Get Ready To Profit From A Wave Of Mega-Deals
On any given day, it’s not uncommon to find a handful of stocks racing ahead 30%, 40%, or more. Of course, you might expect that when Mr. Market is in a good mood and most stocks are in the green. But even when the Dow and S&P are falling, there is still usually a group bucking the trend and making powerful ascents.
Up market, down market, sideways market… It doesn’t matter. There are almost always a few big movers and shakers.
Take Shaw Communications (NYSE: SJR), a normally sleepy Canadian telecom stock. On March 12, investors went to bed with their shares having closed at $19. The following morning, they awoke to find the stock had spiked to nearly $28.
That’s a powerful upward jolt of 50% in a single day — from a stock that had gone nowhere in prior years.
Lightning struck again shortly after, this time with Nuance Communications (Nasdaq: NUAN). Shares of the artificial intelligence software provider had been limping along in the mid-$40s. Then wham! Out of nowhere, they surged as high as $54 one afternoon. That 20% jolt increased the net worth of NUAN shareholders by roughly $2.5 billion.
And it happened without warning, occurring not over a period of weeks or months, but in a matter of hours.
What could trigger these sudden upward spikes? Just about anything really. A sharp dividend increase, a long-awaited FDA product approval, a plum government contract… But most often, the stock is responding to a buyout offer.
A solid quarterly earnings report might earn some polite applause from the market. But that’s nothing compared to the thunderous standing ovation that accompanies a proposed takeover. These deals can compress several good years’ worth of gains into the span of a single trading session.
— Shares of Electro Scientific Industries (former ticker ESIO) rocketed 97.1% overnight after the equipment maker got scooped up in a $1 billion deal.
— Intersections, a maker of identity theft software, (former ticker INTX) gained 104.6% when a suitor came knocking.
These are by no means isolated examples. Barely a day goes by without a takeover bid being announced. Just follow the gains and you’ll find it. Clearly, it can pay off to spot potential takeover targets ahead of the crowd. Unfortunately, just like lightning, it’s impossible to know where and when these deals will strike.
Or is it?
I’ve Spotted These Deals Before, And We Can Do It Again…
You see, I’ve spotted more than my fair share of these deals over the years — and on both sides. And while mergers can certainly yield financial gains for the buyer, sellers are rewarded far quicker – within hours instead of months or years.
Case in point, I recently cashed out a healthy 125% profit on an aircraft leasing company called Aircastle. Much of that came in a single day last November when the company was approached by a Japanese buyer with a $2.4 billion check in hand.
Before that, it was refiner CVR Energy. Before that, school bus operator Student Transportation. All netted outsized gains overnight.
Now, I want to be clear and tell you that I didn’t specifically single out any of these stocks just because I thought they’d bet bought out. I recommended them solely because they were quality, cash-generating businesses trading at an attractive discount to their respective fair value. Acquirers value these same traits, which explains why we sometimes zero in on the same stock.
Like I always say, when it comes to predicting takeovers, I do not have a crystal ball. Think of me instead as a meteorologist… trained to spot wind shear and other telltale signs of an imminent tornado… there is a specific set of conditions that often precede a takeover announcement.
You just have to know what to look for. And that’s why I launched my premium service, Takeover Trader, a little more than a year ago.
We’ve had more than our fair share of success since then, including gains of 113.64%… 343.93%… and even 671.14%. But as impressive as those gains are, it could be just the beginning…
A Wave Of Deals Is About To Hit The Market
Even with the Covid lull, there were approximately 13,000 merger and acquisition (M&A) deals completed in the U.S. last year, according to PricewaterhouseCoopers. About 40 of those were classified as mega-deals worth $5 billion or more. Eleven involved technology companies. Seven came from the pharmaceutical sector. Banking, media, retail, utilities, and telecom also got in on the action. On average, that’s one mega-deal every 9 days.
Get ready for more. According to a poll, 53% of CEOs and other top corporate executives plan to increase their M&A budget. Global deal volume totaled $1.4 trillion between January and March – the second busiest quarter on record. The number of mega-deals between $5 and $10 billion rose 218% from the same period last year.
I think this is just the beginning of a major tidal wave of deal-making activity. The macro stars are aligned perfectly.
S&P 500 members alone (not counting the thousands outside the index) are estimated to have a $2 trillion cash hoard. Amazon (Nasdaq: AMZN) is sitting on $36 billion in cash, equivalents, and liquid short-term securities. Apple (Nasdaq: AAPL) has over $100 billion. And Berkshire Hathaway (NYSE: BRK-A) has a $125 billion cash hoard – mountains of money for Warren Buffet and his top lieutenants to go “elephant hunting”.
Combine that with buoyant corporate earnings and dirt-cheap borrowing costs, and there is plenty of funding on the table. Not only will these giants have the means to swallow up smaller competitors, but also the motivation. Executives are always under pressure to grow the bottom line, which isn’t easy in this environment. At least not organically. Expect to see many companies form strategic alliances, unlock synergies and grow profits the old-fashioned way – by buying them.
In doing so, they might also skip over years of work spent turning a raw idea into a viable product or service. Even Warren Buffett concedes it’s much easier to buy a competitively advantaged business than to build one from scratch.
This almost always means a bonanza for investors in the right place at the right time. According to accountants Ernst & Young, the long-term average takeover premium is 24%. That figure climbed to between 40% and 50% during the frothy years of 1996-2000.
That’s why my team and I have produced a brand-new research report dedicated to this new tidal wave of deals — including the one “Mega-merger” that could dwarf them all…
Remember, we’ve already closed out on multiple triple-digit winners in the past year. But that could be nothing compared to what we’re about to see. So I encourage you to check it out as soon as you can — because sometimes all it takes is the slightest whiff of a rumor to send a stock soaring, making it too late for investors who didn’t bite early.