3 possible takeover candidate stocks to keep on your watchlist

Three indicators that can help you identify stocks that could be ripe for takeover bids.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As an investor, you may never know when a takeover offer for one of your stocks will come. It may come out of the blue or… not at all.

However, you can learn what to look for in takeover targets that can help you prepare a special watchlist of potential candidates.

In my previous article about takeovers, I gave you three potential targets, but today I want to go over some indicators that can help you spot your own and tell you about some stocks that match those indicators. Again, you don't have to buy the stocks immediately, but it is good to keep a shopping list so that if something starts to happen, you'll be ready.

3 indicators for potential takeovers

 – Changes in regulations or law for an industry.

If industry regulations or restrictions change, that could open up opportunities of not just growth but the ability of a suitor to do something it previously couldn't. In my previous article, I highlighted Ten Network Holdings Limited (ASX: TEN) as a potential takeover target because media ownership laws may be revised and allow media companies to own more media outlets in a particular region.

Southern Cross Media Group Ltd (ASX: SXL) could be another possible target. It owns television broadcasting and radio assets and carries Channel Ten network programming in Darwin, Tasmania and Central regions. It has been ranging in share price around $1-$2 since mid-2009, although net profit has been improving over the past three years. Larger media companies will want to widen their broadcasting footprint if those regulation changes actually take place.

– Substantial shareholders turn into bidders.

Some of the recent takeover offers have been from companies that are already substantial shareholders of the target company. One example is the joint takeover bid by Aurizon Holdings Ltd (ASX: AZJ) and China's Baosteel for Aquila Resources Limited (ASX: AQA).

Oil refiner and convenience retailer Caltex Australia Limited (ASX: CTX) is recently transforming from a straight refinery business to retail distribution, which could change its revenue and earnings dynamics. Chevron (NYSE: CVX) subsidiary Chevron Global Energy owns a 50% shareholding in the company and would definitely be watching how this transformation unfolds.

– Beaten-down price opens potential value.

Rival companies are just like private investors. They are looking for value, so when a target is struggling in business and the share price is sagging for a long time, that can open opportunities when the business is starting to recover.

Stock in AMP Limited (ASX: AMP) has been in a trading range since mid-2010, not really recovering after the GFC. The financial services and wealth management business is starting to see the fruits of earlier business changes and could be ready to shine. That could be enticing for potential suitors.

Its price-earnings to growth ratio is now below one. That means its expected earnings growth rate is more than its price/earnings (PE) ratio and could mean good value for its earnings over the next few years.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »