For several months, the stock market has been very busy, and bidding keeps popping up Morrison And other suggestions for the company, such as Easyjet with StagecoachFor holders of UK stocks, the takeover offer is profitable in the short term. But long-term holders may be forced to sell their shares at a price lower than the purchase price, rather than waiting for a possible stock price to rebound.
For example, if I bought Morrison For May stocks, my stock price will rise 63% so far before the bids appear. But if I have been holding stocks since December 2011, even after the acquisition news, my holdings will show a 7% drop in stock prices.
It may be helpful to assess which UK stocks may become acquisition targets. This is how I did it.
Consider the company’s financial and strategic valuation
There are two logics for most acquisitions.
The first is that the company’s market price is lower than its possible financial valuation. This may be based on the business currently running. It may also reflect the prospect of new owners changing their cost structure. So, for example, Morrisons private equity bidders may think they can save the company.
The second logic is manifested in strategic acquisitions. A strategic acquisition is a combination within an industry or market that increases the scale of existing participants. This can improve its bargaining position or pricing power, or achieve economies of scale.this Wiz To easyJet’s method and National Express Bidding stagecoach This is an example from the UK stocks. In such a bid, the target company does not need to be significantly underestimated, because the bidder believes that there is an opportunity to release value from the strategic synergy.
Discovery of UK stocks that may be targets of acquisition
Based on this, I think it might be quite simple to identify the UK stocks that may be the target of the acquisition. It is even more difficult to know the timing of any such possible bids. I think Morrison looked attractive for many years—but bids didn’t appear until this year. Over the years, there is an opportunity cost of using my funds for underperforming stocks in the hope of adopting an acquisition method.
Nevertheless, I still think it is worthwhile to look for possible acquisition targets. An undervalued company can provide me with a good investment opportunity, with or without acquisition. Sometimes due to market conditions or poor trading announcements, a company’s stock will fall sharply. This means that quality stocks can sometimes be obtained at attractive prices. Over time, it is hoped that the stock market will rebalance the company’s stock price with its fundamental value.
Why do I care about business quality
But this approach has risks.consider Centrica As an example of such risks.its Continued cheap valuation It may imply that the fundamentals are underestimated. This may attract acquisition methods. But the low stock price may indicate investors’ concerns about the decline in customer demand in the future. Centrica’s stock price may reflect concerns that domestic natural gas supply will plummet with the impact of environmental regulations.
Sometimes seemingly undervalued stocks just keep falling. Therefore, while I am looking for value, as an investor, I am also looking for long-term business prospects. I will not buy UK stocks for my portfolio because I think they may become acquisition targets.
At the moment, this ‘Scream to buy’ The trading price of the stock is at a significant discount to its IPO price, but it seems that the sky in the next few years is the limit.
Because this North American company is the clear leader in this field, it is estimated to be Valued at US$261 billion by 2025.
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Christopher Ruane owns shares in Centrica and Stagecoach. Motley Fool UK recommended Morrisons and Wizz Air Holdings. The views expressed by the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we made in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a variety of different insights, We are better investors.