Earlier this week, The Motley Fool reported Wilsons equities strategist Rob Crookston's seven ASX growth stocks to buy that could become takeover targets.
The idea behind that, according to the Wilsons team, is that acquisition bids are almost always favourable for the existing shareholders.
"Normally, companies are acquired at a significant premium to their latest share price," said Crookston in a memo to clients.
"Identifying companies that will make suitable takeover targets can make for very lucrative investments."
And the great thing for investors is that an actual transaction doesn't even have to materialise for their ASX shares to explode out of the gates.
"Any hint of a possible acquisition can trigger positive momentum even before a bid is announced."
'Infrastructure-like' ASX shares with free cash flow
One way to identify tempting takeover targets is to find companies that are asset-rich that have reliable incomes.
"We screened for infrastructure or 'infrastructure-like' stocks with low market betas, free cash flow yields (FY25) above 4% and companies that haven't seen a material re-rate over the last year."
Using these criteria, Crookston's team came up with six S&P/ASX 200 Index (ASX: XJO) shares that one could buy in anticipation of a takeover bid:
- AGL Energy Limited (ASX: AGL)
- Aurizon Holdings Ltd (ASX: AZJ)
- Ramsay Health Care Ltd (ASX: RHC)
- APA Group (ASX: APA)
- Cleanaway Waste Management Ltd (ASX: CWY)
- Lottery Corporation Ltd (ASX: TLC)
Crookston noted that Cleanaway and Lottery Corp both already feature in Wilsons' "focus portfolio".
"These look attractive acquisition targets due to their stable cash flows, relatively low debt balances and strong market positioning in their respective markets."
The Lottery Corporation also operates as a monopoly in every state except for Western Australia.
"Looks well priced versus other infrastructure-like assets."
Energy provider AGL was already the subject of a failed takeover attempt last year, as was Ramsay Health.
According to Crookston, the story might not be over for Ramsay.
"Cost out and real estate asset sales could be [an] opportunity for the right buyer. Earnings recovery after the pandemic could also be alluring."
Private ownership might actually help freight rail provider Aurizon operate better, read the Wilsons memo.
"Infrastructure asset, monopoly, relatively steady (high) cash flows. Might benefit from being taken private from an ESG perspective."
