Targeting Potential Takeovers, Part 2

1. Cramer's 'Stop Trading': Citi, Best Buy 2. Biotech Calendar: Upcoming FDA Dates 3. Cramer's Mobile Internet Tsunami Stocks 4. Fannie and Freddie Surge Continues 5. Gold Price Hit by Dollar

Editor's Note: This Christopher Atayan column is a special bonus for RealMoney readers. It appeared on Street Insight on Jan. 11. To read part 1 of the story, click here. To sign up for Street Insight, please click here.

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On Thursday I wrote that all of the low-hanging fruit has been picked clean as companies seek growth, and that many of them now are turning to acquisitions as a way to get bigger.

The large ones and the small ones are all looking for ways to build their businesses externally, and investing in potential acquisition candidates is my way of participating in a stock market that is fully valued.

There is one major caveat: Never invest with the idea that an acquisition is imminent. In some cases it could take years to materialize, so all of these acquisition ideas have to pass my quality hurdle first -- they need to stand the test of time. Yesterday I looked at names in the financial sector that could be acquisition material; today I continue my search in other areas of the market.

Belles of the Takeover Ball

Water is the one resource we all need. Aqua America (WTR - commentary - Cramer's Take), formerly known as Philadelphia Suburban, is a very well-managed company that is growing via acquisition. One investment strategy is to get into names that would eventually be attractive to Aqua America.

For this reason, the shares of California Water Service Group (CWT - commentary - Cramer's Take) are going to continue to be in vogue. This well-managed water utility headquartered in San Jose, Calif., has a strong presence in the California market and also has management contracts in other markets in the region. The company has recently begun to accelerate earnings. For years, it barely covered its dividend, as it overpaid for an acquisition at one point, which in a regulated industry is a big no-no. There is also a treasure chest of hidden real estate assets. The company pays a decent 3.27% dividend while you wait.

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At time of publication, Atayan was long California Water Service Group, although holdings can change at any time.

Christopher Atayan is a managing director of Slusser Associates, a private investment banking firm in New York that specializes in mergers and acquisitions and structured financings. He is also a principal in GBH Investments, which makes private equity investments on behalf of an educational foundation. Atayan has held both of these positions since 1988. He also currently is a director of Franchise Concepts. Atayan holds a bachelor's degree from the University of Wisconsin and attended the University of Chicago Graduate School of Business. Under no circumstances does the information in this commentary constitute a recommendation to buy or sell securities. Atayan appreciates your feedback and invites you to send it to [e-mail].