I'll admit it -- this one still stings me a little bit: I was wrapping up my analysis to build a position in WMS Industries (WMS) when the firm announced at the end of January that it was being acquired by Scientific Games (SGMS) and rocketed by 60% overnight. While WMS shareholders are used to gambling being a central part of this stock, they probably didn't realize that they'd be the big winners here.
WMS makes gaming machines used by casinos across North America. The firm owns a collection of sought-after licenses such as Lord of the Rings, Monopoly and Battleship, and specializes in immersive gaming experiences. I won't bother with this stock's balance sheet or cash flow generation analysis anymore -- it's not very relevant. But while the big upside is over and done with in this stock, there's still a merger arbitrage opportunity in the mid-single digits.While that's hardly the 60% upside that shareholders took home on the heels of the acquisition bid announcement, the high likelihood of the deal getting closed quickly -- or scrubbed in favor of a potential rival -- makes it a decent risk/reward payoff.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts