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5 Companies That Should Say "I Do"

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As the world's attention has turned to Westminster Abbey to catch Prince William and Kate Middleton exchanging vows, I'll the be the one egging companies on to snag the bridal bouquet.

I don't know a lick about Will and Kate, but I trust they'll be happy together. What I do know, however, is that there are some companies that should be getting hitched themselves.

I have five companies that I believe should be entertaining suitors on their porch. These are publicly traded companies that aren't necessarily broken or desperate. I just feel that they're at a certain stage where they risk peaking soon if they don't find the right partner to take things to the next level.

Crank up the pipe organ. Here come the brides.

IMAX (Nasdaq: IMAX  )
Shares of IMAX hit a new high yesterday, fueled by decent quarterly results and accelerated expansion plans.

There's clearly life after Avatar for the provider of larger-than-life cinematic experiences.

There are now 528 IMAX screens, and this scalable model is just getting started. IMAX signed deals for 101 future theaters during the first quarter alone, and now has a record backlog of 283 systems.

Sitting back and collecting juicy licensing revenue was a nice lean model, but times have changed. IMAX is getting more skin in the game by striking joint-venture deals where it's able to get a piece of the concessions and a larger chunk of the box office receipts. This doesn't come cheap, so IMAX announced an expanded credit facility with its commercial lender.

IMAX shouldn't have any problems borrowing more money, but its best bet may be a sugar daddy at this point. The Canadian company doesn't have to limit itself to North American buyers. It has a presence in 46 different countries, nurturing active relationships with well-heeled exhibitors. A financially fortified acquirer would be able to expand even more aggressively, while giving IMAX a margin of safety if consumers take a break from super-sized multiplex outings.

Research In Motion (Nasdaq: RIMM  )
It's time for a BlackBerry shake.

Things aren't as bad as RIM's meandering share price may suggest. Who cares if the PlayBook is just a niche product? There are tens of millions of active BlackBerry owners out there, and RIM has credibility in the corporate realm that faster growing smartphone platforms lack.

It's true that Android and iPhone handsets are gaining market share, but this remains a growing pie. Analysts see RIM's revenue growing 24% this fiscal year, and another 14% next year -- even if those targets will inch lower after last night's dreary sales outlook.

I hope this isn't enough to encourage RIM to meander alone. The decelerating trend is there for all to see, and Microsoft (Nasdaq: MSFT  ) is prepared to spend billions to make a dent here. Mr. Softy was a rumored buyer several years ago, after a period during which RIM's share price had been much higher and its user base was much smaller. It doesn't make as much sense as it used to, but last year's Palm buyout opens the bidding floor to global computer makers angling for good seats in pocket-sized computing.

Netflix (Nasdaq: NFLX  )
I've been a financially grateful shareholder of Netflix over the past nine years, applauding a fresh all-time high set earlier this week. With revenue and earnings soaring 46% and 88%, respectively, in its latest quarter, it's easy to see why shorts may need to change their shorts.

The realist in me doesn't want to get greedy. As resilient as Netflix has been -- and should continue to be -- there are uncertainties ahead. As DVDs become less of a differentiator, the streaming marketplace will become more competitive. Netflix has a colossal advantage with 23.6 million subscribers. It affords it the kind of licensing clout that wannabes can't match. However, cable companies, the world's largest e-tailer, and eventually kiosk operators have been drumming up smart digital strategies to woo couch potatoes without forking over more money.

Netflix's stellar ascent over the years limits the pool of potential buyers, but nearly every tech darling with the kind of balance sheet greenery to pull this off would also love to be in Netflix's position in digital video.

E*TRADE (Nasdaq: ETFC  )
I've been arguing in favor of an E*TRADE buyout since before the E*TRADE Baby was born.

The discount broker has dolled itself up since then. It's largely profitable. It has cleaned up its deadbeat borrowers. There has also been a wave of sector consolidation that makes E*TRADE the most eligible merger candidate. Having a killer brand with memorable marketing only helps.

