“You also should look for companies with clean balance sheets and good operating prospects,†says Ellis. “There has to be something that makes them attractive besides the low stock price.†Ellis, who is also a partner at Gator Mezzanine Fund, which makes loans to growing Florida companies, says the top M&A opportunities may be in the technology area because acquirers don’t have to buy a lot of outdated “bricks and mortar,†such as obsolete manufacturing plants.
Ellis has identified a handful of stocks to watch, companies he believes could attract acquirers:
Blue Coat Systems (NASDAQ: BCSI), which provides systems to protect corporate IT networks from viruses
Websense (NASDAQ: WBSN), which offers Internet security to businesses
Epicor Software (NASDAQ: EPIC), whose products help businesses with enterprise resource planning and customer relationship management
Radiant Systems (NASDAQ: RADS), which specializes in hardware and software for hospitals and retailers
Diodes (NASDAQ: DIOD), a manufacturer of semiconductor components
“Blue Coat might be a good fit for a very large tech company such as Micrsoft or Oracle,†Ellis says. “The same might be true for Diodes, where net income is down while revenues are up. It seems like the company is ramping up its marketing efforts so it has had to spend more in that area. Diodes has a clean balance sheet, with a lot of current assets.â€
From March 2009 until late in the year, U.S. stocks had their best short-term run in 70 years. If stocks continue to soar, investors who choose well-priced small and medium-sized companies may reap a buyout bonanza.
WEALTH FOR LIFE PRINCIPLES
1. I Will Live Within My Means
2. I Will Maximize My Income Potential Through Education and Training
3. I Will Effectively Manage My Budget, Credit, Debt, and Tax Obligations
4. I Will Save At Least 10% of My Income
5. I Will Use Homeownership as a Foundation For Building Wealth
6. I Will Devise An Investment Plan For My Retirement Needs And Childrens’ Education
7. I Will Ensure That My Entire Family Adheres To Sensible Money Management Principles
8. I Will Support the Creation and Growth of Minority-Owned Businesses
9. I Will Guarantee My Wealth Is Passed On To Future Generations Through Proper Insurance And Estate Planning
10. I Will Strengthen My Community Through Philanthropy