive industry. With this market still struggling to rebound with little sign of improvement in 2012, it will prove difficult for the company to find growth this year. One of the most overwhelming elements working against AK Steel is seen with the incredible 99% of its market cap which is currently required to meet pension fund promises. This represents the largest display of underfunded pensions for any company within the US, which has already impacted the stock as it was downgraded from Neutral to Underperform by Bank of America.

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