This Hot Sector For Takeovers Is Just Getting Started. Here’s How To Profit…
A couple of days ago, I mentioned that we recently sold our house and moved.
While I’m glad to be in our new home, the whole experience of buying and selling in this crazy real estate market reminded me of something critically important when it comes to investing…
Ultimately, it all comes down to what someone is willing to pay. That’s easy to understand (and nice) when you’re selling and there are multiple suitors. But it’s not so fun when you’re on the other side of the deal.
We see this happen all the time with assets in other markets, too. A couple of years ago, I mentioned that there was a flawless 60-carat pink diamond that went on auction in Switzerland. Sotheby’s estimated it would fetch around $60 million, but they weren’t even close… it eventually sold for $83 million.
Whether you’re talking about sports memorabilia, jewelry, stocks, or, these days, NFTs, it’s tough to accurately gauge value. The best we can do is take the information we have available and make an educated guess.
Think about Amazon (Nasdaq: AMZN), for example. There are about 35 professional analysts following the stock. Yet you’ll find price targets ranging from $5,000 on the high end to $2,800 on the low end. (For reference, the stock is changing hands for about $3,280 right now.)
What gives? They’re all looking at the same financials. But they wildly differ in their opinion of the company’s prospects and value. Of course, when it comes to the stock market, we don’t have to rely on just the experts. We have a ton of information at our disposal. All it takes is the willingness (and the expertise) to roll up your sleeves and do the work.
And fortunately, sometimes we get an exact idea of what a business is worth when someone else comes along with a takeover offer…
A Wave Of Tech Takeovers Is Coming…
For the past week or so, I’ve been telling readers that I think we’re about to see a wave of takeover activity in the coming months. I outlined my reasoning here, also mentioning that I’ve got my eye on three key sectors. This is where I think we’ll see the bulk of M&A activity – and where investors are most likely to see incredible gains by positioning themselves in companies that are ripe for a buyout.
One of those areas is no big surprise, really. I’m talking about the tech sector.
As I’ve said before, technology has long been a hotbed of M&A activity, and that won’t be changing anytime soon. If for no other reason, tech leviathans are sitting on unprecedented mountains of idle cash.
Considering most tech companies pay little to no dividends, it’s a safe bet that most of this surplus cash has been earmarked for wheeling and dealing. Just recently, Microsoft splurged with the $70 billion takeover of video game publisher Activision Blizzard. Intel has unveiled plans to acquire Tower Semiconductor for $5.4 billion, or $53 per share.
The Activision offer represented a generous premium of 45%. Tower shareholders woke up to a 60% gain overnight. And options traders saw those gains magnified several times over.
I think the sweet spot within the tech sector will be semiconductors. Analog Devices (NYSE: ADI) just closed its $20 billion takeover of Maxim Integrated Products. Marvell (Nasdaq: MRVL) has inked a $10 billion takeover of Inphi, gaining clout in the booming chip market for cloud data centers. Meanwhile, AMD (NYSE: AMD) is set to gobble up Xilinx for $35 billion.
One reason, in case you haven’t noticed, are all the half-empty car dealerships around the country. We’re seeing the thinnest inventory levels since the 2009 financial crisis. Frustrated buyers are finding that it can take months for their chosen car or truck to get delivered.
New vehicles just aren’t coming off the factory assembly lines at anywhere near their usual pace. In fact, Ford and General Motors (among others) have been forced to temporarily halt production and idle plants all across North America in recent months.
The average new car contains around 150 different chips. They are generally inexpensive – maybe a few bucks each. But newer models are useless without them. Ask any mechanic, and they’ll tell you that semiconductors govern just about everything in today’s new vehicles, from tire pressure monitors to fuel injection systems to rear backup cameras. Heck, you can’t even roll down your windows without them.
MotorTrend reports that the chip shortage cost the global auto industry 11.3 million vehicle sales worth $210 billion in 2021. That’s a gaping hole. And while the shortage is expected to ease in 2022, experts agree that available supplies may not meet demand until new plants with mass capacity begin production in 2024 and 2025.
Looking ahead, global auto sales are expected to rebound sharply from 82 million units this year to 90 million in 2023. That’s a lot of chips. While this situation has been a nightmare from the automaker’s perspective, it underscores the importance of the supply chain. As an investor, you gotta love it when a business simply can’t sell its wares fast enough and customers are clamoring for more.
And remember, we’re just talking about one industry that’s reliant on semiconductors. There’s plenty more to talk about when it comes to the demand side of the equation.
The point is, if you’re looking for potential takeover targets, you need to go where the action is. And for the foreseeable future, one hotbed is going to be in tech, specifically the chipmakers.
But that’s just the beginning… As I’ve mentioned before, there are three sectors that I think are going to be feeding grounds for takeovers in the months ahead. And in my latest report, I dive into each one of them, giving investors actionable picks to profit from each one…
Since launching my premium Takeover Trader service two years ago, we’ve already closed out on multiple triple-digit winners. But that could be nothing compared to what we’re about to see. So I encourage you to check out my latest research — 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.