If you are looking for a stock that has a good chance of being acquired or bought out by a larger company, try public companies that focus on packaged food products. The reason I suggest this sector is because there is a wave of consolidations taking place in this sector. It is not hard to see why. The whole point of these consolidations is the fact that shelf space at your typical American supermarket is precious real estate.
If a company is able to control as many different shelf sections as possible, it has a tremendous competitive advantage. This is why more and more food companies are buying similarly unrelated companies. For example, Hershey, a brand famous the world over for its chocolate products, recently bought out a maker for beef jerky. Normally, you wouldn’t eat chocolate and beef jerky at the same time. However, that is not the underlying philosophy behind the buyout. The underlying philosophy is a simple grab at supermarket shelf space.
Considering that we are only dealing with a relatively small amount of real estate here, expect this competition to get even more frantic in the coming years. There has been a lot of behind-the-scenes consolidation in the packaged food industry. Expect this to pick up.
This is where you come in. If you buy a public company that is maybe a mid-sized packaged food player, that company might be acquired. Again, it is not a slam dunk. It is not guaranteed. But considering industry trends, there is a good chance that it might happen.
Of course, you need to research the company thoroughly. Make sure that it is a dominant player in its space and it has low debt, among other factors. This way, even if it doesn’t get acquired, it is still a solid company to hang on to in the long term. If you play the game this way, you can come out a winner regardless of what happens.
