The insurance industry isn’t known for being a hotbed of dynamically trading stocks. That’s why Brighthouse Financial‘s (BHF 0.73%) big price swing over the past few days was notable.
On the back of a report in a trusted financial newspaper that the company was looking to find a buyer, both investors and analysts suddenly got more bullish on the potential for its stock. According to data compiled by S&P Global Market Intelligence, Brighthouse’s price rose by nearly 22% this week.
Offers wanted
Tuesday morning, the Financial Times reported that Brighthouse aimed to sell itself and had hired teams at Goldman Sachs and Wells Fargo to aid it in this effort. Citing unnamed “two people familiar with the matter,” the newspaper added that the company wants to both consider offers for the entire company and the solicitation of minority equity stakes.
Although Brighthouse hasn’t necessarily been a bright spot in the U.S. insurance industry, it does have a $120 billion investment portfolio that could tempt a well-capitalized buyer. Recently, alternative asset managers have been drawn to insurers with such holdings.
Just after the article was published, several analysts got more bullish on the company by raising their price targets. One, Barclays‘s Alex Scott, went so far as to upgrade his recommendation on it to overweight (buy, in other words) from his previous equalweight (hold). According to reports, Scott cited the Financial Times piece on the apparent sale effort as a key reason for his move.
Beware the sudden price surge
No investor should ever pile into a stock solely on hopes that it will be bought out. While the possibility appears considerable for Brighthouse, there are at least as many reasons for a deal not to happen than the opposite. Plus, once speculation runs wild, the would-be seller’s price tends to inflate, so there might not be much if any potential upside left. I’d be cautious with this stock until we get more news of a possible acquisition.
Wells Fargo is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
