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Strategies & Market Trends : Speculating in Takeover Targets
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From: richardred10/13/2011 12:32:59 AM
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4 Takeover Targets to Buy Now

Rumors, gossip and idle chatter circulate on and off Wall Street on a 24/7 basis. Some, such as takeover rumors, can be quite seductive in nature. We have learned to discount most rumors as simply wishful thinking or somebody “talking their book,” but at the same time we recognize that sometimes where there is smoke there may be fire. With all the various parties involved in the acquisition process, e.g., investment bankers, law firms, bankers, and printers etc. (not to mention the companies themselves), it's understandable that some chatter may filter out.
We never simply “buy on the rumor,” rather we investigate and only take long positions in companies that we would want to own even in the absence of the takeover rumor. To that end here are four stocks subject to such rumors that we think represent compelling values even without a takeover:
Akamai Technologies, Inc. (AKAM),
Akamai is a $4.3 billion market cap company that provides services for accelerating and improving the delivery of content and application over the internet, both in the U.S. and internationally. Akamai has been a great growth company through the years; however, the stock has slumped to $23.57 from a 52 week high of $54.65 on fears that growth is slowing. Akamai dominates its field and rumors constantly circulate that IBM (IBM), Google (GOOG), Verizon (VZ) or Cisco (CSCO) may be interested in the company. For an internet growth company the stock is cheap, with current year earnings estimated at $1.45 per share and next year earnings at $1.62 per share.
Cree, Inc. (CREE)
Cree is a $3 billion market cap company that develops and manufactures light emitting diodes, LED lighting and semiconductors. Cree has the best technology in its field and has been a great performer over the years. We have successfully traded both the stock and the options over the years but do not currently have a position. Takeover rumors involving GE (GE), Siemens (SI), Phillips and others have circulated for longer than we can remember. With the stock down from a 52 week high of $72.85 to $28.90, now would be an opportune time for someone to make a move. With institutions holding over 90% of the stock, the company is ripe for a bid, but even without one the stock offers a great value with earnings estimated at $1.41 per share this year and $1.95 for the next fiscal year.
Human Genome Sciences, Inc. (HGSI)
Human Genome is a $2.1 billion market cap biopharmaceutical company. Its principal products are the approved BENLYSTA for lupus and raxibacumab for inhalation anthrax. BENLYSTA is the first new FDA approved drug for lupus in over 50 years. The stock is down sharply to $11.21 from a 52 week high of $30.15 based upon a slower U.S. rollout/ ramp up of BENLYSTA than expected. The company is partnered with GlaxoSmithKline (GSK), and with European approval expected soon, now would be an opportune time for Glaxo to make a move on HGSI. Even without a takeover we expect Human Genome to be a winner, with catalysts coming from the recent Canadian launch of BENLYSTA, the upcoming European approval, and subsequent approvals from Australia, Russia, Brazil and the Philippines where applications for approval are pending.
Whirlpool Corp. (WHR)
Whirlpool is a $4.5 billion market cap company, a household name that manufactures and markets home appliances worldwide. The stock is down to $59.12 from a 52 week high of $92.28 per share. The company pays a $2.00 dividend for a yield of 3.60%. The company is vulnerable to outside bids as over 90% of the stock is in institutional hands. Besides various outside takeover rumors, management has been mentioned as interested in an LBO. Recently, chatter has Warren Buffett interested in the company. With a healthy yield of 3.60% and with earnings estimated this year at $10.97 per share, the stock is cheap at a PE of less than 6. Additionally, if the housing market ever rebounds Whirlpool will receive a real boost.
We are confident that each of the above companies represents a compelling value for investors. Any takeover bids that may materialize would simply be “frosting on the cake”.

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