If that sounds excessive, consider Alphabet's (NSDQ: GOOGL) offer to acquire Fitbit (NYSE: FIT) six months ago. Last October, FIT was trading below $4. On November 1, Google LLC (an operating subsidiary of Alphabet) revealed its intention to buy Fitbit for $7.35 per share. That 80%+ premium was a huge payday for anyone that bought FIT in the weeks leading up to that announcement. But the $2.1 billion purchase price was chump change for Alphabet, which holds more than $100 billion in cash. By the way, that deal still hasn't closed. Quite frankly, I don't understand why anyone would want to own FIT at its current share price near $7. If this deal closes, the best you can hope for is to make another 35 cents in profit. But if it falls apart, the downside risk could be 10 times that amount! Stock as Currency I believe there are many other small-cap stocks like Fitbit out there ready to be acquired. I also believe there are a lot of big companies that can use their stock as currency instead of having to pay cash. The math is simple. The average large-cap stock is now 25% more valuable than the average small-cap stock since the start of the year thanks to the coronavirus. That spread is essentially "free money" that can be used to finance an all-stock acquisition without incurring debt or depleting cash. Of course, the tricky part is figuring which small businesses are likely to be acquired. Normally, you might study balance sheets to determine which companies are vulnerable to a takeover. However, now just about every small-cap stock is fair game. Instead of looking at financial statements, think about strategic fits. For example, a big drug company like Johnson & Johnson (NSYE: JNJ) may take advantage of its recently inflated share price to buy a small biotech firm such as Arena Pharmaceuticals (NSDQ: ARNA). It isn't just tech stocks and drug companies that will be having all the fun. I expect increased M&A activity across all sectors of the economy. I hold small gold mining company B2Gold (NYSE: BTG) in the Personal Finance Growth Portfolio. One of the big miners such as Barrick Gold (NYSE: GOLD) or Newmont (NYSE: NEM) may want to buy BTG to acquire its rapidly growing gold inventory. I'll admit guessing which small company may be on its way to the auction block is not my forte. But I know someone who has studied that market closely and can help you identify the next takeover target. He's my colleague Nathan Slaughter, an investment strategist who's an expert at pinpointing investment opportunities in corporate takeovers. Nathan has developed a proprietary screen that uncovers how Wall Street rigs certain stocks that are involved in M&A activity...so you can jump in before they shoot up. In fact, Nathan is ready to reveal his latest winning stock trade. Do you want in? Click here now. |
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