Investing in Buyout Prospects

After upping its offering price, GlaxoSmithKline (GSK) finally bought out Human Genome Sciences (HGSI). The price was $3 Billion plus or minus for the hostile takeover turned agreeable with the sweetened pot. The takeover brings to mind the business of investing in buyout prospects. Human Genome Sciences was trading for just over $13.50 a share and gapped up nearly 75 cents on the news. This always sounds attractive when thinking of investing in buyout prospects. However, take a look at the last year or even last five years of Human Genome Sciences stock. After all when investing in buyout prospects the investor needs to scout out opportunities before they happen and not read about them in the stock market news. HGSI peaked at just over $32 in early 2010 and stayed in that range for a year. By late 2011 it was trading for just over $7.50 a share. It was in April 2012 that the stock doubled from the $7 range to the $14 range of news of a likely takeover by GlaxoSmithKline. For those interested in investing in buyout prospects the time to be in the stock was then and not, especially, last week when the announcement of an agreement drove the stock up another three quarters of a dollar. After all, the point of stock investing is to make the best profit reasonably available from the market.

What Stocks to Follow

In general takeover stocks are those that have a greater potential value than is being realized by current management. A prime example was the Google purchase of Motorola , or Motorola’s cell phone arm, Motorola Mobility, by Google. Google needed Motorola’s treasure trove of patents for its patent wars with Microsoft and Apple over Android. Motorola was not making the best monetary use of those patents. In fact outside investors had argued this same fact when purchasing Motorola stock and promoting a breakup of the company. When a big takeover artist is taking an interest in a company it may be useful to follow along when investing in buyout prospects.

When to Start Investing in Buyout Prospects

If you want to make money investing in buyout prospects you want to be in the stock a short time before it pops up on a takeover or takeover bid. And, you do not want to be holding onto a losing stock for years only to find that no one wants to take it over. When you hear rumors of a takeover it may be good to pay attention. However, the market commonly reacts to such rumors and drives stock prices up. At that point it is wise to carry out fundamental analysis of the stock in question to decide if it has hidden value that would make it a buyout target. And, if you missed the opportunity to buy a stock before the takeover, watch the stock for the next days or weeks. The market may react positively or negatively to the buyout. If the market decides that the buyout was a bad move the price of the buyer may fall. Again, do your fundamental analysis and decide if the surviving company is likely to go back up in price, which is sort of a back sided way of investing in buyout prospects.

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