One of the major ways to make some profit in 2018 is to invest. And one of the best options for investing is mergers and acquisitions (M&As).
The most significant M&A of 2017 was the anticipated Disney/20th Century Fox merger worth an estimated $52 billion. As significant as those numbers are, that is merely the tip of the icebergs.
One of the factors that make M&As such a lucrative investment option is tax reforms which promises to lower the corporate tax rate by as much as 21% and free up huge sums of corporate cash currently held in the overseas account.
Another factor is the attitude of U.S. consumers when it comes to spending. Costumer spending hit a 1-month record, a record last seen in 2009 when the U.S. economy was just recovering from the recession.
But the most significant factor is corporate mindset or sentiments. What this means is CEOs and their board members also go through cycles of pessimism and optimism that affects a company’s decision to put its cash reserves in the market.
Why is 2018 favorable for M&As?
The 2018 M&A Deloitte survey carried out on private equity firms and large corporations’ executives was able to capture why 2018 is the year for M&As.
Firstly, several companies – approximately 2/3rds of those surveyed – agree that there was an increase in the company’s cash reserves. And where is that cash being channeled? You guessed it, M&A deals.
A lot of companies have also indicated recently that they were more than likely to follow organic investments as the (probable) number one use of their cash reserves. But from the Deloitte report, it appears that is no longer the case as Companies are now seeking M&As. More than 40% of companies cite M&A as their number one intention.
2017 ended with an increase in the number of M&As. Statistics from the analytic firm Dealogic underlined November 2017 as being the second-largest month with merger and acquisition activity since they started monitoring in 1995. Learn more at Seeking Alpha about Jess Yastine
How to Go about Investing
You have the option of betting on single stocks. An example of potential buyout candidates in the pharmaceutical sector includes Biogen Inc. (Nasdaq: BIIB) and Bristol-Myers Squibb Co. (NYSE: BMY).
In the retail sector, you have Nordstrom Inc. (NYSE: JWN). They have been identified as a likely buyout target as their stocks have been down 40% since 2015.
The tech industry isn’t exempt either as Akamai Technologies Inc. (Nasdaq: AKAM) have been mentioned as a prospect for potential buyout ever since their shares increases by 14%.
However, those type of investments are all-in bets. A smarter play would be to invest using an exchange-traded fund (ETF). It increased by 24% in the last five years and 5% in 2017.
About Jeff Yastine: Jeff Yastine is the editor of Total Wealth Insider and has been the editorial director of Banyan Hills Publishing since 2015.