The interest in Morrisons led to its share price rocketing. It was purchased by CD&R for just under £10bn, including debt. This equated to a 287p per share offer, over 60% higher than the pre-acquisition announcement price.

M&S (LSE: MKS) has proved itself as one of the hottest FTSE 100 stocks this year, delivering over 80% year-to-date returns. In mid-August, on the Morrisons news, the M&S share price jumped over 25% as investors saw it as another potential target. If this did occur, I think we could see the share price of the FTSE 100 stock explode.

Acquisition case for M&S

In my opinion, there are three key factors that highlight M&S as an attractive investment opportunity for a private equity firm.

The first is strong cash flows. The PE model rests on using large amounts of debt to fund an acquisition (called a leveraged buyout). The aim is to pay down this debt using the cash flows produced from the acquired company, building the PE firm’s equity stake in the company. The company can later be sold and the difference in starting and ending equity value is the return on investment. In order for this model to work, the company needs strong, stable cash flows. M&S has just that, delivering £296m cash in 2021.

Them there’s its large property value. One thing that’s particularly attractive about M&S and many retail grocery firms is the large amounts of property they hold. For example, at present, M&S has an estimated £1.8bn worth of property. This is attractive for PE firms because this property can be sold to help fund transaction costs.

The low-interest-rate environment is a broader factor that makes PE investment very attractive. This makes raising capital and sustaining debts very cheap. This is critical for PE firms as their whole acquisition model relies on using large amounts of debt.

Potential risks

Although the above factors highlight the attractiveness of M&S shares, there are still risks that must be considered if I were to consider a purchase. One such risk is the fact that although current interest rates are very low, many investors are expecting them to rise very soon to combat rising inflation. If this is the case, then it will make it harder to raise capital and PE investment will be less attractive.

M&S has already increased its online delivery presence through its 50% stake in Ocado. The pandemic has vastly accelerated the shift to online grocery shopping. While this is encouraging, it also means that M&S will have to compete with a much wider range of grocery delivery firms moving forward. It will have to successfully navigate this competitive landscape if it wants to carry on delivering good results. 

I think M&S is one of the most attractive FTSE 100 stocks for a PE acquisition that could drive a steep share price rise. But acquisition talk aside, I think M&S’s strong results and online presence could make it a great investment opportunity for my portfolio as an independent company. Those features that make it attractive to PE firms, make it attractive to me too!

The post Could this FTSE 100 stock explode in 2022? appeared first on The Motley Fool UK.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One investment trust I believe is set to outperform in the year ahead is Henderson Far East Income (LSE: HFEL). It’s a fund suited for income and growth investors alike, with shares in the fund currently offering a dividend yield of 5.4%.

Faster dividend growth

Looking ahead, it seems set to benefit from the more constructive outlook for emerging market economies in 2018, which is likely to drive further gains for emerging market equities. Asian markets are particularly promising, with recent GDP growth forecasts revised upwards for both China and India.

What’s more, Fund manager Michael Kerley reckons Asian companies have a greater potential to grow their dividends than those from other regions because, on the whole, they have been generating more cash than is being used for new investments. This ‘excess’ cash leaves room for increased shareholder payouts going forward.

Additionally, he believes current dividend payout ratios in Asia are relatively low compared to companies from other regions, meaning there’s greater scope for dividend growth than elsewhere.

Value focus

Kerley uses a value driven approach, with a preference for companies that generate reliable and growing cash flow, in order to deliver a portfolio of high quality Asia Pacific equities that generate high and sustainable dividends. As such, I reckon this fund may be considered by income investors as a potential alternative source of equity income to UK-focused equity funds, thereby allowing investors to diversify geographically and potentially to reduce risk.

Over the past five years, the fund has delivered a total net asset value (NAV) return of 53.3%, with dividends per share growing by an annualised rate of 4.1%.

Private equity

Another area worth considering for investors seeking income and growth is private equity. It has been one of the best-performing alternative asset classes in recent years, but retail investors seldom get much exposure to the asset class because it’s largely closed off to them. Thankfully, investment trusts, such as NB Private Equity Partners (LSE: NBPE) enable us to gain access to this market, which is under-tapped by retail investors.

There are many reasons for investing in private equity, not least the fact that there are many more unlisted companies than publicly listed ones, so there is a broader investment universe to benefit from. Other reasons include the historical outperformance in returns against equities, better active management opportunities and diversification advantages.

Lower charges

But what sets NB Private Equity Partners apart from many such investment trusts is that a majority of its assets, by value, is invested directly into private-equity backed companies. This is unlike most other peer businesses, such as the Standard Life Private Equity Trust, which use a ‘fund of funds’ approach that adds an extra layer of cost.

As a result, NB Private Equity Partners has lower all-in costs to investors than most listed private equity investment vehicles.

Another attraction for prospective investors right now is that shares in the investment trust currently trade at a sizeable discount to its NAV. With shares in the trust currently trading at a 16% discount to its NAV, there may be additional scope for upside should the discount narrow in the future.

Shares in the investment trust currently support a dividend yield of 3.5%.

The post Looking for income and growth? Consider these top dividend investment trusts appeared first on The Motley Fool UK.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Private equity

Private equity has been one of the best-performing alternative asset classes in recent years, and that’s helped to attract billions in flows from sovereign wealth funds, pension companies and other institutions. It’s an area that’s largely closed off to direct retail investors, but there are a few investment companies, such as the HarbourVest Global Private Equity Limited (LSE: HVPE), which give them indirect access to this market.

What’s unique about private equity funds is that they typically invest in unquoted companies that are in the developing stage or have under-tapped potential. This means there’s the potential to generate higher returns than in the stock market, while improving portfolio diversification at the same time.

HarbourVest invests in a wide range of private equity funds which, in turn, gives it exposure to a broad-ranging portfolio of equity investments diversified by geography, stage of investment, vintage year, and industry.

And with a share price of 1,290p, HarbourVest trades at a 15% discount to its NAV, meaning prospective investors can effectively purchase shares in the fund for significantly less than the sum of its parts.

A healthcare fund poised for growth

Sector investing offers targeted exposure to company stocks in individual industries which can help you to pursue opportunities which affect specific parts of the economy.

One sector which I’m particularly keen on is healthcare. The sector offers huge potential, as it benefits from a number of long-term structural tailwinds, which include an ageing global population, a growing middle class in emerging markets, and innovation in new drug development. Of course, not every company will perform well in a sector that is benefiting from long-term trends, which means it’s important to diversify and spread your capital over a reasonable number of companies.

But instead of just buying the likes of GlaxoSmithKline and AstraZeneca, why not diversify geographically to potentially boost returns and reduce risk? After all, healthcare is a global business, so you’re getting foreign exposure from domestically-based businesses anyway. What’s more, the US has many more publicly-listed healthcare companies than the UK, particularly in the biotech sector, which means avoiding international companies drastically narrowing your investment universe.

That’s why most funds investing in the healthcare sector typically have a global outlook. And one fund which has caught my eye recently is the Worldwide Healthcare Trust (LSE: WWH), which I reckon to be a smart bet on the sector.

Since its inception in 1995, the fund has proven leadership, having been continuously run by two specialist investment veterans, Samuel Isaly and Sven Borho. Performance figures for the past five years show the trust earns a total share price return of 211%, easily beating its benchmark MSCI World Health Care Index’s performance of just 131% over the same period.

The post 2 top-performing investment trusts for long-term investors appeared first on The Motley Fool UK.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.