Stockpickr: Top Stock Takeover Targets

Using the Stockpickr takeover targets system, we are able to find companies each month that are trading for less than seven times cash flows, making them ripe for acquisition. Those names then go into our system trades of the day portfolio.

The takeover targets system has historically returned 5.7% per trade and has not had a down year in the simulations we've run, in both bull and bear markets. We also update the takeover targets portfolio monthly so that the trades can be viewed for the entire month. The idea here is that when stocks get cheap enough, private-equity firms or other corporations will buy them for their cash flows -- even if the business is declining.

For instance, InterDigital Communications(IDCC Quote) is one of the companies on the list of takeover targets. Does your cell phone ring? If so, then you might be making use of a patent owned by InterDigital and licensed by your cell phone manufacturer.

Patent licensing is a business that results in very choppy revenue and cash flows. But don't worry about InterDigital; it has $300 million in cash in the bank, and it had $300 million in cash flows last year. Also, its recurring licensees have increased their payments to InterDigital by 32% year over year. The business is solid, and its core customers aren't going anywhere.

The King of Prussia, Pa., company has an enterprise value of $1.5 billion, and I wouldn't be surprised if a company such as Qualcomm (QCOM Quote) swept down on InterDigital and bought it for just six times cash flows. And I'm not the only one who thinks that way; InterDigital just maxed out its $200 million share-buyback program, extending it to $300 million.