Published: February 18, 2009
On the
morning of January 12, 2009, the sun was shining extra bright
for one Southern Californian firm. The small specialized health
care business of Advanced Medical Optics (NYSE: EYE)
experienced a truly perfect day. At least, its investors did.
You see, Abbott Laboratories announced that it intends to
acquire AMO for $22 per share in cash. That's about 149% above
it's $8.85 Friday close. It took 18 years for the S&P 500 to
bring those kinds of gains. Seriously, you'd have had to invest
in February 1991 to realize a 149% gain today.
Most investment advisors compare their expected returns to
benchmark indexes like the S&P 500 or the Dow Jones. Even
small-cap specialists compare their gains to the Russell 2000.
But, why in the world would you want to wait 18 years to grow
your money, when there are investments you can buy on a Friday
afternoon and cash out on Monday for the same return.
So the question before us is: how can you double your money like
AMO investors?
AMO is a rare case when investors oversold a company's stock and
a large competitor takes advantage. To benefit from cases like
these, you need to find similar scenarios. Let's walk through AMO's
story...
Finding a Mega Value
AMO sells vision-correction technologies and products for a wide
variety of patients. For instance, no one sells more LASIK
surgical devices - used in more than 90 percent of all U.S.
refractive surgical procedures - than AMO. The company also
holds the number two spot in the cataract surgical devices
market and the number three position in the contact lens
products market.
Now, without serious research there's simply no way for me to
tell you any more than that. Frankly, I don't know much about
this industry, and since the jump already occurred, I don't need
to.
But apparently, Abbott Laboratories did do that research and
figured that AMO was still a buy at a 148% premium. The point
is, Abbott realized how important it was to control the top
spots in these fields.
Special Offers
|
 |
Get Investor's Business Daily
FREE for two weeks.
Learn
More
|
|
 |
|
Risk free
trial of our live e-mini futures trading room.
Learn
More |
|
|
|
|
Over 60% of 60+ year olds have
cataracts. In the next 11 years, the number of 60+ year olds
globally is expected to increase 43%. Simply put... the older you
are, the more chances you'll need AMO's technologies. And with
more older people than ever, the demand is rising. You don't
have to be an eye expert to realize what Abbott was thinking.
On top of a great looking future, AMO was also incredibly cheap
just last week. Abbott is basically paying a total $2.8 billion
for a company that produces $1.1 billion in revenue per year. In
just two and a half years, the company's revenue will merit the
investment.
Sure, it's not a highly profitable company yet, but it is in the
black. AMO is already turning a profit, which is just another
stream of income for Abbott even before synergies are realized.
Back to how this affects you...
If you know what to look for, you can be in on the next AMO.
Below is a quick list of criteria to look for when searching for
a buyout candidate:
 Value
- are the company's
price-to-earnings,
price-to-sales, and price-to-cash flow ratios low?
ROI
- has the company made smart
investment decisions? Will there be a lot of
useless intangible assets lying around that would
disinterest a potential owner?
Industry
- is the company in a growing or
contracting industry? Is it an industry
that is conducive to mergers and acquisitions?
Profit
- is the company profiting already,
or at least have a profitable horizon?
Debt
- is the company carrying high debt?
Would a potential buyer use the debt
situation to lower its buying price?
Synergy
- is the company's business model
flexible, and can a potential buyer save
costs by synergizing departments?
Of course, each company is different, and each acquisition is
different. It takes some serious studying to find great buyout
candidates. But done right, and you can save yourself 18 years
of waiting around in the stock market. If you find the right
candidate, you might just multiply your money in hours, not
years.
Sincerely,
--Jim Nelson
Managing Editor
Penny Sleuth
P.S.: Rumor has it that one of the picks in the
Penny Stock
Fortunes is about to get bought out. If that's true, members
will be able to pay for their subscription immediately with
enough cash left over to take a vacation, buy a new flat-screen,
or pay for a semester of their children's college tuition. Heck,
you can use this money any way you want. Imagine what it'd be
like to double or triple your money in just a few hours.
Check it out here... |
