I don’t know if you’ve noticed, but the stock market has been on a practically uninterrupted bull run since March 2009, when the major U.S. indices bottomed. In fact, the last time the S&P 500 experienced even a 10% correction — an event that occurs every 1.5 years on average — was back in 2011.
Easy money is also encouraging many companies to grow through mergers and acquisitions as M&A activity increasingly becomes one of the defining characteristics of the stock market today.
That provides investors with a unique opportunity to scope out and buy stocks that could be bought out by larger corporate peers.
Without further ado, here are the top 10 acquisition targets in the stock market today:
Best M&A Plays in the Stock Market Today: Rite Aid Corporation (RAD)
Market Capitalization: $7.8 billion
YTD Return: +5%
Rite Aid Corporation (NYSE:RAD), at a market cap around $8 billion, is dwarfed in size by industry giants CVS Health Corp (NYSE:CVS) and Walgreens Boots Alliance Inc (NASDAQ:WBA), both of which are valued at upwards of $100 billion.
While relatively puny compared to these two massive drugstore chains, its size is precisely what makes RAD stock a compelling M&A target. After all, $8 billion is affordable for the big boys but RAD and its $26 billion in annual sales is also meaningful to CVS and WBA.
Walgreens, despite recently merging with European health and beauty retailer Alliance Boots, has recently been a rumored suitor of Rite Aid stock — so don’t be shocked if it actually happens one of these days.
Best M&A Plays in the Stock Market Today: Express Scripts Holding Company (ESRX)
Market Capitalization: $62 billion
YTD Return: +2%
Another company in the healthcare sector, Express Scripts Holding Company (NASDAQ:ESRX), could also find itself as a Walgreens target. Specifically, Walgreens executives recently told analysts that they were seriously considering further M&A deals for growth.
ESRX is a pharmacy benefit manager, or PBM, which means that it specializes in negotiating down drug prices in an effort to control costs. While many large drugstores have their own internal PBMs, Walgreens sold its PBM a few years back, making an Express Scripts acquisition feasible.
Although the market cap of ESRX stock is somewhat prohibitive, with Walgreens could conceivably take to the bond markets to raise money for an acquisition.
Best M&A Plays in the Stock Market Today: Yelp Inc (YELP)
Market Capitalization: $3.6 billion
YTD Return: -9.4%
Review website Yelp Inc (NYSE:YELP) could certainly get snapped up in today’s buy-happy stock market environment. Whether it’s Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) trying to augment its ever-strengthening Google Maps platform or Priceline Group Inc (NASDAQ:PCLN) looking to enhance the services it offers to travelers, Yelp’s modest size and solid name recognition make it an attractive buy for a number of different big-time players.
The caveat here is that whoever seeks to buy YELP probably won’t be looking to ignite rapid earnings growth. Analysts expect YELP stock EPS to clock in at just 16 cents in 2015; considering that the stock currently trades hands around $50 per share and assuming a modest 20% price premium paid by Yelp’s eventual suitor, a $60 per share valuation gives YELP stock a 2015 multiple of 375.
In other words, Yelp is only an attractive buyout target because of its value as a service and its brand — NOT because it rakes in the big bucks.
Best M&A Plays in the Stock Market Today: Boston Beer Co Inc (SAM)
Market Capitalization: $3.5 billion
YTD Return: -9%
It’s no secret that Big Beer has a big problem: It’s just not that cool to sip on mass-market brews anymore. That’s precisely why Ambev SA (ADR) (NYSE:ABEV) and Anheuser Busch Inbev SA (ADR) (NYSE:BUD) have started stealthily snapping up craft brew companies: that’s where all the growth is!
That’s great news for Boston Beer Co Inc (NYSE:SAM), which is technically still a craft brewery despite its $3.6 billion market cap. Boston Beer, of course, is the brewer behind the Samuel Adams brand, which doesn’t yet suffer quite the market fatigue of, say, a Bud Light franchise.
Even if Big Beer doesn’t pony up and buy all the outstanding shares of SAM stock, Boston Beer’s growth prospects remain compelling. With just 2% of the U.S. beer market, every 1% of the U.S. beer market it gains represents significant growth from a company perspective.
Morningstar analyst Adam Fleck, for his part, sees SAM’s shares of the U.S. market doubling in the next decade.
Best M&A Plays in the Stock Market Today: Charter Communications, Inc. (CHTR)
Market Capitalization: $21 billion
YTD Return: +11.4%
Charter Communications, Inc. (NASDAQ:CHTR) is special. It’s a meaningful player in the rapidly shifting cable TV industry, which is currently battling a pesky trend that could upend the business as we know it: streaming video.
As streaming gets larger, I expect the traditional players in this area to team together, consolidate and attempt to fight back partially through the benefits of scale. CHTR stock is also special because the best investor of all-time — a one Mr. Warren Buffett — is a believer. In fact, CHTR stock is one of his most recent buys; he’s owned the stock through Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) for a while now, but in late 2014, the Oracle of Omaha increased his position by 25%.
With recent rumblings that regulators are leaning against the Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWC) merger, Comcast could conceivably refocus its efforts on the less-dominant CHTR, which might not attract as much antitrust scrutiny.
Best M&A Plays in the Stock Market Today: Netflix, Inc. (NFLX)
Market Capitalization: $34 billion
YTD Return: +64.2%
Netflix, Inc. (NASDAQ:NFLX) might seem like an unlikely buyout candidate, but the laundry list of reasons that someone might want to acquire NFLX seems to get longer every day. As it stands now, that number sits at just over 62 million, the number of Netflix subscribers through the end of the first quarter. A year ago, that number was just over 48 million.
