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

The recent drop in stock prices from record highs as global trade concerns have the potential to unleash a fresh wave of M&A acquisitions. The S&P 500 fell as much as 6.8% in May, resulting in reduced market values for a variety of corporations and a slew of potential takeover targets. Despite the recent surge in stock prices in reaction to the Federal Reserve’s new interest-rate policy, a number of possible M&A targets are still trading below their all-time highs.

Morgan Stanley used its Acquisition Likelihood Estimate Rankings Tool to screen for some of the most probable targets, which analyzes firms based on characteristics such as market capitalization, debt-to-assets ratio, and dividend yield. Other determinants are sector-specific, with health-care businesses receiving more takeover offers and industrials receiving less, for example. According to Business Insider, Morgan Stanley compiled a list of 15 firms. Seven of them are detailed below.

7 Stocks Ripe for M&A

(Stock: market capitalization)

  • $12.0 billion for Domino’s Pizza Inc. (DPZ).
  • Marriott Vacations Worldwide Corp. (VAC) has a market capitalization of $4.3 billion.
  • BJ’s Wholesale Club Holdings Inc. (BJ) has a market capitalization of $3.5 billion.
  • WPX Energy Inc. (WPX) has a market capitalization of $4.5 billion.
  • RIG (Transocean Ltd.): $3.7 billion
  • AGN (Allergan PLC): $42.0 billion
  • Alexion Pharmaceuticals Inc. (ALXN) is valued at $26.8 billion.

Source: Morgan Stanley, Business Insider

What It Means for Investors

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

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Domino’s Pizza, a corporation with a strong brand and competence in food delivery, is one of the greatest possible targets in the restaurant sector. Cowen Research’s Andrew Charles argued earlier this year why Domino’s would be an ideal acquisition target for Restaurant Brands International (RBI). He highlighted the gaps that Domino’s might cover for RBI, such as digital and delivery best practices.

The Cheveron-Anadarko agreement announced earlier this spring is regarded as signaling a number of potential mergers and acquisitions in the Permian region. WPX Energy, one of the region’s smaller producers, is one of many prospective targets. The stock is presently selling at less than half of its all-time high, making it a potentially inexpensive buy for significant players wanting to supplement their asset portfolios.

Looking Ahead

The expansion of trade battles is causing significant uncertainty. However, rather than dampening the M&A market’s strength, continued trade battles may assist to accelerate cross-border transactions as corporations seek to safeguard supply chains and react to punitive tariffs and other trade restrictions. Recent tax reform in the United States, as well as a more relaxed regulatory environment, are further reasons fueling expectations for continuing M&A market strength.

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