Top 10 Potential Takeover Targets

Pioneer has a pristine balance sheet, with $85 million in cash in the bank, giving it an enterprise value of just $650 million. I say "just" because the company's EBITDA (earnings before interest, taxes, depreciation and amortization) is $182 million, meaning it trades at just 3.5 times cash flows. It has margins of 30%, and analysts expect revenue to be pretty much even next year compared with this year.

But even if Pioneer's business were to suffer, it wouldn't change the thesis here. Right now, the company offers an earnings yield of almost 30%. In other words, if its revenue and earnings remain the same, then for every $1 you spend to buy shares of this company, you get a return of 30 cents. This is a ludicrous amount and cannot be sustained.

One of two things is likely here: The company's business will decline or the company will get acquired. Let's say you have $650 million to spend. You can either get 5% return in Treasury bills, or you can make 30% a year by buying Pioneer. OK, so that 30% is going to go down, but it doesn't matter -- you can get 10% on your money and you're still doing fine, particularly given the company's strong competitive position and clean balance sheet.

Pioneer is a holding of Keeley Asset Management, run by well-known small-cap investor John Keeley. Other stocks held by Keeley include Terex(TEX Quote) and McDermott(MDR Quote).

To see the entire list of potential acquisition targets, including Aaron Rents(RNT Quote) and Netflix(NFLX Quote), check out the Takeover Targets portfolio on Stockpickr.com.