NFLX stock is up a remarkable 64% year-to-date as the likelihood of a stock split and subscriber growth that far exceeded expectations showed the streaming video leader is as healthy as ever.
Although I’ve believed in the likelihood of a NFLX buyout for a while now, billionaires like Mark Cuban and Carl Icahn are also betting big on Netflix and its eventual sale. It makes sense: it’s the perfect hedge for large cable companies facing subscriber losses due to the growing shift towards streaming video.
Best M&A Plays in the Stock Market Today: Hain Celestial Group Inc (HAIN)
Market Capitalization: $6.5 billion
YTD Return: +5.9%
Organic food company Hain Celestial Group Inc (NASDAQ:HAIN) is a direct beneficiary of the growing craze for all-natural products and ingredients. This all comes at the cost of other competitors, of course. Namely, “Big Food,” — consisting of mainstays like Campbell Soup Company (NYSE:CPB), ConAgra Foods Inc (NYSE:CAG) and Kellogg Company (NYSE:K) — is really struggling.
While all three of these traditional Big Food behemoths are expected to post declining revenues this fiscal year, the HAIN stock price has risen 544% in the last five years and revenues have nearly doubled in the last three fiscal years alone.
It won’t be cheap, but perhaps the quickest fix for Big Food’s biggest problem — its stagnant brands and lack of consumer trust — is simply to buy out Hain Celestial.
Best M&A Plays in the Stock Market Today: WhiteWave Foods Co (WWAV)
Market Capitalization: $8 billion
YTD Return: +31.3%
In March, I named WhiteWave Foods Co (NYSE:WWAV) to the elite group of mid-sized companies in the early phases of becoming globally dominant. I dubbed the list “5 Blue-Chip Stocks of Tomorrow to Buy Today,” and in the piece I elaborated on the image problem facing Big Food that works in favor of both HAIN and WWAV:
“Campbell’s CEO Denise Morrison candidly admitted the issue last month, attributing the company’s growth struggles to a ‘mounting distrust of so-called Big Food, the large food companies and legacy brands.’
Healthy food isn’t going away. Packaged food isn’t going away. And WhiteWave stock isn’t going away. I’m excited to see WWAV give a new meaning to the term “organic growth” in the coming years.”
With a recognizable lineup of brands that includes Silk, Land O’Lakes and Horizon, WWAV doesn’t have the same “distrust” issue faced by Big Food heavyweights and looks like one of the more legitimate acquisition targets in the stock market today.
Best M&A Plays in the Stock Market Today: GrubHub Inc (GRUB)
Market Capitalization: $3.8 billion
YTD Return: +27.3%
Mobile food delivery platform GrubHub Inc (NYSE:GRUB) probably won’t be serving up the sorts of healthy food HAIN and WWAV have in their portfolios. But there are still plenty of couch potatoes who enjoy a plate of wings now and then, and GrubHub is their champion.
I’m fairly confident that a GrubHub buyout will happen at some point. I explained why in an article published March 23, noting the high amount of M&A activity over the last year in GrubHub’s industry:
“First, in June 2014, online travel booking powerhouse Priceline Group Inc (NASDAQ:PCLN) snapped up OpenTable Inc (NASDAQ:OPEN) for $2.6 billion, a 46% premium to OpenTable’s stock price. RBC analyst Mark Mahaney called the deal a ‘no-brainer’ at the time, as the opportunity to derive more revenue from each Priceline user was simply too tasty to pass up.
Then, in what further validates GRUB stock as an attractive buyout candidate, Yelp Inc (NYSE:YELP) snapped up Eat24, a direct competitor of GrubHub’s, for $134 million in cash and stock. Again, this buyout makes an absurd amount of sense: While Yelp is primarily a consumer reviews site, many users visit its site to check out local restaurants and menus before ordering or visiting themselves.”
When it comes down to why GrubHub’s a fine acquisition target, it wouldn’t be too much of a stretch for others to follow a similar line of logic in a GRUB stock buyout:
“Following in the footsteps of PCLN, online travel site Expedia Inc (NASDAQ:EXPE) or Expedia spinoff Tripadvisor Inc (NASDAQ:TRIP) could reasonably eye GRUB stock in an effort to expand their e-commerce offerings and boost revenue.”
Best M&A Plays in the Stock Market Today: Monster Beverage Corp (MNST)
Market Capitalization: $23 billion
YTD Return: +29%
Last but certainly not least, energy drink titan Monster Beverage Corp (NASDAQ:MNST) makes a lot of sense as an acquisition target. What’s a little unusual about this play is that there’s pretty much just one company a MNST stock buyout would make sense for: The Coca-Cola Co (NYSE:KO).
“What about PepsiCo, Inc. (NYSE:PEP)?” you might wonder.
Highly unlikely, if only for the fact that Coca-Cola and MNST already have a deep partnership, which I outlined in an article earlier this year outlining why I thought MNST stock could be the best growth stock of 2015:
“In August 2014, KO and MNST struck a deal, with Coca-Cola transferring its energy drinks business to Monster and MNST giving its non-energy-drink business to KO. In the same deal, Coca-Cola also agreed to become Monster’s preferred global distribution partner as KO acquired a 16.7% stake in MNST stock and paid Monster $2.15 billion in cash.”
Coca-Cola is fresh off an acquisition of a $400 million acquisition of a Chinese health drinks business, and if soda sales continue to decline or remain flat, expect KO to increasingly rely on acquisitions for growth.
As of this writing John Divine owned shares of GOOG stock and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.