11 M&A Stock Picks for 2013

NEW YORK ( TheStreet) -- There may be large energy takeovers and a continuation of telecom, retail and health-care mergers and acquisitions this year, according to research firm Morningstar.

Morningstar, known for its mutual fund ratings, published on Tuesday a list of its top takeover targets for 2013, highlighting energy sector companies BG Group ( BRGYY) and Chesapeake Energy ( CHK), in addition to retail giant Kohl's ( KSS), medical-products manufacturer Abiomed ( ABMD) and Los Angeles-based lender City National ( CYN).

Morningstar analysts R.J. Hottovy and Bridget Freas said telecom company Leap Wireless ( LEAP), agricultural giant Mosiac ( MOS), gas driller Sandridge Energy ( SD), clothing retailer Guess ( GES), wireless provider NII Holdings ( NIHD) and medical-contract research specialist Icon Plc ( ICLR) could be taken out in 2013.

The analysts notably dropped rig contractor Transocean ( RIG) and Nasdaq ( NDAQ) from their list after the companies made their 2012 roster of takeover picks.

Heath-care provider Amerigroup ( AGP), which was taken over by WellPoint ( WLP) in July 2012 for $4.9 billion, was Morningstar's top 2012 M&A prediction, in which it correctly forecast a consolidation of the managed-care industry in the wake of President Obama's Affordable Health Care Act, which was upheld by the Supreme Court in June.

Other spot-on M&A picks include IBM's ( IBM) acquisition of software-as-a-service specialist Kenexa and the planned 2012 takeovers of Clearwire ( CLWR) and Warnaco ( WRC).

What is most notable about Morningstar's 2013 takeover picks is the forecast of mega energy deals amid struggles by some firms to manage cash flows as they drill for onshore and offshore oil and gas.

A prospective takeover of British oil and gas exploration and production giant BG Group would likely be the biggest post-crisis deal, and among the biggest ever in the energy industry. Currently, BG Group, which trades in London and on Pink Sheets in the U.S., has a market value of over $60 billion.

Takeovers of Chesapeake Energy and Sandridge, currently valued at $12.6 billion and $3.4 billion, respectively, would also be important deals that might hinge on the efforts of activist investors such as Carl Icahn.

BG Group and Chesapeake Energy "hold multiyear, concentrated inventory positions in key unconventional plays, are reasonably sized for an acquirer, and both have expert knowledge of how to successfully exploit North American tight oil and gas that could be valuable for a national oil company or a major seeking to develop similar plays overseas," Morningstar wrote.

"Additionally, given that two activist investors now hold 20% of the common stock and a newly installed board no longer answers to embattled CEO Aubrey McClendon, Chesapeake makes our short list of potential takeout targets," the analysts said.

Meanwhile, after a flurry of telecom sector M&A that saw Sprint ( S) fall into the hands of Japan's Softbank, Clearwire ( CLWR) fall under the gaze of Sprint, and Dish Network ( DISH) and MetroPCS ( PCS) merge with T-Mobile USA, Morningstar expects a continuation of industry consolidation.

"The proposed merger betweenT-Mobile USA and MetroPCS shifts the acquisition spotlight in the U.S. onto Leap Wireless. ... The firm has assets, spectrum in particular, that would be valuable to Sprint or Verizon Wireless as they look to keep pace with AT&T," Morningstar wrote. " We believe the firm should look for a deal sooner rather than later."

Finally, Morningstar sees the prospective private equity takeover of Dell ( DELL) as an indication of the potential acceleration of leveraged buyout activity as banks recommit to financing leveraged buyouts. " Microsoft's ( MSFT) potential involvement in the Dell deal could signal increased deal collaboration between strategic and financial buyers over the coming months," the analysts said.

All told, Morningstar expects 2013 to be a year of recovery for M&A, after global volumes were flat last year and were aided by a late-year surge in activity.

"Although the global economic picture remains something of a wild card, we expect a modest uptick in total deal value and the number of deals this year," Morningstar concluded.

-- Written by Antoine Gara in New York

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