takeovers

This is the latest in a series of video interviews in which Pat McKeough will give his advice on a variety of topics. Some will deal with his overall investment philosophy, others on specific investment strategies and still others will be comments on events that are affecting the markets and the economy. This time, he discusses one of the most venerable of Canadian stocks. A reader asked about CP Rail, Pat’s #1 Stock Pick for 2012, and all of the media attention it’s receiving. Shouldn’t we avoid stocks in the limelight? Not in this case, says Pat, and he explains why.
The Real News About CP Rail...

Another week, another takeover! After last week’s surprise takeover of Gennum Corp.—which gave us a one-day, 119% gain—it was particularly gratifying to report that directors of RuggedCom Inc. (Toronto symbol RCM) had agreed to a takeover at $33 cash per share. RuggedCom, a recommendation of our Stock Pickers Digest newsletter, first became the subject of a takeover offer—for $22 cash per share—on December 19 of last year. In one day, it shot up from $14 to $23 in response. The company’s directors felt this bid was too low, and the stock crept up to $26 while they sought a better offer. The stock shot up to just under $33 on news of the latest bid, from Siemens of Germany....

PLEASE NOTE: Next week, Stock Pickers Digest will reveal its #1 pick for 2012. Don’t miss this unique opportunity to profit. RUGGEDCOM INC., $24.76, symbol RCM on Toronto, is still the target of a hostile takeover bid from U.S. cable and networking equipment manufacturer Belden Inc. RuggedCom makes computer-networking equipment that is used in harsh environments. Belden recently reaffirmed its offer of $22 in cash for each RuggedCom share....

Our top stock picks seem to attract way more than an average number of takeover bids. We think this is because we zero in on a company’s earnings potential, rather than basing decisions on predictions for next year’s earnings. Corporate buyers and big investors usually see things the same way. Many investors tell us that until they began following our advice, they never had the pleasure of watching a stock they own jump 25% in a few days, due to takeover news. Though we’re used to takeovers, we’ve seen more of our top stock picks attract takeover bids in the past few weeks than at any other time in our history. Here’s a recap:...

BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals. In October 2010, BHP called off its plan to merge its iron-ore operations in Australia with those of Rio Tinto Ltd. (New York symbol RIO)....

PLEASE NOTE: This is our last Hotline for 2010. Our next Hotline will go out on Friday, January 7, 2011. BAFFINLAND IRON MINES, $1.32, symbol BIM on Toronto, has received a revised hostile, $1.35-a-share takeover offer from Nunavut Iron Ore Acquisition. Baffinland earlier rejected an $0.80-a-share takeover offer from Nunavut. That bid was followed by a $1.10-a-share friendly offer from Luxembourg-based ArcelorMittal, the world’s largest steelmaker....

Our stock recommendations seem to attract way more than an average number of takeover bids. We think this is because we zero in on a company’s earnings potential, rather than basing decisions on predictions for next year’s earnings. Corporate buyers and big investors usually see things the same way. Many investors tell us that until they began following our advice, they never had the pleasure of watching a stock they own jump 25% in a few days, due to takeover news. Though we’re used to takeovers, December was a record-setter. Three of our long-term buys jumped on takeover news: DEL MONTE FOODS CO. $19 (New York symbol DLM) has accepted a $19.00-a-share takeover offer from a private investor group. It has till January 8 to find a better offer. Otherwise, the deal should close in March 2011. Del Monte is a hold....

Commodities like gold and copper provide a hedge against inflation. But even if inflation stays low, commodity prices are likely to keep rising as rapid economic growth in Asia and South America spurs new construction and car sales. That will help BHP, Newmont and Alcoa. All three are high-quality, well-established resource stocks that have jumped lately. Still, we see only two as buys right now. BHP BILLITON LTD. ADRs $89 (New York symbol BHP; Conservative Growth Portfolio, Resources sector; ADRs outstanding: 2.8 billion; Market cap: $249.2 billion; Price-to-sales ratio: 4.7; Dividend yield: 2.0%; TSINetwork Rating: Average; www.bhpbilliton.com) is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. Regulators in Australia and Canada have recently forced the company to cancel two big deals....

Investors often ask how we have managed to recommend so many value stock picks that get taken over for big profits. In fact, some readers of our newsletters and investment services tell us that they never had a stock taken over at a profit until they began following our advice. More on the strategy that helps us routinely spot takeover candidates in a moment. But first, here are just a few recent takeover targets we’ve recommended. All have rewarded our readers with big gains:

• In the October 2010 issue of Wall Street Stock Forecaster, we recommended Del Monte Foods (symbol DLM on New York) at $13 a share. In November, the company accepted a $19.00-a-share takeover offer from a private equity group led by KKR & Co. (symbol KKR on New York). Del Monte is now trading at $18.80. That’s a 45% gain!
• In an October 8, 2010, Stock Pickers Digest Hotline, we issued a “buy” recommendation on DundeeWealth Inc. (symbol DW on Toronto), at $15.11. On November 22, Scotiabank (symbol BNS on Toronto), announced that it will buy the 82% of DundeeWealth that it doesn’t already own. The news caused DundeeWealth’s shares to shoot up to their current $21.22 — for a 40.4% gain!
• And these weren’t our only October recommendations that gained sharply on a takeover. We recommended Verigy Ltd. (symbol VRGY on Nasdaq) in the October issue of Stock Pickers Digest at $8.28. Just last week, Japan-based Advantest, another maker of computer-chip testing equipment, offered to buy Verigy for $12.15 a share. That sent the stock up to its current $13.43, for a gain of 62.2%.

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DEL MONTE FOODS CO., $17.51, New York symbol DLM, jumped 11.5% on Friday. That’s because of media reports that private equity firm KKR & Co. (New York symbol KKR) will soon launch a takeover bid for the company. KKR’s offer could be as much as $18.50 a share. Del Monte makes canned fruits, vegetables, sauces and soups. It also makes pet food under the Meow Mix, 9Lives and Milk-Bone brands. Even if an offer fails to materialize, we still like Del Monte’s long-term prospects. Cost cuts continue to increase its profitability. As well, it has plenty of room to expand in developing countries. Right now, international markets account for just 6% of its sales....