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Morningstar Senior Retail Analyst RJ Hottovy on the four potential takeover targets investors should consider.
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Up there have been that nearly one trillion dollars worth of deals worldwide this year when we say deals would mean mergers and acquisitions shareholders of companies being taken over.
Can often make a pretty penny so we're bringing in Morningstar senior analyst RJ hot -- named for companies his firm has identified.
As potential takeover targets again RJ no guarantees that these stocks took a lot but it's sort of like history has shown us that they usually do topic.
Now you're actually right in these investments are for everybody and often -- imminent blessing as is speculative at best but.
What we try to do morningstar's take a look at our entire coverage universe of 18100 stocks.
And then identified those names that generally meet the criteria for that given industry what's it really makes a good -- target within that industry.
And then also screen those names for the names that are fundamentally undervalued.
Or how potential upside based on our takeover scenario analysis and I come up with a list of top investment ideas that investors can look to you to capitalize -- okay.
-- -- what you do you just kind of ran through how you screen for the easy figure out who's got great cash flow what is undervalued and then what what's what is a really important about that when you're looking at potential takeover targets.
Bush.
Very seventeen to eighteen men and industry industry but I think -- some characteristic that really carry between the the different industries and hasn't.
Shouldn't size being one of them but also.
The metal leveraged company has you wanna see something with not over burden that balance sheet at this point -- and make it easier to let the -- an acquisition but also supplement.
Goes off different Castro but we also look at industry specific topics like you know health care how collaborative are the teams gonna be eight and building and a new product -- new pipeline.
Or any case that energy utility stocks you know is there -- good assets fit between the -- company.
We have -- this by saying that you've got four potential takeover targets that your screeners have.
Sifted through -- there than not it's coming up let's start with one in the retail sector.
Sure what we start with -- -- the -- -- at the CHS.
It's another one of the small cap retailers that we we think -- -- be taken out.
Meet all the criteria of a leverage buyout target not being.
Great free cash flow no debt operates and a niche industry whether it being mostly the missy fashion apparel space.
And it's -- RL BO analysis which we if you looked at -- times leverage.
Being added to the company as well as the return for private equity company of about 50%.
They could take -- value can be -- in the high teens compare the current stock price.
I believe in that it had low double digit range executive potential takeover target and you know falls on the heels a number of deals in the states with a BJ crew.
Across -- Gymboree in the past couple years that they get it screams very well as a potential take over.
Right that it can go both ways J.
Crew of course went private let's go to your next -- and -- stone ridge now.
This is an auto parts manufacturer what -- are about stone rich.
Yeah this is company that struggled to really capitalize on the movement we've seen in the auto industry really increase the amount of electronics that go into a car.
Bob -- I think it's pretty obviously we recent struggles in the auto industry that the demand for electrical products they're tracking products -- her car security products.
That's always on the demand and that -- just kind of fallen behind and I category I think this what could be a potential strategic.
Buyout partner.
Whether it be a company like Delphi are number -- other names in the space to say though that with -- -- they have could be a nice fit with another portfolio of that another OEM may have.
And again folks the reason we're pointing these out as often when the announcement is made the stock of that the company that's being acquired -- to jump higher.
If you were to pick a sector you look at health care for example a lot of activity there any names and -- want.
Yeah -- -- you for one -- and health -- stuff and one a space we see a lot of activity coming from.
We like a couple names in the clinical recent research organization RC aerospace.
Such -- that's where drug makers outsource the clinical research that -- drugs.
Two names we like here Charles River ticker CEO are an icon.
Ticker ICO land.
Both these Nancy we think -- make a good fit for all the private equity company or strategic buyer just think there's going to be a lot of demand for outsourcing clinical research in the years to come.
And both this company is you know essentially -- on on the weak fundamentals lately but think that again based on that demand either private equity company.
-- -- large CR have been like -- -- comment and make chaos thought acquisition and turn turning to deal out of these situations.
RJ all interest in ideas we're going to put these names up on our FaceBook page because we have a team of about 45 people on one FaceBook just kidding now.
It's our staff that's in the -- right now -- give them a few minutes but we will put these names up on the FaceBook page if anybody missed some good to see you Arctic.
Thank you RJ -- -- they work like a team of a 145.
Absolutely.
