7 Stocks Ripe for M&A as Trade War Pushes Market Off Record Highs

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7 Stocks Ripe for M&A as Trade War Pushes Market Off Record Highs

It’s possible that the recent decline in stock prices from record highs due to rising trade tensions may lead to a fresh round of merger and acquisition transactions. The S&P 500 fell by as much as 6.8% in May, and the depressed market values of a number of corporations as a consequence have created a wide variety of potential acquisition targets. Several possible M&A targets are still trading below their all-time highs, despite the recent increase in stock prices in reaction to the Federal Reserve’s revised position on interest rates.

Using its Acquisition Likelihood Estimate Rankings Tool, which sorts businesses based on criteria including market capitalization, debt-to-assets ratio, and dividend yield, Morgan Stanley searched for some of the most probable targets. Other characteristics are related to particular industries; for instance, the likelihood of takeover bids for industrial firms is lower than that for health care companies. According to Business Insider, Morgan Stanley came up with a list of 15 firms. Here are the first seven of them.

7 Stocks Ripe for M&A

(Stock: market capitalization)

  • Pizza chain Domino’s Inc. (DPZ): $12.0 billion
  • $4.3 billion Marriott Vacations Worldwide Corp.
  • $3.5 billion BJ’s Wholesale Club Holdings Inc.
  • $4.5 billion WPX Energy Inc.
  • $3.7 billion for Transocean Ltd.
  • $42.0 billion Allergan PLC (AGN)
  • $26.8 billion Alexion Pharmaceuticals Inc.

Source: Morgan Stanley, Business Insider

What It Means for Investors

In the pharmaceutical sector, Alexion provides a potential acquisition target since its stock is now selling significantly below its 2014 highs and has been trading sideways for the previous three years despite improving profitability. Based on comparable study areas, Piper Jaffray’s Christopher Raymond argued in early February that Alexion would be a suitable match for Amgen.

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One of the restaurant industry’s most formidable prospective targets is Domino’s Pizza, a business with a well-known brand and competence in food delivery. Earlier this year, Andrew Charles of Cowen Research outlined why Domino’s would be the ideal target for Restaurant Brands International (RBI) to buy. He stressed Domino’s potential to solve RBI’s gaps in terms of technology and delivery best practices.

A number of new M&A transactions in the Permian region are anticipated as a result of the Cheveron-Anadarko agreement from earlier this spring. One of the prospective targets is WPX Energy, one of the area’s smaller producers. The stock of the firm is now selling for less than half of its all-time high, established back in 2014, making it a potentially wise choice for significant players wanting to diversify their asset portfolios.

Looking Ahead

There is a lot of uncertainty due to the trade wars’ intensification. However, as businesses strive to safeguard supply chains and react to negative tariffs and other trade obstacles, the continued trade battles may serve to accelerate cross-border mergers rather than putting a damper on the strength of the M&A market. A more relaxed regulatory environment and recent U.S. tax reform are two further reasons boosting confidence in the M&A market’s sustained success.

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