When it comes to mergers and acquisitions, this year has been one for the record books. According to Dealogic, global M&A volume for the year reached $3 trillion on August 11. That’s the fastest growth pace since 2007.
The healthcare sector is leading the way, with $482.3 billion in deals announced this year so far. That already exceeds the full-year record of $430.0 billion set in 2014. July was a huge month for the healthcare sector; in the insurance industry, Anthem (ANTM) agreed to buy out Cigna (CI) for $54 billion. In the pharmaceuticals business, Teva Pharmaceutical Industries (TEVA) announced plans to buy Botox maker Allergan Plc (AGN) for $40.5 billion.
The technology sector has also been gripped by merger mania, with $382.0 billion in deals year to date. In the semiconductor business, Intel (INTC) now plans to buy Altera (ALTR) for $16.7 billion, and Avago Technologies (AVGO) intends to buy Broadcom (BRCM) for $31 billion. The telecommunications industry was rocked by Charter Communications‘ (CHTR) $78.7 billion bid for Time Warner Cable (TWC).
I expect the frenetic M&A activity to continue. In this low interest rate environment, companies have been borrowing cheaply on the bond market to finance these mega-deals. And, given the deflationary environment we’re in, I don’t expect the Fed to meaningfully raise interest rates any time soon.
Many firms are willing to pay sizeable premiums to buy the competition, and investors would do well to take note. So today, let’s review ten companies that I consider prime “takeover candidates.” In addition to being A- or B-rated in Portfolio Grader, these companies are attractive because they:
- Are trading at less than 20 times earnings.
- Are trading at less than five times book value.
- Are not overly leveraged, with a debt to capital of less than 80%.
- Have positive forecasted earnings.
Here are the ten companies that could get bought out by their peers, and are solid buys right now:
|Symbol||Company Name||Market Cap (billions)||Total Grade||Quantitative Grade||Fundamental Grade|
|DRI||Darden Restaurants, Inc.||$9.4||A||A||B|
|FL||Foot Locker, Inc.||$9.8||A||A||B|
|HELE||Helen of Troy Limited||$2.5||A||A||B|
|PF||Pinnacle Foods, Inc.||$5.3||A||A||B|
|ZNH||China Southern Airlines||$9.5||A||A||B|