Rodman & Renshaw Could Benefit From Increased M&A (RODM)
Yesterday, BHP Billiton (NYSE: BHP), the world's largest mining company, made an unsolicited bid for fertilizer heavyweight Potash (NYSE: POT), which has been rejected by POT's board. This M&A activity, however, sparked a rally in U.S. equities which is continuing on Wednesday with the Dow up nearly 60 points with two and a half hours left in the trading day.
If M&A picks up, and indications from this week suggest it will, Rodman & Renshaw (NASDAQ: RODM), a small boutique firm will likely benefit. The stock is a levered way to play an increase in M&A. The firm is very small, with a market cap of only $77.47 million. The stock is also cheap, trading at $2.23 and sporting a trailing P/E of 4.12, a forward multiple of 3.93 and a bargain basement PEG ratio of 0.49.
A marginal pick up in corporate transactions should provide the stock price with a big boost. RODM is active in some increasingly interesting M&A sectors right now, including life science/healthcare, energy, metals/mining, financial services and cleantech. In particular the life science/healthcare space and the resources sector has seen an uptick in activity with talks taking place between Genzyme (NASDAQ: GENZ) and Sanofi-Aventis (NYSE: SNY) and now BHP and Potash (POT).
Analysts are bullish on RODM. The Mean Wall Street target for the stock is $6.25 with a high target of $6.50. If this price were reached in the next 12-months, it would imply huge profits for investors who get into RODM now.
The stock has been under pressure in 2010, as the capital markets and investment banking business has been exceedingly difficult. Year-to-date, the shares have lost 45%, but have traded as high as $6.66 in the past 52-weeks.
On a pure valuation basis, RODM should be coming into some support soon. The 52-week low in the shares is at $2.06. Investors and traders looking to make some big returns betting on an M&A surge, could get long RODM in the mid $2.20s and use the $2.00 level as a stop-loss. Under this scenario, you are essentially betting around $0.23 to make as much as $3 to $4.
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