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Top 10 Potential Takeover Targets

At Stockpickr, we use our takeover targets system each month to hunt down companies that are trading for less than five times cash flows, making them ripe for acquisition, especially in this frenzied environment. Those names then go into our System Trades of the Day portfolio.

The takeover targets system, which calls for buying a specific stock on the first day of the month and holding until month's end, has historically returned 5.7% per trade. The system also has not had a down year in the simulations we've run, in both bull and bear markets.

We update the takeover targets portfolio monthly so that the trades can be viewed for the entire month. The premise is fairly simple: When stocks become cheap enough (in our case, we believe less than five times cash flows is cheap), private-equity firms or other corporations are more likely to buy them for their cash flows -- even if the business is declining.

Two stocks on the list continue to catch our eye; we have watched them for the past few months. Let's revisit the bullish argument for each.

The first is InterDigital (IDCC - Get Report). Does your cell-phone ring? If so, then it may very well 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 $190 million in the bank and had $110 million in cash flows last year. The wireless technology business is solid, and its core customers aren't going anywhere.

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