Stock tip sheet hits unlikely winners
BY DAVID ROEDER email@example.com August 12, 2012 11:02AM
Manchester United’s Rio Ferdinand celebrates a goal during an English Premier League soccer match in London in March. The club, the world’s most popular team in any sport, went public Thursday. | Kirsty Wigglesworth~AP
David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday
Updated: August 12, 2012 4:51PM
Looking for M&A action? That’s “mergers and acquisitions,” to those in the know. The idea is to pick a stock for which a buyer might pay a premium.
It’s a little like buying a lottery ticket for a drawing held at some indefinite future date. The game is best suited for the analytical and the patient, and you’re still mostly likely to be wrong, especially if you use Wall Street chatter as your guide.
Fortunately, there’s a reputable source that serves as an M&A scout. It’s Morningstar, normally a purveyor of sober investment advice. It takes a walk on the wild side by putting out an investment ideas list for companies it deems attractive as takeovers.
For something that’s highly improbable, the track record isn’t bad. In early 2011, Morningstar published a list of 10 takeover candidates, and two were gobbled up.
It issued a new list of 20 last January, and two have been purchased. They were Collective Brands, which commanded a 49 percent premium from its price in January, and Amerigroup, whose premium was 31 percent.
Accordingly, Morningstar’s team has re-examined the flock and come out with 16 names — 12 holdovers from the January list and four additions — that meet its criteria.
Senior analyst Bridget Freas said tight credit and doubts about the economy are making the M&M market choppy, but some prices look tempting.
“Cash-rich balance sheets, an increased need for a global presence, and the lure of new growth opportunities continue to whet the appetite among potential strategic buyers,” she wrote in a July 20 report.
The buyout candidates on the new list are: Charles River (CRL), Chico’s FAS (CHS), Guess (GES), Icon (ICLR), iRobot (IRBT), Leap Wireless (LEAP), Mosaic (MOS), Myriad Genetics (MYGN), Nasdaq OMX Group (NDAQ), NII Holdings (NIHD), Range Resources (RRC), Riverbed Technology (RVBD), Rockwell Automation (ROK), SandRidge Energy (SD), Stoneridge (SRI) and Ultra Petroleum (UPL).
SWIFT KICK: Soccer club Manchester United (MANU), the world’s most popular team in any sport, is now a stock. It went public Thursday with an offer of $14 per share, and by the market’s close Friday the stock remained at that level.
The whole thing typified what’s often wrong with IPOs. Half of the proceeds were used to pay down the debt the club’s owners, the Glazer family, amassed when they bought it at the ego-driven price of $1.47 billion in 2005. The other half goes straight to the family. The rubes are being let in now that the aristocrats need them.
Chicago securities lawyer Andrew Stoltmann said the IPO valuation will rank as one of the richest sports deals on record. But he noted that Morgan Stanley (MS) dropped out of the underwriting — “a major red flag for investors” — and that Manchester United made a last-minute securities filing indicating financial trouble.
Without a tax credit, the company would have lost money for the nine months through March 31, 2012.
“It’s really trading on the level of fan interest as opposed to any sort of financial interest,” Sam Hamadeh, CEO of research firm PrivCo, told AP.
I’ll bet the Rickettses are watching, though.
WHITHER KEMPER? In 2011, Chicago-based insurance concern Unitrin changed its name to Kemper (KMPR), which was its best-known operating subsidiary. It even put the Kemper name on top of its building at 1 E. Wacker.
But there are more changes coming, apparently not all positive. The company has had trouble with its Kemper Direct unit, which sells auto and home insurance, and has announced it is “exploring strategic options” for it. That’s corporate-speak for putting it up for sale.
William Blair & Co. analyst Adam Klauber said the unit has shed more than 50 percent of its premium base over the last few years. It doesn’t have the marketing heft of Progressive (PGR) or Geico.
Klauber also said Kemper’s $55 million in catastrophe losses for the second quarter were higher than his estimated $22 million. He has a neutral “market perform” rating on the stock.
OPEN THE GATES: The Chicago-based and traditionally well-performing Oakmark Equity and Income Fund (OAKBX) has reopened to all investors. It has been closed to most financial intermediaries since May 2010, although direct investors could purchase shares.
LONDON CALLING: File this away for when mayoral minions gin up another Chicago bid for the summer Olympics. Economist Nouriel Roubini, famed Dr. Doom, tweeted from London that the games are an “economic failure” for that city because locals fled and tourists are staying away from the nightlife district. “It turns out London is totally empty. A zombie city,” he said.
Think of how such a disaster would work in Chicago, with all that lost parking meter revenue.
CLOSING QUOTE: “People simply do not want to see that deleveraging out of a cataclysmic debt hangover is not a garden-variety recession recovery. Two of the main differences are duration and severity. We will continue in our slow-no growth mode until governments, corporations, and people do not have more debt than they can reasonably sustain.” —Diana Joseph, chief investment officer, Barrington Strategic Wealth Management Group