Hostess Brands (NASDAQ:TWNK)

This small-cap has several big brands, including Twinkies, Ding Dongs, Donettes, HoHo's, which are much bigger and more valuable than the market cap of Hostess Brands. They have brought down their heavy debt while continuing to grow market share and top-line sales. They have some of the most extensive gross margins in the grocery space. They are also a tempting take out target to one of the larger food companies.

Indicators have surged for shares of TWNK… a clear sign that someone is making a big bet that the stock will surge higher.
How high could it go?

Well, shortly after TWNK went public a few years ago, the stock surged to a high just above $17.

The stock had been trading in a bit of a wide range ever since. When the coronavirus crisis sent the broad sock market lower, however, TWNK shares fell as low as $9.33.

Since then, the stock has started to rebound. And that's a sign of optimism as investors realize how much strength there is in the comfort food business.

So my guess is that a buyout deal will be priced somewhere near the old high at $17.

It will give anyone who bought near the high a chance to get out of their investment without a major loss. And it would give new investors a chance to lock in a very attractive profit!

Plus, based on TWNK’s rising sales and the sustainable shift towards more people learning and working from home, an acquirer would pick up some very iconic brands just as more consumers are buying!

In that light, a buyout would make perfect sense for a big food company like General Mills (GIS) or Kellogg's (K).

And considering TWNK's market cap is only $1.5 billion (compared to $36 billion for GIS and $22 billion for K), a buyout wouldn't be prohibitively expensive — even at a nice premium to where its shares are trading today.