Deal or No Deal

Investors hoping to cash in on the merger and acquisition frenzy should look for stocks that are both attractive on their own and have characteristics that might appeal to corporate raiders.

Such companies have rich levels of free cash flow and steady, sustainable cash flow growth. You should consider the EV/EBITDA ratio. EV is enterprise value (market cap plus debt, minus cash). EBITDA is earnings before interest, taxes, depreciation and amortization.

NOTE: A low EV/EBITDA ratio indicates that a company might be undervalued, and thus a good investment.

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