In a recent review of large cap defensive stocks, the contrarian investor George Putnam III finds two stocks that offer attractive takeover potential.
In addition to both being in the financial services arena, both stocks also share a similar trading pattern; both have underperformed the broad market since the 2002 low but show defensive characteristics by having outperformed during the prior 2000-2002 bear phase.
The editor of the Turnaround Letter explains, "Stocks that lagged during the bull market and outperformed during the last bear market look pretty attractive to us right now."
Fifth Third Bank (NASDAQ: FITB), he notes, is a $100 billion diversified financial services business operating from Cincinnati, Ohio. Putnam explains, "Fifth Third is generally held in high regard, but results faltered in 2004 and have yet to fully recover."
He notes that last year's inverted yield curve raised borrowing costs and hurt profitability. He states, "The company has conducted several balance sheet restructurings, and its CEO of some ten years is stepping down this April." He adds, "Some consider Fifth Third an increasingly attractive takeover target."
Meanwhile, he also sees turnaround potential in Marsh & McLennan (NYSE: MMC), the world's leading provider of insurance, reinsurance and risk consulting products and services.
Putnam explains, "Beginning in 2003, the company had a series of regulatory, but those appear finally to be behind them."
Marsh has agreed to sell its investment management unit for $3.9 billion, which will give the company the wherewithal to make some strategic acquisitions. Recent results, he notes, are showing signs of improvement. And Putnam observes, "Marsh & McLennan is also rumored to be a buying candidate."
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