GOLDMAN SACHS: Traders think these 15 companies are the most likely to get taken over this year

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GOLDMAN SACHS: Traders think these 15 companies are the most likely to get taken over this year

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Reuters / Brendan McDermid

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  • Wall Street is expecting merger and acquisition activity to accelerate in 2018, and there's a way to see which companies options traders think have the highest chance of being taken over.
  • Goldman Sachs has singled out 15 companies whose options reflect high expectations of an acquisition.

Wall Street is expecting a major uptick in merger and acquisition (M&A) activity this year. But that information is worthless for single-stock traders unless they know which companies have the highest chance of being taken over.

That's where Goldman Sachs comes in. Katherine Fogertey and the rest of the firm's derivatives team have crunched the numbers and identified a handful of such firms. And these aren't simply qualitative recommendations - Goldman used an exact, options-based methodology designed to highlight companies for which an M&A premium is already being reflected.

The firm's approach involved calculating the 3-month/12-month term structure for a universe of companies. Goldman then ranked them by degree of downward-sloping term structure, while also ensuring the firms met a minimum liquidity threshold.

(Note: Term structure measures volatility expectations in one period relative to another. By comparing the 3-month measure to the 12-month, Goldman is assessing investor expectations around how much the stock will move in the short term, relative to longer-term volatility potential.)

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The ultimate objective was to pinpoint stocks where the "options market appears better positioned for the stock to trade up sharply in the next three months, consistent with a higher potential for M&A."

Without further ado, here are the 15 stocks for which Goldman says options traders are most aggressively positioned for a takeover.

Get the latest Goldman Sachs stock price here.

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15. TransDigm

15. TransDigm

Ticker: TDG

Industry: Industrials

Market cap: $16.4 billion

Term structure: 1.04

14. C.H. Robinson Worldwide

14. C.H. Robinson Worldwide

Ticker: CHRW

Industry: Industrials

Market cap: $12.7 billion

Term structure: 1.04

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13. Kimberly-Clark

13. Kimberly-Clark

Ticker: KMB

Industry: Consumer staples

Market cap: $39.3 billion

Term structure: 1.05

12. Advance Auto Parts

12. Advance Auto Parts

Ticker: AAP

Industry: Consumer discretionary

Market cap: $8.6 billion

Term structure: 1.06

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11. CNX Resources

11. CNX Resources

Ticker: CNX

Industry: Energy

Market cap: $3.5 billion

Term structure: 1.06

10. Newfield Exploration

10. Newfield Exploration

Ticker: NFX

Industry: Energy

Market cap: $4.7 billion

Term structure: 1.06

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9. Maxim Integrated Products

9. Maxim Integrated Products

Ticker: MXIM

Industry: Information technology

Market cap: $17.8 billion

Term structure: 1.07

8. Yelp

8. Yelp

Ticker: YELP

Industry: Information technology

Market cap: $4.3 billion

Term structure: 1.08

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7. Time Warner

7. Time Warner

Ticker: TWX

Industry: Consumer discretionary

Market cap: $76.3 billion

Term structure: 1.09

6. E*Trade Financial

6. E*Trade Financial

Ticker: ETFC

Industry: Financials

Market cap: $15.6 billion

Term structure: 1.09

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5. Edwards Lifesciences

5. Edwards Lifesciences

Ticker: EW

Industry: Healthcare

Market cap: $30.4 billion

Term structure: 1.10

4. Twitter

4. Twitter

Ticker: TWTR

Industry: Information technology

Market cap: $28 billion

Term structure: 1.12

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3. XPO Logistics

3. XPO Logistics

Ticker: XPO

Industry: Industrials

Market cap: $13 billion

Term structure: 1.18

2. Bristol-Myers Squibb

2. Bristol-Myers Squibb

Ticker: BMY

Industry: Healthcare

Market cap: $109.9 billion

Term structure: 1.19

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1. Incyte

1. Incyte

Ticker: INCY

Industry: Healthcare

Market cap: $20.1 billion

Term structure: 1.48