One of the biggest frustrations in picking stocks is that often times our best selections get bought out by opportunistic companies.
I can’t tell you how many times I have found a stock that I think will double or more only to lose that potential to an acquisitive buyer.
When a company is acquired, the price paid can be less than what the market will pay at some point down the road.
While it is nice to see the immediate premium, the euphoria wears off when I realize that someone else will realize my gains.
Recently, one of my Top 10 Stocks for 2009, Chesapeake Energy (CHK) saw its shares rally on rumors that British Petroleum (BP) may be interested in buying the company.
Say it isn’t so! I love CHK as I believe its shares are incredibly undervalued. The companies CEO was forced to liquidate his entire position due to margin calls. He wasn’t alone.
As the market crumbled last year, the amount of forced selling in stocks like CHK was very large. The full consequence of that selling was to produce prices far below fair value.
No wonder BP is interested in buying the company.
Not only do I think CHK has the opportunity to double in value, this stock could be a triple or more when all is said and done. Natural gas will be part of the new administration’s energy policy and CHK is poised to benefit.
We won’t benefit if BP swoops in and steals this company from us. It really is unfair, but I guess it comes with the territory.
I suppose I would be ok with a purchase if I knew the price exceeded my optimistic view. An offer of $40 or more at a minimum would be required to get my vote if I owned shares.
Of course the best one can hope for if BP does buy CHK is $30 but more likely it will be $20. With the stock trading at $16 per share any of these numbers represents a nice premium. The question is how much of a premium.
I’m not optimistic that a premium will hit the high end. We can only hope.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
