By Jacob Sonenshine
Mergers and acquisitions are coming back, making it a good time to look at stocks that could attract buyers -- and pop as a result.
The total value of global deals for the 12-month period ending in January 2024 was roughly $3 trillion, according to Morgan Stanley. That is way down from 2021, when activity hit more than $6 trillion over a year's time, a multiyear peak.
The problem was that, in 2022, the Federal Reserve ratcheted interest rates higher to cool inflation. Corporate buyers had already loaded up on acquisitions and then had to protect their cash, as demand for goods and services in many sectors dropped, profit growth stagnated, and the cost to borrow money -- often needed to finance a transaction -- rose. That caused a massive drop in transactions.
But deals are on the mend. The latest data from Morgan Stanley show the last 12 months have seen about $4 trillion in deal value, and the trend should continue next year.
Consistent with that, the Vistage CEO Confidence Index is higher now than at any point last year, and it isn't just president-elect Donald Trump's talk of deregulation driving the optimism. The Fed has already cut interest rates and the economy is still growing. If rates are stable or even lower next year, financing deals will become easier, especially if buyers are confident they will acquire assets with growing profits.
This newfound confidence has the potential to spark growth in deals next year, and that is why Morgan Stanley put together a screen of companies that could see offers soon.
Morgan Stanley used dynamic statistical scores to identify the companies. Those that turned up on the screen generally have smaller market capitalizations, which makes it more feasible for a potential buyer to make an offer. But many of their stocks have risen a bit recently, as the broader market has rallied for a couple of years. So offers, which typically come at substantial premiums to trading prices, could look enticing to shareholders.
A few names on the screen are Kohl's, Harley-Davidson, Newell Brands, and Lazard. They all have market caps of less than $7 billion and have all seen their stocks rise in the past year.
Another candidate is the $4.1 billion department store Macy's. The stock is down a touch in the past year, but it is still up almost 40% from a multiyear low in late 2023 as the broader market has rallied. The struggling retailer has seen declining sales in the past couple of years, and has even come up on other strategist screens for potential buyout stocks. It is possible a private-equity firm could buy it, though it may be unattractive to other retail and e-commerce companies. There are no rumors of a deal.
The $3.89 billion Under Armor stock has gained 22% in the past year, but it has struggled to compete against new athletic brands. Analysts expect this to be the third consecutive year of declining sales, according to FactSet. There are no rumors of deals.
Take a chance on this basket of stocks. Just one deal could create large returns.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 21, 2024 18:49 ET (23:49 GMT)
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