Hunting for the best buyout targets in the rest of 2018.
When companies can’t grow any more, they tend to look to mergers and acquisitions. This corporate trick can also be used to solidify market position, eliminate competitors, juice growth and generally just expand. Essentially, buyouts can happen for almost any conceivable reason. Some investors choose to take advantage of this practice by searching for the stocks most likely to be acquired and then buying them beforehand. Since the acquiring firm pays a premium — sometimes a hefty one — for the target company, shareholders can earn huge returns if they choose correctly. Here are seven stocks most likely to be takeout targets for at least the rest of 2018.
National Beverage Corp. (Nasdaq: FIZZ)
FIZZ stock is one of the most compelling takeover opportunities for 2018 and beyond. While the firm itself isn’t a household name, one of its products is intensely popular. LaCroix, a brand of canned sparkling water that comes in 15 flavors and has built up a fiercely loyal cult following, has been growing by leaps and bounds over the last several years. If LaCroix’s growth continues, Coca-Cola Co. (KO) or PepsiCo (PEP) could very realistically make a buyout offer on FIZZ. With America’s appetite for sodas declining, KO and PEP are using mergers and acquisitions to expand into growing verticals like water, juices and energy drinks.
GrubHub Inc (GRUB)
With the rise of the so-called stay-at-home economy, stocks like Netflix (NFLX) and Domino’s Pizza (DPZ) have soared. GrubHub increasingly deserves to be mentioned alongside those two as the corporate poster boys of America’s growing sedentary culture. GrubHub, a food ordering and delivery platform, grew revenue five-fold between 2013 and 2017, while earnings per share soared from 7 cents in 2013 to $1.12 last year. Shares, up roughly 200 percent in the last year, may have to pull back a bit more to be an ideal mergers-and-acquisitions target, but some analysts have nonetheless suggested a GRUB acquisition for Amazon.com (AMZN) after its Whole Foods pickup.
Bluebird Bio Inc (BLUE)
Of course, few areas are more rife with mergers and acquisitions than biotech, where industry economics encourage it. Clinical-stage research companies must endure years of Food and Drug Administration-regulated studies and trials to prove they’re developing a viable, safe, more effective drug. With practically no sales to date, BLUE’s value comes from its highly promising pipeline of gene therapy candidates, which could bring in billions in revenue as soon as 2019. With its two closest peers, Kite Pharma and Juno Therapeutics, both acquired in the last six months, Bluebird looks like it’s next in line. Pouring billions into research and development taxes growth, so M&A is often preferred.
Match Group (MTCH)
There’s no company quite like Match Group. The company, an agglomeration of online and mobile dating services, was spun out of media legend Barry Diller’s IAC/InterActiveCorp (IAC), and has since blossomed. MTCH stock could be a takeover target for one simple reason: It’s the clear leader in online dating, an area with secular growth prospects for years to come. Match’s brands include Tinder, Match, OkCupid, PlentyOfFish, OurTime and several others. MTCH has fewer obvious M&A suitors than most other names on this list, but one could imagine social networks, investment companies or private equity firms snapping up the match-making company eventually.
Sprouts Farmers Market Inc (SFM)
Sprouts Farmers Market, a $3 billion grocer known for its healthy focus and low-price fresh produce, isn’t the most exciting stock, but thankfully that’s not a prerequisite to be a target company. While Amazon’s acquisition of former Sprouts rival Whole Foods likely won’t be repeated by AMZN itself, SFM could absolutely be acquired in an M&A transaction in 2018 or 2019. In fact, Target Corp. (TGT) and Sprouts actually held merger talks last year, but they fell apart. With 285 stores in 15 states, brand equity as a healthy grocer and profit margins (3.4 percent) well above the industry average, Sprouts is an excellent long-term asset primed for horizontal integration.
Molson Coors (TAP)
One of the larger potential M&A targets in the stock market today is Molson Coors, the brewer behind dozens of strong beer brands such as Coors, Miller, Blue Moon, Keystone, Steel Reserve, Leinenkugel, Redd’s and many more. But even at $15 billion, it’s dwarfed by the $200 billion Anheuser-Busch Inbev (BUD), which itself is the result of mega-mergers between Inbev, Anheuser Busch and SABMiller. Mergers and acquisitions have been the preferred expansion technique in the beer industry for years now. Diageo (DEO), the wine and spirits maker and Guinness brewer, is the most likely eventual acquirer, since a buyout at the hands of BUD would likely pose antitrust issues.
Pinnacle Foods (PF)
Last but not least likely to be bought is Pinnacle Foods, the manufacturer and distributor of branded convenience food products. Brands in its portfolio include Birds Eye, Hungry-Man, Aunt Jemima, Vlasic, Log Cabin and Mrs. Butterworth’s, to name a few. This is a solid business, with higher net margins (16 percent) and five-year earnings growth (22 percent annually) than you’d expect in a firm of its sort. Moreover, famed activist investor Dan Loeb of Third Point has acquired a stake in PF, leading to speculation he may push for a sale. Conagra Brands (CAG) and Tyson Foods (TSN) are the two most obvious corporate buyers.
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Mergers and Acquisitions: Top 7 M&A Targets of 2018 originally appeared on usnews.com
