One area investors might consider in balancing a portfolio with risk options, is one of my personal favorites, takeover targets. For new and old investors who are unaware of what's involved. I will try and go over some areas you can go over, to see if this might be a viable option for you.
First off, I would like to discuss why. Why, is very simple. It can be a quick way to make a good return in a short time frame when successful. I would like to stress the word successful. From my own personal experience most takeover picks need time factored in to be realized. Why, if someone was to ask me? Why, is because of many reasons. Why is the company a target in the first place? If you can answer that question, IMO your on the right path.
Next is your reasoning in your pick. 1. Are their rumors on the street, or has a bid been made. Chances are if the street knows about it , it's to late for you, without high risk. This area is usually handled by risk arbitrage players. They have capital to invest in this risky area. Many times after a bid is made, they jump in. Speculating to make a profit on a higher bid, or price difference till the close of the deal. A quick return for high risk, the payoff.
This is good for them, but what about you? Don't worry about them. You can try and achieve the same on a much safer degree of risk. There is a price to pay for safer. I will try and go over some strategy, and some of the things I look for. Earlier, I mentioned a time factor is needed for results to realized. This is not a bad thing,since you are picking before there are rumors on the street. This makes time on your side. With time involved, chances are the stock price will improve just on fundamentals alone, (Sales growth, earnings growth. Many times this will be at a higher stock price than a quick take out price.
The first words you hear mentioned by (especially newer investors is)(I've been guilty to). The low price of this stock makes this a takeover. How many times has this happened when we thought we made a good pick, but something didn't go as we planned. This shouldn't IMO-be the reasoning.
Your Reasoning-Your reasoning in making your choices should be determined by the amount of capital you have available for risk,and the time you can leave it available for risk. Having said what I've said, lets go over targeting areas if you have made a decision this is a viable investing option for you.
The choices-(homework time)-Say to yourself, if you were a big company with money available what would you buy? The last statement already has a clue (money available). This leads to more questions. Many big companies have capital available to acquire other companies. Many have sold divisions that didn't fit in its current business plans. They want to add to existing businesses-(another clue). If your the acquiring company, are you trying to gain market share, or are you trying to improve margins by eliminating a competitor? Another question-How much is it going to cost me? Is the company I want to buy selling below book value relative to it's current market valuation? Am I going to be taking on goodwill, or are my earnings going to be added to? There are still many many more questions you as an acquirer can ask yourself. The better you are at putting yourself in their place the better off you will be in your picks.
I have only touched on some areas of homework. The more time you put in, the better off you will be. Sometimes you nail one you didn't even expect, and sometimes that one you expected, never gets realized (that's part of investing).
I will leave this thread open for discussion for areas I haven't touched on, questions that have arisen, or new SITT picks for review by others. My picks, are subject to change without notice. I want to include my favorite caveat. "LISTEN TO WHAT EVERYBODY HAS TO SAY, BUT DO WHAT YOU THINK IS RIGHT YOURSELF". I always like discussing picks of others and your strategy.
Good Investing to All!
Richardred
Timing is Everything
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IIII NEW FEATURE III TAKEOVER APPEAL III ON A SCALE OF 1 TO 10
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For Board Posters nameing SITT names, and for myself. I will try and assign a number to takeover appeal.
1 Appeal being practically nil- Examples-Exxon/Mobil- Apple-GE
5 Average appeal-possible surprise bid
10 Appeal being already in play -a formal bid has been made.
My list of corporate iconic brand names that have yet to be acquired. Some on the list because they are of scale, and still can be acquired. I'm sure I missed some.
Alcoa Inc  Lets recycle
AVON  Avon calling
Briggs & Stratton Corp  Time to mow the lawn or plow the driveway
Campbell's  MMMM MMMM Good
Colgate-Palmolive Co Very Big, but never say never) I'm using the new optic White .toothpaste.
Church & Dwight Co- Ok Ill give leverage because of the Arm & Hammer brand
Armand Hammer of Oxy was thinking of buying it at one time.
Chiquita Brands  International Carl Linder Jr just passed away at 92. My granddaughters favorite thing for breakfast.
Coach  What a classy purse
Corning -
Corelle, CorningWare, Pyrex sold along with Steuben®, but most everybody knows Corning Glass
Deere -  Nothing runs like a Deere
DOLE  I love pineapple
General Mills  Tots like 
Goodyear  Let's all have a good year
Clorox  Makes it brighter
Energizer Holdings Inc  It just keeps on going and going
Green Bay Packers -
Lots of leverage because I like footbal and have a sense of humor.-After all, they are a public company. However, no shareholder can own more than 200,000 shares in the company. This has put the Packers in a unique situation, as it would be impossible to move the team from Wisconsin. In turn, the franchise will remain in the tiny market of Green Bay.
Hasbro Inc  Who hasn't played Monopoly?
H J Heinz Co  Anticipation it's slow good
Harley Davidson Inc  Let her purr- Varooom
AMF never again!
H and R Block Inc  I hate tax season
Hormel Foods Corp - They get leverage also SPAM
HESS  Clean gas stations
Hershey  Reeces my favorite
J C Penney  at your local mall
Kellogg's  snap crackle pop-There Grrrrrrrreat
Kodak  Who wants it now, but the brand name has intrinsic value. Say it with Pictures.
My Grandmothers picture in an early 70's annual report. Lots of family history here.
Kimberly Clark Corp Gets a pass - Kleenex - God bless you
Lennox  Don't touch just look
Macy's Inc  Thanksgiving day parade
Mattel Inc  What boy doesn't know hot wheels? What girl doesn't know Barbie?
McCormick & Co Inc Spice it up
NCR Corp  Mr. Bush its checkout time
Norfolk Southern Corp  You want it Warren?
Owens Corning  Are you in the pink?
Ryder System Inc Ryder rents trucks 
Ralcorp Holdings Inc- Came close- Ralston Purina-What dog lover hasn't heard of Purina.
Revlon Inc  Ok some leverage Ron Perlman damaged it then brought it back. Make sure you keep Eva-Mendes.
RadioShack  Corp The Tandy computer
Reynolds American Inc   Reynolds wrap
Silicon Investors- Extreme Leverage :+ ) -It's been bought a few times, but looks poised for growth thanks to the New owner who did a Steve Jobs and came back to rebuild her.
Smith & Wesson Holding  Are you packin
Tiffany and Co  Extreme Elegance!
Tyson Foods Inc  I'll take the thigh
Toro Co  The lawn grew 2 inches overnight
US Steel-  X marks the spot. What a stock symbol.
Wd-40 Co  Stops the squeaks- Lube it
Xerox Corp  Please Xerox This. Oh I mean, copy this. It's a miracle. |
