My first rule of investing: never buy stock in a company simply because you think it will be bought out. Simply put, most rumored deals never happen. But I do like to keep an eye the rumor mill, because it can often point the way to intriguing companies that still look good on their own merits.

There’s lots of chatter out there right now, even though overall buyout activity levels have cooled since the robust levels of late summer. Among the rumors making the rounds, these three potential targets look fairly appealing on their own merits.

Aeropostale (NYSE: ARO)
After a recent downbeat quarterly report released in early December, shares of this teen-focused retailer plunged nearly -15%. In the fickle world of teen fashion, this retailer has moved in and out of the spotlight so many times I’ve lost count. At times, teens flock to Aeropostale while shunning rivals Abercrombie & Fitch (NYSE: ANF) and Hot Topic (Nasdaq: HOTT). Not this season.

But in good times or bad, Aeropostale is nicely profitable: free cash flow hit a record $280 million in fiscal (January) 2010. And management has proven to be quite friendly to shareholders, reducing the share count by 25% in the past five years. Prior to the recent quarterly shortfall, management announced plans in late November to buy back another $300 million in stock, which would reduce the share count by an additional 12% to 15%.

That’s not enough to boost the company’s stock price, which now trades for less than 10 times (downwardly revised) fiscal 2011 and 2012 profit forecasts. And that’s led some to suspect that private equity firms have approached the retailer about going private. What’s it worth? As a simple rule of thumb, it’s hard to pull off a deal below the 52-week high, which in this case is around $32, around 35% above current levels. Is management inclined to sell? Perhaps not. They know that fickle teens could quickly return from rival retailers, and when that happens, shares could re-visit the 52-week high — and then some. This looks like a solid value play regardless of whether a buyout materializes. But shares could languish for at least a few more quarters until same-store sales start to perk up.

Eastman Kodak (NYSE: EK)
With shares of this former consumer electronics giant languishing below $4 this summer, many investors figured it would soon be left for dead. After all, the core film developing business — which has shrunken considerably but still throws off cash flow — will eventually dry up. (Though some believe the legacy business may have found a floor, supporting demand for printing press plates, color negative paper and other old-school photography hardware.) The company has bought time by re-financing its debt burden, but it will eventually need to start paying off its more than $2 billion in underfunded pension benefits.

On the positive side of the ledger, Eastman Kodak has reasonable market share in the area of digital cameras and inkjet printers. But if you exclude royalty revenue, this is still an unprofitable company.

Rumors of a buyout first emerged in late October, pushing shares up +10% in one day to around $4.50. Shares have made a similar upward move in the last week and now fetch around $5.25. Trading action among Eastman Kodak’s call options has been even more robust.

The logic behind a buyout varies. Some think the company’s still-strong brand name recognition could be better monetized by a larger and more sophisticated consumer electronics company. Others think an Asian firm may view the company as a way to quickly control U.S. market share in cameras and printers. Yet others think that the company’s base of intellectual property is underappreciated in the context of the company’s current market value.

Frankly, I’m not sure if any of these rumors hold any water. But it is hard to ignore the heavy call buying, which you usually see when traders think they smell a big gain. Rumors of an $8 or $9 a share buyout price have circulated on some trading desks, which would yield a huge gain for $5 and $6 calls. Again, who knows if there is fire here, or if this is just smoke.

Broadwind Energy (Nasdaq: BWEN)
The U.S. wind power business really hit the tank in 2010 as hope for federal support never materialized. So this company, which makes super-sized wind turbines, turbine gearing and other components, has seen its shares fall from $10 to $2 in the past year. With its cash balance at just $10 million, continued expected operating losses and an inability to raise much interest in a fresh sale of equity at this time, Broadwind’s options are dwindling while it waits for the wind energy industry to rebound.

Enter GE (NYSE: GE). The industrial titan has been expanding its portfolio of wind power products and may be sniffing around, according to the rumor mill. Broadwind is already a supplier of gears to GE, although it also works with GE rivals such as Vestas (which could complicate any deal talks). Buyout rumors gained credence a few months ago when an analyst at Raymond James suggested the two firms may be talking. (That was an unusual move. As a former sell-side analyst, I was prohibited from ever writing about any such rumor gossip — which is usually a big no-no with securities regulators).

The rumors gained fresh credence on November 30 when shares shot up more than 10% on very heavy volume. Volume spiked sharply again this past Monday. What would GE pay? I’ve seen several references to a $2.50 buyout 25% above current levels. Broadwind likely believes that such an offer is far too low, but it’s not clear how much leverage the company has.

Action to Take –> Aeropostale is an excellent company that has recently stumbled. Its prodigious cash flow and large retail footprint tell you that it will weather the current storm just fine. I’d buy this company regardless of any buyout rumors.

The Eastman Kodak rumors seem quite speculative, although the company’s brand recognition, intellectual property and decent market share in cameras and printers surely hold appeal.

Despite the modest upside on this play, my gut tells me that Broadwind is likely the most feasible buyout scenario of the three companies discussed here. A decision to buy Broadwind makes ample sense for GE. But if the GE deal doesn’t happen, shares could quickly re-visit the 52-week low of $1.53.

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