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5 M&A Stocks to Watch as Goldman Calls for a Big Jump in Deals

As the year winds to a close and partisan gridlock continues to dominate Capitol Hill, conversation on Wall Street has been concerned with what impending legislature will mean for the stock market in the year ahead. While some experts have predicted that the year will end with a rally, others anticipate that things will shift in a more negative direction during the coming year. One recent report directly from Wall Street, though, points toward a better outlook for investing in 2022, particularly for companies busy in the mergers and acquisitions space. A few M&A stocks are definitely worth watching with this in mind.

The letters "M&A" on a wooden table, surrounded by a calculator and other business items. mergers and acquisitions


What the New Tax Plan Means for Wall Street

As talk of a new tax plan from President Joe Biden has heated up, discussion has focused on the negative effects it could pose for financial markets. The current plan from the Biden administration centers around a roughly $1.75 trillion social and climate spending bill that would be financed partially through a 1% excise tax on corporate buybacks, accompanied by minimum levies on corporations and individuals in higher income brackets.

One authoritative voice on Wall Street has changed its tune since the plan first began taking shape. In September 2021, Goldman Sachs claimed that higher taxes posed the most significant threat to the U.S. stock market. Today it pivoted. Not only will the proposed 1% buybacks tax not derail the current bull market, the firm claims, it could actually yield other positive developments by spurring an increased use of cash through mergers and acquisitions.

According to David Kostin, Goldman’s head of equity strategy, “M&A represents a flexible way to deploy cash on a shorter time frame.”

Goldman bases these claims on data that show firms who have prioritized M&A as their primary cash use have demonstrated superior performances during 11 out of the last 19 fiscal quarters. That period has seen them outperform the S&P 500 on an annual basis by roughly four percentage points.

What are these companies, though? Let’s take the look at the M&A stocks who could benefit if Goldman is correct. According to Kostin, these stocks have spent the most cash on M&A activity relative to their market capitalizations (via CNBC, subscription required).

5 M&A Stocks to Watch in 2022

  • Caesars Entertainment (NASDAQ:CZR): This Nevada-based company is focused on the type of entertainment found in hotels and casinos. Its several brands span the ownership of over 50 properties and several golf courses. Currently one of the world’s largest gambling companies, Caesars is having a good year. Despite a turbulent month, shares are up more than 50% for the year to date and have risen 2.38% today.
  • NRG Energy (NYSE:NRG): A large-scale energy producer, NRG is based in Houston, Texas. It began as the Northern States Power Company’s wholesale arm before the latter became Xcel Energy (NASDAQ:XEL). NRG is primarily focused on energy generation and the production of retail electricity. NRG is up almost 10% for the year to date and more than 14% for the past six months. Though it fell this morning, it closed up 1.4%.
  • Franklin Resources (NYSE:BEN): This company might be best known as Franklin Templeton. Despite its trading symbol, this multinational holding company and investment firm wasn’t founded by Ben Franklin. That doesn’t mean, though, that its executives don’t have plenty of wisdom. On the contrary, the company has just acquired investment firm Lexington Partners and shares are surging as a result. BEN stock spiked this morning and is up more than 11% for the day. Shares are up more than 40% through the year to date.
  • Gilead Sciences (NASDAQ:GILD): Some companies on this list do focus on research while still prioritizing M&A-centric strategies for growth. Gilead falls into that category. A biopharmaceutical innovator, the company has been noted for its work in the development of antiviral treatments for conditions including HIV, hepatitis B and C, and influenza. In 2022, we can expect to see the company release data on its work on a blood cancer treatment. Despite some declines during the past month, GILD stock is up 12% for the year to date.
  • BorgWarner (NYSE:BWA): This Midwest-based automotive supplier has been working hard to adapt to its industry’s changing landscape, focusing its tech on electric and hybrid vehicles. Today the company announced that its 400V Silicon Carbide (SiC) inverter had been selected to serve as key component of an European OEM’s battery electric vehicles. While it may take some time to see sustainable growth, InvestorPlace contributor Thomas Niel noted that for “long-term investors, BorgWarner is still a deep value stock with substantial upside potential.” Shares are up more than 3% today and have risen by more than 20% for the year to date.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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