Morgan Stanley has identified tech companies most likely to get acquired in the next 12 months. Takeovers are on the rise thanks to tax cuts, which frees up cash for deals according to the bank. Indeed, acquisition intensity increased to 3.2% in Q1 from 2.5% in the previous quarter. Why does this matter? Well, share prices can soar when a takeover deal is announced- meaning that there is big value in identifying takeover targets correctly.
From the list, we used TipRanks to identify the top stocks with a bullish Street outlook. All three of the stocks below boast a ‘Strong Buy’ analyst consensus rating. The advantage of these three stocks is that they represent compelling investing opportunities- even if a takeover doesn’t materialize.
As for the methodology, “Our model, ALERT (Acquisition Likelihood Estimate Ranking Tool), combines stock characteristics, cohort membership, and data regarding offers to forecast probabilities that stocks receive tender offers in the coming 12 months,” revealed Brian Hayes, the firm’s global head of quantitative research.
So with this in mind, let’s take a closer look now:
1. Ciena Corp (NYSE:CIEN)
Check out Ciena Corp, an intriguing tech stock with a focus on telecommunications. Following solid fiscal 1st quarter results, top William Blair analyst Dmitry Netis concludes that the stock has a compelling risk/reward ratio. He likes the way the company is diversifying and believes that new customer wins in new territories (such as Japan and South Korea) are a clear sign of a leading product portfolio and market share gains.
He concludes: “We argue for a better multiple for Ciena shares due to higher quality earnings, above-market growth over the next three years, a leadership position in all segments of the optical market, improving operating margins and balance sheet (through the retirement of debt), and strong free cash flows ($150 million-$200 million over each of the past two years).”
Overall, CIEN has received 9 recent buy ratings from the Street vs just 1 hold rating. These analysts see the stock spiking 15% to $31.
2. Nuance Communications (NASDAQ:NUAN)
Nuance- the company that provides the tech for Apple’s Siri, boasts 100% Street support right now. Analysts are projecting, on average, 39% upside potential from current levels. One of these analysts is Oppenheimer’s Shaul Eyal. This top 100 analyst sees big expansion potential for NUAN and explains why here:
The speech market remains relatively under-penetrated, providing significant opportunity to expand market reach. As a stock, NUAN should benefit from the company’s market-leading position and nascent opportunity in speech solutions.
Plus the appointment of a new CEO Mark Benjamin will bring new blood to push NUAN’s long-term strategy. Mark Benjamin is replacing former CEO Paul Ricci.
3 Lumentum Holdings (NASDAQ:LITE)
Lumentum is a market-leading manufacturer of innovative optical and photonic products enabling optical networking and commercial laser customers worldwide. The stock has just received a bullish call from Drexel Hamilton’s David Williams. He sees prices spiking 53% to $85 and sets out his analysis here:
Our investment thesis is primarily driven by the company’s more recent success in 3D sensing modules with Apple and expect a solid ramp into multiple Android customers in the coming several quarters. We are also highly encouraged by the acquisition announcement of Oclaro and expect benefits well beyond the cost synergies the company has pointed to.
Indeed, eight top analysts have published buy ratings on LITE in the last three months. They see big upside potential of 48% from current levels. You can click on the screenshot below for further LITE insights from market experts:
Are you looking for the latest top stock ideas?
Here we zeroed in on the stock picks from just one firm, but TipRanks compiles ratings from over 4,700 analysts. The result: immediate access to the Street’s most popular stocks at any given time. To find these stocks simply go to ‘Analysts’ Top Stocks’ under Research Tools. Plus you can sort the results by upside potential to pinpoint the stocks with the biggest growth prospects.