Why punch out? The time is right. Cutthroat commission rate and fee-free ETF trading competition along with low interest rates are keeping profit growth in check. The individual investor is back, but for how long? E*TRADE may as well strike before its iconic talking baby shtick drags on till puberty.

GameStop (NYSE: GME  )
I rub my eyes with every quarterly report out of GameStop. Video game sales have been sluggish for two years, yet GameStop grows. Digital delivery threatens its small-box empire, yet the specialty retailer's stock hit a new 52-week high last week.

GameStop's attractive unit economics are keeping investors happy today. An aggressive acquisition strategy of digital-savvy upstarts is keeping investors confident about the future.

I'm not as confident in GameStop. It should be thinking of cashing out now while it still has its good looks, instead of waiting until the same fate that has befallen record, book, and DVD shops strikes video game retailers as the next marginalized media.

Go on, you five. Get on top of that wedding cake before you become cat-collecting spinsters.

Be the Kate.

Which of these five companies do you think will be acquired next? None of the above? Share your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value pick. IMAX is a Motley Fool Rule Breakers recommendation. Netflix is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended writing covered calls on GameStop and a diagonal call position on Microsoft. The Fool owns shares of GameStop and Microsoft. Alpha Newsletter Account, LLC has bought puts on Netflix and owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz couldn't care less what Kate's wearing or who is catering their royal shindig. He does not own shares in any of the companies in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 29, 2011, at 11:36 AM, Gonzhouse wrote:

    IMAX has come back from a decade of single-digit stock price to the $30's. It's shocking someone didn't snap up IMAX when the price was in the teens, the business model was proven, and it would cost a whole lot less money to buy.

    As a long-term holder (and the largest holding in my portfolio) I'm not suffering. But the real-big money has been made. Right now the price for buyout is in the range of $40-$42. As the new joint venture theatres come on-line I expect IMAX to push the upper $30's, with a buyout price then of $50.

    Pay me now or pay me later.

  • Report this Comment On April 29, 2011, at 1:06 PM, icantknow wrote:

    Thanks for the GME Gamestop comment. I've gotten out at the high. Seems like they are all talk no action when one really looks at their challenges with this streaming game thing. The small print looks like it is off in the future for any big changes. I'm not holding my breath.

  • Report this Comment On April 29, 2011, at 8:04 PM, CustardPies wrote:

    Very good article.

    I bought IMAX at around $13 in early 2010 and I've definitely been enjoying the increasingly good news and rise in stock price.

    On December 31, 2010, IMAX jumped 20% to around $35 per share on a Sony buyout rumor. The rumor was debunked and the stock price dropped back to Earth. Five months later, we're at that same $35 level without any buyout news. The stock got there on its own. As a shareholder, I'm happy about that.

    I am a little torn about IMAX, however. Although I know a buyout would bring increased gains that I could quickly take, I'm curious about how IMAX would do on it's own in the long run. Either way, I'm optimistic about both scenarios.

    Again, thanks for the article. It was a good read.


  • Report this Comment On April 30, 2011, at 11:48 AM, RealSKS wrote:

    I am in three of the stocks mentioned and would personally like to see them grow without "I DO"

    Especially IMAX and GME

  • Report this Comment On April 30, 2011, at 2:14 PM, crca99 wrote:

    You don't mention it, but I wish LOOP had refused marriage this week.

  • Report this Comment On May 03, 2011, at 11:51 AM, David369 wrote:

    I have been happy with IMAX but I wonder if it is a fad or not. Supposedly children under 7 aren't supposed to watch 3D (why?) so I would assume that would limit TV sales and some children oriented movies in the future. With the Discovery 3D channel in the works and more 3D TVs being offered and maybe sold I guess it is looking less and less like a fad. I hope the trend continues. If I am correct I think IMAX had 4-5 movies last year and there is supposed to be 12-15 this year. If the number of IMAX movies stay the same or increase next year I would feel better about the continued growth in IMAX's future. Lots of screens are nice but there better be 3D movies to go along with them or orders will dry up fast.

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