3 takeover targets investors can bank on
Private equity firms and hedge funds are on the hunt for bargains, and investors can follow to find appreciating stocks.
By Jamie Dlugosch
This will be the year of the deal.
Private equity and hedge fund managers are on the prowl looking for bargains. With the easy money made in the market over the last few years, investors might be wise to follow the lead of these institutional managers.
In preparation for the onslaught, corporations are not sitting idly by.
Hertz (HTZ) initiated a poison pill strategy that kicks in when any investor acquires up to 10% of outstanding shares. The news sent shares soaring -- not for the defense against activist investors, but the realization that Hertz cannot stop them when they arrive.
Like clockwork shortly after Hertz's move, Carl Icahn opened a position in the stock. This is a follow-up to activist investors already owning stock in the company.
As for specific targets, it is easy to see where a company might be vulnerable. To the extent shares trade for a discounted valuation, consider the stock in the crosshairs.
Whether the outcome is activist investors making and demanding changes in strategy or the private-equity route of taking the company out entirely, the endgame for investors is appreciation in stock value.
While you might not make a huge windfall, you can score a quick 10-20 percent gain or more with these plays. As such, it pays to identify these targets in advance. Here are three to consider for your portfolios today:
Weatherford International (WFT)
The oil and gas equipment servicing company already traded for a discount before the start of the year. So far in 2014 it has been straight downhill, with shares being down 7 percent in just a handful of trading days in the New Year.
What gives? These should be the best of times for the company with oil drilling around the globe at a peak. Of course poor management decisions started the fall from grace and thus far management has yet to prove they can get the company back on track. Despite the poor operating performance, things are looking up for Weatherford -- that's why the selling at the start of the year is so perplexing and likely to attract a private equity or hedge fund manager. Analysts expect profits to grow by 58 percent next year. At current prices, the stock trades for only 11.5 times 2014 estimated earnings. That’s about as cheap as it gets. An astute big boy manager is going to exploit that valuation metric in very short order. I'd get in before they do.
American Eagle Outfitters (AEO)
The volatility in the apparel retail space has increased greatly over the last several months. Just last week we saw shares of Abercrombie & Fitch (ANF) soar after having been down in the dumps. On the flip side, shares of Pacific Sunwear (PSUN) tanked. True value is difficult to ascertain in the public equity market. That's what makes the industry ripe for private equity funds. Imagine taking over a name brand with tremendous growth potential and being able to operate without the irrational prying eyes of the public market.
One name that you can probably count on becoming a target is American Eagle Outfitters. Like Abercrombie, shares of American Eagle have fallen over the last year. Fashion-fickle teens and a challenged consumer economy have made for a tough go of it. That said, the company is an iconic brand that will be in favor again. A private equity or hedge fund manager is likely to acquire shares at these levels before they take off similarly to Abercrombie.
Norwegian Cruise Lines (NCLH)
This one almost seems like a no-brainer. Private equity and hedge fund managers tend to have massive egos. What better product to own than a giant cruise ship operator?
Norwegian Cruise Lines might be the ultimate toy for these managers and the timing looks perfect. The travel space is red hot. Consumer and business travelers are filling up capacity in a big way. Profits are growing and at a fast pace and yet shares of Norwegian trade for a low multiple of earnings. Analysts expect the company to grow profits by 63 percent in 2014. At current prices shares trade for only 16 times 2014 estimated earnings. With those kind of numbers a smart big money manager is going to take notice.
Aside from the pricing, the demographics are strong too. The baby boom is retiring and I suspect they will be doing lots of cruising in their golden age. If so, Norwegian is a perfect company to take private -- cheap price, steady growing cash flow and a growing market.
More from Traders Reserve
- You can have it all: Stocks that deliver dividends plus growth
- 3 gun makers shooting the lights out
- Time to buy agriculture stocks
1) Taking over the government first.
2) Taking over and ruling the world second.
3) Taking over a plot of land as their final resting place third.
2 out of 3 isn't bad!
They are simply adorable and loving little things aren't they?
When the President doesn't do anything....He get's dinged..
When he does, he gets danged....
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The idea of US crude being a shelter from turmoil abroad may not be as far fetched as it seems.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.