Investment analysts released research a few months ago that showed many large corporations, including Google and Pfizer, hold billions of cash in overseas accounts which are subjected to a repatriation tax as high as 35% if brought back within the US. To battle back, over 30 of the biggest companies formed a coalition called Win For America which are trying to convince lawmakers to create a temporary waiver on any repatriation taxes. With unemployment over 9% and the country’s economic growth languishing, the law makers have recently warmed up to the idea.
So if the thought of corporate holiday gains traction, how can investor’s best capture any short term cause and effect? The idea of available cash strikes thoughts of increased dividends or stock buybacks but lawmakers will likely impose restrictions on the cash so its not directly distributed to investors.
We believe that the most likely scenario for this cash is companies will use it for mergers and acquisition type transactions. Instead of trying to pick the acquired companies, we believe a more broad based approach would be to invest in the M&A banks. So which banks to choose? The smaller, boutique M&A groups are intriguing as any incremental business has a greater effect on earnings due to company size. On the other size, the majority of the companies supporting Win for American are larger corporations who tend to stick with bigger M&A firms with greater resources.
Listed below are a few stocks we believe are worth a detailed look:
Goldman Sachs (NYSE:GS) – Corporate America seems to like to be associated with Blankfein and company. It sure helps the company when Warren Buffet publicly announces that one of its investment bankers is the only banker he would deal with. That banker has since left the company, but the positive perception has not.
JP Morgan (NYSE:JPM) – The resurgence of JPM’s investment banking group can be seen through the past six months as they have been advisors in some of the biggest acquisitions, including the recent acquisition of Skype by Microsoft and AT&T with T-Mobile.
Evercore Partners (NYSE:EVR) – The small boutique firm also advised AT&T on the T-Mobile deal and Schwab’s acquisition of OptionsXpress. The company is debunking the myth that you need to be large to be involved in big deals.