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TheStreet Open House

14 Deal-Ready Stocks for the M&A Boom

Energy: The Theme Continues

As noted in the first part of this look at M&A, the energy sector has seen a heavy amount of deal-making over the last few years as companies such as ExxonMobil (XOM) and France's Total (TOT) expand their regional footprints. The industry is a matchmaker's delight: Major players have huge piles of cash lying around while smaller cash-strapped players are sitting on valuable acreage but can't exploit their energy fields due to decade-low natural gas prices.

Who might be in play in coming quarters? Names to check out include Sandridge Energy (SD), Exco Resources (XCO), Forest Oil (FST) and Quicksilver Resources (KWK). All are valued at less than $3 billion, which makes them available for just a few quarters cash flow form the industry's bigger players.

>>7 Energy Stocks That Investors Have All Wrong

Technology: A Decade Later

After the end of the boom, a number of smaller firms were gobbled up as technology niches were saturated with too many players chasing too few customers. These days, a different dynamic is in place. Companies such as Cisco (CSCO), Dell (DELL), Google (GOOG) and Microsoft (MSFT) have stunning amounts of cash. But with interest rates so low, that cash gets them little return. Sure they're buying back stock and hiking dividends, but still can't spend money as fast as they make it. That's why they continue to seek out acquisitions that will flesh out their suite of products.

Assuming the big tech firms seek out attractive growth properties that are valued at less than $3 billion, they might look at Broadsoft (BSFT), Aruba Networks (ARBA), Fusion-io (FIO) or Jive Software (JIVE).

>>6 Tech Stocks That Rate Better Than Apple

The companies mentioned in this analysis are merely examples of the types of companies that might get acquired and shouldn't be seen as likely buyout candidates. The key for investors is to analyze the major potential acquirers to see what gaps they have in their platform.

For example, are there areas in which Hewlett-Packard (HPQ) can't compete with rivals such as IBM (IBM) or Dell? Are there major drug companies that are about to lose major drugs in such areas as oncology and would like to fill those holes? These are the decisions that investment bankers are thinking about as they make their pitches to clients.

Additionally, you can find ideal M&A candidates for private equity buyers by focusing on companies that are trading at very low valuations in relation to their cash flow. Struggling companies such as Best Buy (BBY) or RadioShack (RSH) are often spoken of as ideal candidates as acquirers can finance deals using their targets' very own cash flow to pay for them.

For the first part of this article, visit " Get Ready for the M&A Boom."


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