Transcripts

"Money File"-Merging & Acquiring Cash From Mutual Funds

SUSIE GHARIB: This has been a hot year on Wall Street for mergers and acquisitions, so you may have been wondering how you can get in on some of the action. In the money file tonight, some suggestions for how to do just that. Here`s John Waggoner, mutual fund columnist for "U.S.A. Today."

JOHN WAGGONER, MUTUAL FUND COLUMNIST, USA TODAY: U.S. corporations are flush with cash and usually that means a big boom in mergers and acquisitions. Is there any way a mutual fund investor can cash in on corporate America`s urge to merge? Sure. In fact, I`m going to give you three ways. Thanks to record earnings, companies in the Standard & Poor`s 500 stock index have nearly $633 billion in their corporate coffers, saysS&P. So far, they have used their cash mainly to increase dividends and buy back stock. What they haven`t done is plough that money back into expansion and new investments and that may be changing. Worldwide M&A activity this year is up 41 percent from the same period last year.

So how does a mutual fund investor take advantage of all this buying and selling? Well, a few funds concentrate entirely on M&A and not by sneaking around and trying to figure out who`s buying who. Instead, they buy shares of the company that`s being bought, and bet against the shares of the company that`s doing the buying. Some sectors are more prone to M&A than others and right now, health care fits the bill. Big drug companies are on the prowl for biotech firms with promising new drugs in the pipeline. And the $21.8 billion buyout of HCA, the nation`s largest for- profit hospital company, could point to M&A activity in the rest of the health-care sector too.

For that, try a specialized health-care fund or try a large company value fund. These funds look for unloved, undervalued companies that could benefit from a turnaround. That`s pretty much what takeover artists look for, too. Corporate America has lots of cash burning a hole in its pocket. Why not try to put some of that money in your pocket, too? I`m John Waggoner.