| Investing in the stock market can be, shall we say, | | | | share, just because somebody is acquiring large |
| difficult! One way to increase your odds of success | | | | chunks of their stock doesn't necessarily mean that |
| are to find companies that are about to be taken | | | | the merger will add value above what the stock |
| over or merged with other companies. These | | | | already trades at. So be very very careful! |
| tempting takeover targets can pump up the stock | | | | Something else to watch out for when looking for |
| price several points in a matter of days! | | | | target takeover is a companies tax loss carry |
| The problem is finding these companies before the | | | | forward. Companies that have high tax loss carry |
| takeover has been announced, which is no easy feat, | | | | forwards may be takeover targets because that |
| let me tell you! If you don't have a crystal ball there | | | | carry forward is a huge benefit to another company. |
| is not a lot you can do to find them... or is there? | | | | Sometimes other companies will buy a company just |
| One way to find these tantalizing takeover targets is | | | | to take advantage of the carry forward on their |
| to watch investors with top track records in finding | | | | taxes. |
| them and to follow their buying patterns. You can | | | | Another area to watch for is a companies price to |
| follow the buying patterns of individual investors by | | | | earnings ratio or PE ratio. What you are going to |
| following their SEC 13D filings. You can download | | | | want to do is benchmark that PE ratio against other |
| these for free from the SEC's website on the day | | | | companies within the same industry. This will tell you |
| that they are filed (or thereafter). | | | | if a company is undervalued or overvalued compared |
| Individual investors are required to file these forms | | | | to other companies within its industry. As far as |
| within 10 days of any purchase of 5% or more in a | | | | takeovers are concerned, it's better to be |
| company's outstanding stock. Of course, if somebody | | | | undervalued compared to the rest of the industry. If |
| is interested in taking over a company then a 5% | | | | a company is undervalued, then another company |
| buy in is essential to get the ball rolling. | | | | can come in and gobble them up in the hope that the |
| But that's not an absolute clear indicator that you | | | | merger will create enough buzz to prop the stock |
| should follow them! You should also always analyze | | | | price up to a more reasonable level. |
| the companies financial statements including their | | | | So there you have several ways to determine |
| balance sheets and income statements as well as | | | | whether a company is a likely takeover target. You |
| their statements of cash flows so that you can | | | | don't need a crystal ball after all, just some common |
| determine on your own what a valid price for the | | | | sense and a little technical analysis and research. Find |
| stock is. | | | | just a few likely takeover targets and you can |
| For instance, if you determine that a stock is worth | | | | engineer quite a nice boost to your overall portfolio |
| $10 a share and it is already trading at $30 or $40 a | | | | returns. |