As the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) marches onwards and upwards towards the 6,000 point level it's getting harder for investors who practice any form of value investing to find stocks which meet their criteria for investment .
This can lead investors to look for other investment strategies to make money. One parallel which could be profitable to focus on is identifying stocks that might be closer to fully valued than you would usually like to invest in, but which could be of even higher value to a private owner.
In other words you broaden your search for 'catalysts' by identifying companies which could be likely takeover targets. Accurately identifying merger and acquisition (M&A) stocks could help your portfolio outperform the market and if done right does not need to increase the overall risk profile of your portfolio.
So which stocks could be potential takeover targets and still offer value at the moment?
Thanks largely to the superannuation system in Australia infrastructure assets hold particular appeal to superannuation funds due to their steady and predictable cash flows.
As I highlighted in this article, it appears a number of large investors are lining up should Santos Ltd (ASX: STO) and Origin Energy Ltd (ASX: ORG) choose to sell off their LNG pipeline assets.
This demand for infrastructure asset plays could see whole companies swallowed up by investors looking for defensive streams of earnings. Aurizon Holdings Ltd (ASX: AZJ) which owns a significant rail freight business could potentially be a target.
Beaten-up sectors could see increased M&A activity with the oil and gas sector arguably an attractive target for strategic buyers. Companies such as Beach Energy Ltd (ASX: BPT) and Drillsearch Energy Limited (ASX: DLS) which both experienced share price falls of over 35% in the past year could be ripe for suitors.
