APO posted gangbuster results today, solidifying private equity as a force to be reckoned with on Wall Street, as far as smashing EPS estimates is concerned. Pair that with the buyout of BMC this morning, and there is reason to pay attention and look for names that might be next on the takeover list.
Here is my criteria.
Market Cap under $50 bill
Minimum daily volume of 500k
Debt/equity under 2
Forward PE under 15
PEG ratio under 2
Price to free cash flow under 15
Price to sales under 5
Exclude all China related stocks
Sector: only technology
When looking for private equity buyout candidates, growth isn’t a major factor, believe it or not. Sometimes growth is paired with volatility, which is avoided by PE. What they’re looking for is free cash flow, clean balance sheets or able to lever up, inexpensive valuation in a cheap sector. In this case, tech is the cheapest sector out there.
According to an S&P report published this morning, information technology is trading at a significant discount to historical valuations, more so than any other sector.
I don’t have a favorite name just yet. But some of those chip companies look good and the industry is ripe for consolidation.
JOY looks interesting
Good screen, Fly. In addition to clean balance sheets, chip makers have lots of assets (machines) and facilities (Real Estate) which PE guys love because it is easier to get leverage on it than something like AR.
HTCH again. book ~ $7
Yep, wish I’d bought the dip last week.
I’m long KLIC. Do you think their bylaws may inhibit or deter buyouts?
All I have to say about this market is WOW, this is some sure fine.
I don’t see PE buying chip makers… too much volatility.
They like slow and steady, pay the debt down kind of stuff.
Consumer goods, distribution, maybe some long tail logistics.