Zacks Investment Ideas feature highlights: Central Valley Community Bancorp, Fidelity & Guaranty Life and Genco Shipping & Trading

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Apr 02, 2014, 09:30 ET

CHICAGO, April 2, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Central Valley Community Bancorp (Nasdaq:CVCY-Free Report), Fidelity & Guaranty Life (NYSE:FGL-Free Report) and Genco Shipping & Trading Ltd. (NYSE:GNK-Free Report).

Bet on Takeover Targets: 3 Spicy Picks

First of all, affordability matters. The lesser the company's market capitalization, the more its prospective buyers. If you look back at the last few years, the majority of acquirers picked small-cap stocks.

Secondly, the market hypothesis is not that efficient for small-cap stocks as these are often ignored by analysts. Lack of market insight keeps these stocks mispriced, which creates opportunity for prospective acquirers to exercise a lucrative deal.

That is why the possibility of small-cap stocks getting acquired is higher that that of the mega-cap stocks.

Screening Criterion: Market Capitalization Range > $50 million and < $2 billion

Ensure Favorable Zacks Rank

Good market or bad, stocks with a Zacks Rank #1 (Strong Buy) or #2 (Buy) generally outperform. Stocks with these ratings have been actually witnessing positive earnings estimate revisions, which should ultimately translate into price appreciation.

This should actually ensure a return even if your selected stocks do not offer a takeover gain. So lock your choice with these ratings which have a proven history of success.

(See the performance of Zacks' portfolios and strategies here: About Zacks Performance).

Screening Criterion: Zacks Rank <= 2

How Successful Is the Strategy?

I backtested this screen with a 4-week holding period over the last 5 years to see whether the group of stocks matching these parameters had at least returned better than the S&P 500.

3 Potential Takeover Targets

Before adding the Zacks Rank criterion, the screen actually gave me 15 stocks, all of which should catch eyes of corporate raiders. But if they fail to do so, the ones with favorable Zacks Rank should not disappoint.

So I reran the full screen to find those that have favorable Zacks Rank too. Here are the 3 stocks that finally got through:

Central Valley Community Bancorp (Nasdaq:CVCY-Free Report): Headquartered in Fresno, CA, this Zacks Rank #1 pacific bank provides various commercial banking services to small and medium-sized businesses, individuals, and professional communities.

EV/EBITDA = 0.84

Cash and Marketable Securities/Market Cap. = 0.91

Debt/Equity = 0.04

Price/Book Value = 1.02

Market Cap. ($million) = 123

Fidelity & Guaranty Life (NYSE:FGL-Free Report): This primary life insurance and fixed annuity company is based in Des Moines, Iowa and primarily serves the middle-income market. It holds a Zacks Rank #2.

EV/EBITDA = 0.76

Cash and Marketable Securities/Market Cap. = 0.81

Debt/Equity = 0.23

Price/Book Value = 0.95

Market Cap. ($million) = 1,306

Genco Shipping & Trading Ltd. (NYSE:GNK-Free Report): This Zacks Rank #2 company is based in NY and engages in ocean transportation of drybulk cargoes worldwide.

EV/EBITDA = 0.96

Cash and Marketable Securities/Market Cap. = 1.59

Debt/Equity = 0.10

Price/Book Value = 0.06

Market Cap. ($million) = 75

Note: All data are as of Mar 28, 2014

Don't Gamble, Play It Safe

This screen is just the starting point for your due diligence. Don't bet on a stock just because it has favorable numbers to get acquired. You should also see if it suits your investment goals and risk tolerance.

Pull the trigger if you anticipate a good return even if it doesn't get a takeover bid. The takeover potential may add a handsome bonus to your return. However, the market reacts briskly, so the faster you take action, the more you gain.

So what are you waiting for? Get started!

About Zacks

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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