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TheStreet Open House

A Fund Manager's Top Takeover Stocks

NEW YORK ( TheStreet -- Harry Rady of Rady Asset Management thinks the hot start for deal activity in 2011 may be just the beginning.

"We've seen a massive amount of M&A coming this year and what we've seen so far is just the tip of the iceberg," says Rady, whose San Diego-based firm has more than $250 million in assets under management.

Rady should know. He says his firm typically sees 5-10 of the companies in its portfolio get acquired each year. In his opinion, most deals take between six and 18 months of discussions and negotiations before they are announced. Rady believes the pipeline is full and that the market will explode with deals.

Rady believes that the economy is growing very slowly and companies are sitting on huge troves of cash. These companies have made all the cuts they can make and won't see any growth organically. In order to achieve growth, they need to buy it. Credit markets have been supporting transactions as well.

A recent example for Rady is Cephalon (CEPH). He owned the biotech company in his portfolio and was rewarded when it received a $5.7 billion buyout offer from Valient International (VRX) last week. The stock jumped even beyond the offering price as market watchers decided the hostile bid might go even higher.

Rady thought that Cephalon's value was depressed because the market was too focused on the short term and not giving the company enough credit for existing products and its pipeline. This is generally his strategy. Find good companies that the market has ignored. Here are some additional stocks that Rady thinks are takeover targets.

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