There are few better ways to start your morning than to flip on the financial news and discover that one of your portfolio holdings was acquired at a substantial premium. The past year brought its fair share of thrills: We booked significant gains after several Portfolio holdings were taken over.

In May 2011 Arch Coal (NYSE: ACI) announced that it would acquire metallurgical coal producer International Coal for $3.1 billion, a 35 percent premium to the stock’s prior closing price. Readers of The Energy Strategist enjoyed an impressive windfall of 105 percent.

The good news kept coming. On July 15, 2011, mining giant BHP Billiton (ASX: BHP, NYSE: BHP) announced the acquisition of Portfolio holding Petrohawk Energy Corp in a deal worth almost USD15 billion–a more than 60 percent premium to the stock’s prior closing price.

BHP Billiton’s interest validated our decision to stick with Petrohawk Energy through some difficult times. Shortsighted investors dumped the shares in 2010, scared off by the company’s leading position in the Haynesville Shale, an unconventional play that produces primarily natural gas. While the market fixated on the company’s exposure to natural gas, we noted that the firm drilled one of the first discovery wells in the liquids-rich Eagle Ford Shale and had amassed some of the best acreage in the play. We later booked a 92 percent gain when we cashed out our position in Petrohawk Energy.

Several of our favorites also benefited from deals that enhanced their growth prospects. For example, Kinder Morgan Inc.’s (NYSE: KMI) $39 billion takeover of pipeline operator El Paso Corp (NYSE: EP) has positive implications for Conservative Portfolio stalwart Kinder Morgan Energy Partners LP (NYSE: KMP).

Kinder Morgan Inc. plans to sell some of the acquired assets to Kinder Morgan Energy Partners, a series of transactions that should enable the master limited partnership to grow its distributions at an accelerated rate in coming years. Since the deal was announced in mid-October, units of Kinder Morgan Energy Partners have soared 21 percent.

At the beginning of each year, The Energy Strategist highlights a number of potential acquisition targets for the coming 12 months. Our analysis focuses on names whose upside doesn’t hinge solely on an eventual takeover. To that end, all our picks boast strong underlying businesses that stand to benefit from industry- and company-specific catalysts.

In This Issue

The Stories

1. With even junk-rated companies able to borrow money at attractve rates, mergers and acquisitions should continue apace in 2012. See Merger Madnes to Continue in 2012.

2. US shale oil and gas plays represent one of the best ways for international oil companies to add incremental production in a politically stable environment. We also expect independent operators to continue to spin off noncore acreage and monetize other assets in an effort to fund ambitious drilling programs. See Shale Sales.

The Stocks

Oasis Petroleum (NYSE: OAS)–Buy < 38 in Aggressive Portfolio
Kodiak Oil & Gas (NYSE: KOG)–Buy in Energy Watch List
GeoResources (NSDQ: GEOI)–Buy < 32 in Aggressive Portfolio
Whiting Petroleum Corp (NYSE: WLL)–Buy in Energy Watch List
Concho Resources (NYSE: CXO)–Buy in Energy Watch List
Whitehaven Coal (ASX: WHC)–Buy < AUD6 in Energy Watch List