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Sincethemarketbottomedout,theaveragesmall-capstockhassoared74%,outpacingthegainsoftheaveragelarge-capbyafull15percentagepoints。

Andhistoryissendinganotherloudandclearmessageaboutwhatliesaheadforanothersector,too。

In2010,wecanexpectmergersandacquisitions(MA)activitytoreturninabigway。

Hereswhyandthethreebestwaystoplaytheimminentrebound

MAactivity:deepinthevalleybutsettoemerge

Notsincetheearly1990shavewewitnessedsuchameagremarketforMAactivity



Worldwidedealvolumeisexpectedtoslumpby56%thisyear,accordingtotheOrganisationforEconomicCooperationandDevelopment。



TheUnitedStateshasalreadymatchedthe61%dropinMAactivitythatfollowedthe1990-1991recession。

Werenotfarfromthe72%dropthatfollowedthe2001recession。

ButeverybodyknowstheMAmarketisnotoriouslycyclical。

Sincewereclearlyinthevalley,itsonlyamatteroftimebeforeactivitypicksbackup。

Andhistoryiscrystalclearaboutthetimingoftheturningpoint

ApositivemacropictureforMA

AsthischartfromJPMorganChasereveals,MAactivitypicksbackuponcearecessionofficiallyends?

OthersignspointtothisMArecessioncomingtoanendverysoon,too。

Forexample,theConferenceBoardreleaseditslatestsurveyofleadingeconomicindicatorslastweek。

Theyrosefortheeighthstraightmonthaclearindicationthattherecoveryisgainingmomentum。

Andwhileunemploymentremainsuncomfortablyhigh,rememberthatthisisalaggingindicator,sowecantrelyonittosignaltheendofarecession。

Bythetimetheemploymentpictureimproves,therecessionwillbelonggoneandtheMAmarketwillbebackinfullswing。

Inotherwords,thetimetopositionourportfoliostoprofitfromaresurgentMAmarketisnow。

ThekeyfundamentalsthatshouldtriggeranMArebound

However,Idneverbaseapredicationsolelyonhistory,orbankonareboundjustbecauseachartsuggestsoneisimminent。

Weneedtodigdeeperwhichmeansmakingsurethefundamentalslineup,too。

AndwhenitcomestosignalinganuptickinMAactivityin2010,theycertainlydo

Cashiseverywhere

Theamountofcashoncorporatebalancesheetshasntbeenthishighsince1951。

Infact,Fortune1000companiesalonearesittingon$1。

8trillion,accordingtoErnstYoung。

Notonlythat,theresatleastanother$400billionindrypowderparkedinprivateequityfunds,too。

Withinterestratessolow,thereslittleincentivetoholdontocashforlong。

Andeveryothertimecashbalanceshavesoared,anuptickinMAactivityquicklyfollowed。

Thistimeshouldbenodifferent。

Banksarewillingtolendagain

Inadditiontorecordcashbalancesfuelingdeals,banksarereadytogetinthemixagain,too。

High-yieldcreditspreadsanindicatorofbankswillingnesstolendcontinuetofall。

Thespreadnowrestsbelow700basispointswithinspittingdistanceofthehistoricalaverageof590basispoints。

Buildupbybuyingout

Whilesomecorporationsmanagedtoincreaseearningsthroughoutthedownturn,muchofitcameasaresultofaggressivecost-cuttingmeasures。

Butyoucantcutcostsindefinitely。

Thelackofrevenuegrowthformostcorporationsindicatesthatitwillbesometimebeforeorganicgrowthratespickbackup。

Tokeepgrowingearningsthen,itsnaturalforcompaniestoconsiderstrategicacquisitionsespeciallysincecountlessacquisitioncandidatesstilltradeatdepressedlevels。

SonowthatwevecoveredthereasonsbehindanimminentreboundinMAactivity,letsgettothemostcompellinginvestments

ThetopthreeMAsectorsandthebeststockswithinthem

Ifyourereadytopushsomechipsinandbetonpotentialtakeovertargets,Idfocusonthreesectorsinparticular。

Technology

Havingenteredthedownturninthebestfinancialshape,techfirmsarewellpositionedtogoontheoffensivecomingoutoftherecession。

Andtheyvegotplentyofcashtodoso。

ThetitansoftechnologylikeOracle,Cisco,Microsoft,GoogleandIBMaresittingoncloseto$200billionincashandverylittledebt。

Plus,dealvolumehasbeenrisingherealready。

IdkeepaneyeonCompellentTechnologies(NYSE:CML)。

Ittapsintothe$21billionmarketfordatastoragewithanichefocusonsmall-tomedium-sizedbusinesses。

Someofitstopcompetitorshavealreadybeenacquired(atsizeablepremiums,noless)andCMListhemostcompellingtargetleftinthespace。

Biotechnology

Withdrugpipelinewoescontinuingforbigpharmaceuticalcompanies,thequickestremedyistobuycompellingbiotechfirms。

Althoughnocrediblerumorshavesurfacedandmanagementhasntindicatedthatitseveninterestedinadeal,IdputNorthwestBiotherapeutics(OTCBB:NWBO。

OB)onmyshortlistoftakeovertargetsinthisarea。

AsIwrotebackinNovember,thecompanysDCVaxtreatmentsforprostatecancer,plusthemostlethaltypeofbraincancerGlioblastomamultiformehavedemonstratedsignificantpromise。

Forinstance,themediansurvivaltimeforpatientsreceivingNorthwestsDCVax-Braintreatmentcheckedinat36。

4months,morethandoublethestandardofcare(surgery,plusradiationandchemotherapy)。

TheresultspromptedDr。

RonaldWarnick,ChairmanoftheMayfieldClinicandDirectoroftheBrainTumorCenterattheUCNeuroscienceInstitutetodeclare,DCVaxhasrealpotentialtobecomeastandardtherapyforglioblastoma。

Inaddition,Northwestsrecentsuccessinraising$2。

1millioninfunding(peritsSeptember28,8-kfiling)showsthatinvestorsalsobelievethecompanystreatmentsholdpromise。

ReceiptofaUSpatentforitsautomatedmanufacturingprocesscouldalsoattractpotentialsuitors,asmainstreaminterestinimmunotherapiespicksupandbigpharmaceuticalcompanieslooktosecurekeyintellectualproperty。

Again,thisisasmallcompanythatstillhastocompletelargeclinicaltrials。

Butforapotentialsuitor,theearlyresultscouldbepromisingenoughtoenticethemtomakeanoffer。

Energy

AsoiltycoonT。

BoonePickensfamouslyobserved,itsoftencheapertodrillforoilontheflooroftheNewYorkStockExchangethanintheground。

Thatsespeciallytruenow,withoilpricesstillwellbelowtheir2008highs。

MAactivityisalreadyheatinguphere,asExxonsplunkeddown$30billiontobuyXTOEnergylastweek。

IexpectAnadarkoPetroleum(NYSE:APC)tobealeadingenergysectoracquisitiontarget,thankstoitssteadilyincreasingreservesandmajordiscoveriesoffthecoastofSierraLeone。

ThebottomlinehereisthatwerealreadyseeingsignsofalegitimatereboundinMAactivity。

EvenWarrenBuffettisgettinginvolved,ashis$26billionpurchaseoftheBurlingtonNorthernSantaFe?

railroadfirmsshows。

Withhistoryandthefundamentalspointingtoevenbriskeractivityintheyearahead,Iencourageyoutotakemypredictionseriously。

Thisarticle

waswritenbyLouisBaseneseforthefreedailyinvestmentemail