Welcome to my video interview with Nathan Slaughter, chief investment strategist of Takeover Trader, an advisory published by Investing Daily’s subsidiary, Street Authority.

The article below is a condensed transcript of our discussion. My questions are in bold.

I want to tap your expertise about corporate takeovers. But first, some context. How great a risk does the COVID Omicron variant pose to investors, and what are defensive moves they can take now to mitigate the risk?

That’s today’s $64,000 question, isn’t it? It’s still early, but preliminary indications show this newest variant isn’t particularly dangerous and has mild symptoms. But it’s highly contagious, which has health officials and government leaders on edge.

Dozens of countries have implemented heightened safety precautions, and some like Japan have even banned incoming flights from affected areas.

Still, the market has probably overreacted. Remember Delta? It’s already out of the news cycle. Omicron will eventually fade away too.

We’re learning new and better ways to fight this virus. Investors need to stay on their toes, but I’m not recommending any major asset allocation shifts.

Federal Reserve Chair Jerome Powell has retired the word “transitory” to describe inflation. The Fed last week announced that inflation is getting hot enough to warrant an acceleration of tapering, with the possibility of three rate hikes in 2022. What are the ramifications for investors?

Well, it’s about time. I’ve been arguing since May, pretty loudly too, that these inflationary pressures are more persistent than Fed policymakers would like to admit. And every new report brings another reinforcing batch of data.

Wholesale prices have shot up at a record pace for seven straight months, and that has spilled over into the consumer level. The Consumer Price Index just spiked at the fastest pace in 30 years.

Once inflation has been unleashed, it’s tough to contain, like putting toothpaste back in the tube. I think the Fed is finally conceding that it needs to act more decisively. The first step is to start aggressively winding down emergency monetary stimulus that’s no longer needed.

Luckily, I think everybody saw this coming, so the reaction was muted. No taper tantrum. But investors still need to position their portfolios for an environment of rate tightening and elevated inflation. For starters, that could mean overweighting natural hedges like real estate and commodities.

So far this year, more than $5 trillion worth of merger and acquisition (M&A) activity has been recorded, already 40% more than the value recorded during the whole of last year and smashing the all-time full-year record of $4.2 trillion in 2015. The following chart tells the story:

One of your specialties is finding takeover targets before they get acquired, so you can make a quick killing. What analytical tools do you deploy, to find these opportunities?

If you look at enough of these deals, you start to see the same sets of fingerprints left behind. Think of it as financial forensics. What we do is reverse engineer the process and look for situations where these common elements are all in place, so we can pinpoint potential targets ahead of time.

Buyouts happen for all kinds of reasons. Sometimes it’s to gain intellectual property, or to bolster market share, or just to eliminate an emerging competitive threat. There must be potential revenue and cost-savings synergies to capture.

A takeover only makes financial sense when 1 + 1 equals more than 2. Obviously with any prospect we also evaluate cash flows, balance sheets and capital structure.

We also ask questions about the industry itself. We tend to prefer sectors where regulatory scrutiny is low and consolidation is high, such as biotech and mining.

Oil prices have been soaring this year. I’ve been reading your latest research, in which you’ve pinpointed an under-the-radar opportunity in the oil patch that’s poised to generate explosive gains. Could you please tell us a little about that?

You’ve probably heard of the Permian Basin out in West Texas. It’s the most prolific oilfield on the planet, even outpacing some of those legendary pools over in Saudi Arabia. It’s coughing up almost 5 million barrels of oil per day, and the underground reserves are mind boggling, totaling 46 billion barrels of crude and 280 trillion cubic feet of natural gas.

You can see why there has been a land-grab in this region as producers try to expand their territory. Some have been willing to pay $30,000 per acre, or more. We’ve seen so many deals, with independent producers taken out one by one, that there aren’t many left. The big fish have eaten all the small fish. Almost.

We’ve identified one of the best smaller players. It has amassed 80,000 prime acres in the heart of the Permian’s most desirable zip codes. The company is already producing 32,000 barrels per day and has a huge inventory of future drilling targets to attack. And its horizontal drilling techniques are highly efficient.

So with oil prices climbing, it’s gushing cash flows. Management is using some of that wealth to pay down debt and deleverage, which will only make it more appealing to potential acquirers.

These are irreplaceable assets. I think it’s only a matter of time before a larger producer in search of growth comes knocking with a generous offer that could give us triple-digit gains overnight.

Nathan, thanks for your time.

As my colleague Nathan Slaughter just explained, we’re facing the “mother of all oil booms,” and there’s one stock positioned to benefit the most. For details, visit this URL.

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