As some companies lag in the economic recovery and some, largely technology stocks, lead, those with cash are looking for takeover targets. In technology stocks a company may be in the business of developing expertise and products or it may be in the business of buying the technology it requires. Typically good takeover targets are startup companies with a great new idea, patents, and a product in development but not enough cash or expertise to drive on to profits. Trading takeover targets may be the game of the season as the economic recovery moves forward.

Trading takeover targets among technology stocks means you need to do a little homework. Small, young companies that have promising products and, as of yet, little cash flow are always looking for capital. When they cannot find investors they become takeover targets. The economic recovery is on its way and the technology stock sector is up sixty percent in the last months. However, this advance is based upon expected sales, not necessarily cash in the bank.

Interestingly, many companies with excellent quarterly reports and lots of cash flow have not seen their stock prices go up much. These companies may be the buyers. A possible way to approach to trading takeover targets is to look for technology stocks of promising startups and companies with cash in the same sector. We often talk about a “cross training” approach wherein the trader needs to think like an investor and the investor needs to think like a trader. This is the kind of situation where that advice fits nicely.

As the economic recovery progresses companies are starting to spend again. Technology stocks in data storage and recovery, improvements in networking, as well as any set of products making work more efficient, more productive, and cheaper will be doing well and if you are trading takeover targets these technology stocks wills be ones to watch.

There will be two scenarios with a takeover. The announcement of a takeover bid will send stocks up or down. Having anticipated the announcement you will have purchased a call option or perhaps will have set up a short straddle, if you do not know which way the news will take a stock. Then, if the takeover is fought you will see the stocks of both companies fluctuate allowing you to scalp profits as the technology stocks go up and down.

Knowing which technology stocks are potential takeover targets and anticipating how the announcement of a takeover bid will affect stocks takes homework but will ready you for profits while trading takeover targets. As always, having a plan in advance of the action will help you make more profits. Practicing with simulation trading will help you understand how a stock or a sector reacts to news. Spending the time needed to investigate promising stocks will ready you for trading takeover targets. As the economic recovery progresses some companies will rise and some will fall and some will be gobbled up. Stay tuned in and trade successfully.

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