Five Prime Takeover Candidates for 2014

24/7 Wall St.

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Many Wall Street analysts and strategists are forecasting a rise in corporate earnings for the rest of the year and throughout 2014. That is music to the ears of stock investors. Rising earnings can often mean rising stock prices, as multiples contract and stocks remain reasonably priced. Organic growth is often the key for most companies to grow earnings, but companies frequently look externally for takeover candidates. 24/7 Wall St. has zeroed on five leading companies that are among the frequently mentioned candidates in the takeover arena.

They key to a takeover is it must present the right synergies in meshing the two companies without producing such crippling debt that the acquiree is cash poor. We have combed through our Wall Street research looking for the stocks that are among the most likely to be takeover candidates.

Time Warner Cable Inc. (TWC) is a name that emerges on a regular basis. The cable industry although healthy, is somewhat regionalized. Media giant John Malone has quietly put together a large holding in Charter Communications, acquiring 27% back in May. He has made no secret of his desire to acquire Time Warner Cable. Consolidation makes sense because cable operators need to stay competitive with satellite-TV companies. Another top reason to join forces is U.S. cable companies need to get bigger to improve their negotiating power with programmers such as Walt Disney Co. (DIS) and CBS Corp. (CBS). It will be interesting to see how long Time Warner will resist Malone’s overtures.

T-Mobile US Inc. (TMUS) may be in the sights of satellite programming provider Dish Network Corp. (DISH). Dish Network Chairman Charlie Ergen has discussed the possibility of a merger with Dish and other providers frequently over the years. The combination of telephone and content will only continue as companies merge to better fend off their very stout competition. Even Sprint Corp. (NYSE: S) could be a possible acquirer or merger partner here, likely without DOJ interference.

Pioneer Natural Resources Co. (PXD) is one of the leading independent exploration and production companies in the oil rich Permian Basin in West Texas. Despite a gigantic market cap of more than $27 billion, the company is continually brought up as a target as the big players in the industry look to increase their stronghold in the area. It is estimated that there is more than 1 billion barrels of oil and 100 years of production in the Permian Basin. While it would take extremely deep pockets to fund such an acquisition, the big integrateds like Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) certainly have the wherewithal to get a deal of this magnitude done.

Fortinet Inc. (FTNT) provides network security solutions worldwide. It offers FortiGate physical and virtual appliances that provide a set of security and networking functions, including firewall, VPN, application control, antivirus, intrusion prevention, Web filtering, anti-spam and WAN acceleration. With a gigantic need for cyber security, the company is often cited as a perfect target for large technology companies looking to either enter or expand their presence in this growing field. Fortinet’s $3.2 billion valuation is also in the right valuation range to attract many would-be tech buyers.

Medivation Inc. (MDVN) is a biotech name that is often heard in a sector that thrives on acquisition and consolidation. Almost every year there is at least one large deal done, and this year was no exception as biotech giant Amgen Inc. (AMGN) successfully completed its tender offer for Onyx Pharmaceuticals last month. With its portfolio of proven drugs and an outstanding pipeline, CNBC’s Jim Cramer has long touted Medivation as a strong taker possibility as its leading drug Xtandi is a new prostate cancer drug that is shaking up the market.

These possible takeover candidates are generally solid names on their own. Obviously, none of these names are speculative penny stocks. Investors should always remember to buy a company based on the company’s prospects rather than solely because of buyout hopes. One thing is for sure, there will be more M&A deals in the future, and investors often try to put their bets on the strongest buyout candidates.

Filed under: Investing Tagged: AMGN, CBS, CHTR, CVX, DIS, DISH, FTNT, MDVN, PXD, S, TMUS, TWC, XOM

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