Investors often ask how we have managed to recommend so many value stock picks that get taken over for big profits. In fact, some readers of our newsletters and investment services tell us that they never had a stock taken over at a profit until they began following our advice.

More on the strategy that helps us routinely spot takeover candidates in a moment. But first, here are just a few recent takeover targets we’ve recommended. All have rewarded our readers with big gains:

• In the October 2010 issue of Wall Street Stock Forecaster, we recommended Del Monte Foods (symbol DLM on New York) at $13 a share. In November, the company accepted a $19.00-a-share takeover offer from a private equity group led by KKR & Co. (symbol KKR on New York). Del Monte is now trading at $18.80. That’s a 45% gain!
• In an October 8, 2010, Stock Pickers Digest Hotline, we issued a “buy” recommendation on DundeeWealth Inc. (symbol DW on Toronto), at $15.11. On November 22, Scotiabank (symbol BNS on Toronto), announced that it will buy the 82% of DundeeWealth that it doesn’t already own. The news caused DundeeWealth’s shares to shoot up to their current $21.22 — for a 40.4% gain!
• And these weren’t our only October recommendations that gained sharply on a takeover. We recommended Verigy Ltd. (symbol VRGY on Nasdaq) in the October issue of Stock Pickers Digest at $8.28. Just last week, Japan-based Advantest, another maker of computer-chip testing equipment, offered to buy Verigy for $12.15 a share. That sent the stock up to its current $13.43, for a gain of 62.2%.

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Hidden assets are the key to spotting value stock picks that are ripe for a takeover

A value stock pick’s takeover prospects are just one thing we look at when we choose companies to recommend in our newsletters and investment services. An equally important part of our investment approach involves looking for companies with what we call “hidden value” — hidden or widely overlooked assets.

By hidden value, we mean valuable assets that are not getting the attention they deserve from investors. When a company’s assets are wholly or partially ignored or hidden, the stock trades for less than it’s really worth, so you get to buy at a bargain price.

Companies that launch takeovers also tend to look for hidden assets. That’s why so many of the value stock picks we recommend get taken over. Of course, hidden assets are no guarantee of a takeover, but they cut long-term risk, and make a takeover a lot more likely.

If a stock with hidden assets gets cheap enough, it attracts buying by value-oriented investors. Its low price may also trigger a takeover that otherwise might never have happened.

The best of all investment worlds

Sometimes, of course, hidden assets stay hidden for a lengthy period. But as long as a stock has more obvious appeal, such as long-term growth prospects, a reasonable per-share price-to-earnings ratio or an attractive dividend yield, you have what we call the best of all possible investment worlds: a heads-you-win, tails-you-break-even situation.

If it works out well, it can be extraordinarily profitable; if it works out poorly, you really won’t lose that much.

If you buy aggressive stocks, you really should have a subscription to Stock Pickers Digest. The latest issue gives you our full analysis, including clear buy/sell/hold advice, on 18 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. What’s more, you can get this issue free. Click here to learn how.