Netflix, Inc. (NFLX), Time Warner Inc (TWX) & Five Takeover Rumors And the Hedge Funds Who Own Them

Publicly traded companies are often acquired at a large premium to their market price pre-announcement, and so rumored takeovers- whether or not they turn out to be true- can cause speculators to pile into the stock. These stocks aren’t necessarily good buys, but certainly investors considering buying (or shorting) them should be aware of the potential for a takeover. We track quarterly 13F filings from hedge funds and other notable investors as part of our work developing investment strategies (for example, we have found that the most popular small cap stocks among hedge funds outperform the S&P 500 by an average of 18 percentage points per year). Here are five stocks which have been the subject of recent takeover rumors:

ICAHN CAPITAL Carl Icahn

Billionaire activist Carl Icahn has taken a large stake in Netflix, Inc. (NASDAQ:NFLX) and there has been some speculation that he might push to sell the company. He owned 5.5 million shares as of the beginning of this year (find Icahn’s favorite stocks). Other analysts have claimed that Netflix, Inc. (NASDAQ:NFLX) could be a target purchase for a large technology company such as Microsoft to help win the “living room wars” between different consumer devices. Netflix, Inc. (NASDAQ:NFLX)’s stock price has been very volatile over the past few years, and is quite expensive at present with a forward earnings multiple of 69.

There’s a good deal of resistance to the idea, but analysts continue to suggest that CBS (NYSE:CBS) might merge with Time Warner Inc (NYSE:TWX). CBS’s stock price rose slightly on May 1st after the company slightly beat analyst expectations on both top and bottom lines for the first quarter of 2013, with earnings rising by 22% versus a year earlier. Analyst consensus for 2014 implies a forward P/E multiple of 14. Greenlight Capital, managed by billionaire David Einhorn, increased its holdings of CBS by 24% in Q4 2012 to a total of 5.4 million shares (see Einhorn’s stock picks).

A new round of rumors have popped up regarding BMC Software, Inc. (NASDAQ:BMC), a $6.5 billion market cap enterprise software company, receiving two different offers from consortiums led by private equity funds KKR and Bain Capital. Rumors of a BMC Software, Inc. (NASDAQ:BMC) buyout have been common for some time. At its current price the company does not look like too much of a value, but Wall Street analysts are bullish judging by their forecasts for future earnings per share. Billionaire Paul Singer’s Elliott Management bought over 13 million shares of BMC Software, Inc. (NASDAQ:BMC) between October and December (check out more stocks Singer was buying).

Joy Global Inc. (NYSE:JOY), a manufacturing of mining equipment, has been experiencing some takeover rumors regarding an acquisition by larger equipment companies. The industry is being avoided by many investors given the current uncertainty over macro conditions, with the result being that Joy trades at less than 10 times earnings whether we use trailing numbers or expectations for the fiscal year ending in October 2014. Of course, it’s possible that caution is warranted with the stock’s beta being 2.0. Renaissance Technologies, whose founder Jim Simons is now a billionaire, was buying shares of Joy Global Inc. (NYSE:JOY) in the fourth quarter of 2012 (research more stocks Renaissance likes).

Icahn has also been a buyer of Nuance Communications Inc. (NASDAQ:NUAN), a $6 billion market cap voice and language software company; Nuance Communications Inc. (NASDAQ:NUAN) has been rumored to have engaged sell-side advisors following interest from private equity investors. The company is, if anything, a growth play: the trailing earnings multiple is high but the forward P/E is more reasonable (at 9) and analyst expectations for growth over the next several years result in a five-year PEG ratio of 0.7. Nuance Communications Inc. (NASDAQ:NUAN) fell 19% after its report for the second quarter of its fiscal year (the quarter ending in March) underperformed expectations and the company posted a weak outlook for the year.

Disclosure: I own no shares of any stocks mentioned in this article.

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