The character of this stock market is changing.
What has worked over the past nine years during the bull market may not work in the future. For investors serious about making money, it is high time to brush up on skills and learn new strategies.
At The Arora Report we advocate diversification by strategies. We have over 50 strategies in our quiver. One strategy that is especially appropriate for these volatile times is the “buyout strategy.” In this strategy, the focus is to find companies that may get acquired, producing big gains for investors. To date, 144 of our portfolio companies have been purchased or significantly benefited from mergers and acquisitions.
How do you find such companies? Let us explore starting with three charts of real examples.
Please click here for an annotated chart of the buyout of a biotech company, Tesaro TSRO by pharmaceutical company GlaxoSmithKline GSK.
Please click here for an annotated chart of the buyout of a software company, Red Hat RHT by IBM IBM.
Please click here for an annotated chart of the buyout of a defense and aerospace company, Esterline Technologies ESL, by TransDigm TDG. Please note the following:
• Astute investors do not become prisoners of the moves in the Dow Jones Industrial Average DJIA, S&P 500 ETFSPY, Nasdaq 100 ETF QQQ, small-cap ETF IWM and other similar broad index-based investment vehicles.
• Money is to be made by not limiting yourself to popular stocks such as Apple AAPL, Facebook FB, Netflix NFLX and Johnson & Johnson JNJ.
• The first chart shows that the Arora buy signal for Tesaro was at an average buy price of $34.61. On Nov. 16, when the stock was trading in $30s, we wrote: “It will not be surprising to see a buyout north of $75.”
Ten trading days later, Tesaro received a cash buyout offer at $75 per share from GlaxoSmithKline. In the business of investing, it does not get any better than this trade. The buyout price represented a return of 116%.
• Tesaro is focused on poly ADP ribose polymerase (PARP) inhibitors. PARP repairs cell damage. However, in some forms of cancer, cancer cells are more dependent on PARP than the regular cells. This makes PARP an attractive avenue for cancer therapies. GlaxoSmithKline was interested in this strategic oncology asset and was willing to pay top dollar for it.
• The chart shows The Arora Report signal to buy Esterline at an average price of $84.80. About two months later, TransDigm made a cash buyout offer of $122.50. That was a gain of 44%.
• The number of large aerospace and defense companies has dwindled. There is a scarcity value, and the buyer was willing to pay up for Esterline. The acquisition is accretive for TransDigm.
• The chart shows Arora buy signals on Red Hat at the average buy price of $43.41. At the time of the original call, we said that Red Hat was a buyout target and IBM was one of the most likely buyers. Now IBM is buying Red Hat for $190 per share in cash. That’s a return of 340%…Read more at MarketWatch.
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