Imagine you are in the elevator of your company’s headquarters. You’re getting more nervous with each passing floor. It stops at the very top. Just like your boss instructed, you walk all the way across the floor to the nicest meeting room in the building.
The whole executive team is there. And the CEO has an even bigger smirk on his face than normal. Something is up, you think. Something big.
“Team, I have important news to share. As we speak, a press release is going out all around the world. We’ve finally done it. After years of work, we’ve acquired our largest competitor. This is the largest deal in our industry’s history. Nothing will be the same after this.”
Most people will never experience sitting in a board room when these mega-deals are announced as I have. But you can cash in on these events without any special prior knowledge.
At Intelligent Income Daily, we’re focused on guiding you to safe, reliable income-producing plays that’ll help you sleep well at night.
Today, I’ll show why two familiar metrics are the key to targeting companies that’ll only grow through these mega-deals and continue to deliver income for the long term.
You don’t need insider information or that crystal ball everyone is searching for. You just need to think like a CEO.
What an Intelligent CEO Would Do
Nothing on Wall Street gets traders and investors more excited than mergers and acquisitions (M&A). If two companies combine to form one larger company, Wall Street calls it a merger. If one company purchases another, that’s an acquisition.
Almost every large company you’re familiar with is the product of mega-deals – Philip Morris (PM), General Electric (GE), Exxon Mobil (XOM), General Motors (GM), Pfizer (PFE), AT&T (T). The list goes on.
These mega-deals often require tens of billions of dollars in debt and equity (stock or cash). Wall Street loves debating who got the better end of the exchange. And how the M&A might impact the companies’ operations, profitability, and balance sheet.
For everyday investors who owned stock in the acquired company, they are thrilled. The buyer must pay a premium for the target company’s management to accept the offer.
But how does the average investor join in? It’s simple, but not easy. At Wide Moat Research, we are hyper-focused on (1) quality companies (2) trading at discounted valuations. And we use the same methods and tools as many CEOs do.
So if you were a CEO that wanted to buy a competitor, how would you do it? First, you’d only be interested in the best companies in your industry. That’s the “quality” part of our analysis.
Most of your competitors are eliminated at this step.
Second, you’d only buy at an attractive price. That’s the “valuation” part. That likely narrows it down to one or two companies.
Those one or two companies are the same ones we target. We diversify across many sectors and we only invest in the best companies when they are attractively priced.
As a result, we end up with more than our fair share of big winners thanks to M&As.
Just last week, an M&A deal was reached between Magellan Midstream Partners (MMP) and ONEOK (OKE).
Magellan is a midstream oil and gas company that transports, stores, and distributes petroleum products.
On Monday, May 15, OKE – another midstream – announced it was buying MMP for $18.8 billion. That makes it the second-largest merger and acquisition (M&A) deal in the industry’s history.
And prior to this M&A deal, we recommended MMP to our Fortress Portfolio service.
So it’s fair to say, that both the Wide Moat Research team and OKE came to the same conclusion about the quality and value of MMP.
And those in our Fortress Portfolio service are now set up to take home quite a profit from this acquisition.
At Wide Moat Research, our philosophy doesn’t just pay dividends, it can earn us big capital gains thanks to M&As.
Since MMP is a Fortress Portfolio holding, we just recommended a unique strategy to our subscribers to maximize their profits. If you’d like to learn more about the Fortress Portfolio service so that you do not miss out on other opportunities like this one, click here.
Remember, you don’t need insider information or that crystal ball everyone is searching for. You just need to think like a CEO and look for quality companies at attractive valuations.
Stephen Hester, CFA
Analyst, Intelligent Income Daily