Putting Takeouts to the Test
I'm going to wrap up my series on potential takeover candidates with my favorite metric. While I never buy a stock based purely on takeover speculation, it never hurts to add this calculation into my stock-picking efforts.
Over the years, roughly a third of my stock picks have become takeover targets within a five-year period. This metric is based on conversations with folks engaged in private equity and leveraged buyout activity and who were generous enough to share their valuation concepts with me. The premise is simple: They want to buy companies with decent returns at a low multiple of earnings before interest, taxes, depreciation and amortization. They are looking for companies where the return on equity is already respectable and strong cash generation adds the possibility of additional leverage....533 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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