Profit From Takeovers

Article Excerpt

Two more of our recommendations — Fording and TransAlta — have attracted takeover bids. Investors often ask how we manage to recommend so many stocks that get taken over at a big profit, here and in our other Successful Investor publications. One key: we aim to identify and recommend stocks with hidden assets. Hidden assets come in various forms. The classic example is real estate that’s worth a lot more than its balance-sheet value, which is usually just the purchase price, minus depreciation on the buildings. Another source of hidden value is research spending, which gets written off like rent and utilities. Teck may see a hidden asset in Fording’s vast coal reserves. TransAlta’s hidden asset may be investor under-estimation of future growth in electricity demand. All stocks with hidden assets have one thing in common: they attract less investor attention and respect than they deserve. That gives investors a bargain. It also attracts takeover bids. Sometimes we’re wrong, of course. And sometimes hidden assets stay…