Five Energy ETFs Loaded With Takeover Targets

As we have been speculating in this space for most of 2011, the energy sector is ripe for consolidation. And as we opined last week, it looked that consolidation might quicken in pace in the fourth quarter into early 2012 as well. It certainly appears to be the case today as roughly $29 billion in energy deals have been announced. Of course the fun thing about Merger Mondays is that they always prompt the question “Who is next?” Meaning what companies might be next to be acquired in the energy space. As smart investors know, it can be dangerous to buy an individual stock with the hope that the company will be acquired. Rather than do that, it can be more prudent to find energy ETFs that littered possible takeover candidates. Here are five to get you started. First Trust ISE-Revere Natural Gas Index Fund FCG: We mentioned FCG last week as a play for the rather persistent rumor that Range Resources RRC is a takeover target, but when you look at the ETF's lineup, there are probably three or four other holdings that are credible candidates to be acquired. Cabot Oil & Gas COG and EOG Resources EOG among them. PowerShares S&P Small-Cap Energy ETF PSCE: Once upon a time, Brigham Exploration BEXP was a top holding in PSCE. The ETF rebalanced and Brigham moved out because of its market cap no longer fit the small-cap designation, but that didn't stop Statoil STO from acquiring Brigham for a nice premium. Even with Brigham gone, PSCE still has a few potential takeover candidates. Market Vectors Coal ETF KOL: The severely depressed valuation on Walter Energy WLT and an activist shareholder have KOL at the forefront of energy sector takeover talk. Arguably, Alpha Natural Resources ANR and Patriot Coal PCX could find themselves to be the focus of same takeover chatter at some point. iShares S&P Global Infrastructure Index Fund IGF: The iShares S&P Global Infrastructure Index Fund isn't a pure-play energy ETF, but we like it as a takeover play because it's almost 20% allocation to the energy sector is devoted primarily to pipeline operators and that's the epicenter of today's M&A fever. Williams WMB could be in play in the future if pipeline consolidation continues and that stock is featured in IGF. iShares Dow Jones U.S. Oil Equipment Index Fund IEZ: One member of the iShares Dow Jones U.S. Oil Equipment Index Fund, Complete Production CPX recently agreed to be acquired by Superior Energy SPN, another IEZ holding. The oil services sector is primed for consolidation and IEZ is chock full of both buyers and targets.