Fidelity tips three stocks to benefit from boost in M&A activity

As savers consider where to invest their remaining ISA allowance this year, Fidelity Worldwide Investment highlights a potential spur to share prices in the coming year - mergers and acquisitions (M&A) activity.

2013 has already witnessed some significant M&A, most notably the acquisition of Heinz by Warren Buffett's Berkshire Hathaway - which lifted Heinz's share price to an all time high.
 
Paras Anand, Head of Pan-European Equities at Fidelity Worldwide Investment, believes UK companies could be in a potential ‘sweet spot' for M&A activity as a result of the weakening pound, a less uncertain macro-economic environment and increased confidence among companies looking to deploy excess cash on their balance sheets.
 
He comments: "Over the last few years since we've had the economic crisis and paralysis in credit markets, companies have built up a lot of cash. With confidence returning, we are likely to see them starting to spend that cash."
 
Fidelity's portfolio managers believe there are still opportunities for investors to benefit from the increased appetite for M&A and have tipped three attractive looking stocks.
 
Aruna Karunathilake, Portfolio Manager, Fidelity UK Select Fund:

Johnson Matthey:  "Johnson Matthey is a FTSE 100 chemicals business with a strong competitive position in auto catalysts.  With regulations on car emissions becoming ever-tighter, and constraints in the supply of raw materials needed to manufacture them, the company could grow its sales by as much as 10% across the cycle. This high growth and leading market position could be viewed as attractive to one of the many cash-rich industrial mega-caps, particularly in the US."
 
Sanjeev Shah, Portfolio Manager, Fidelity Special Situations Fund:

Talk Talk: "Talk Talk's recent launch of YouView and ongoing cost cutting programme has the potential to surprise the market and beat earnings expectations over time. Additionally, with consumers and businesses increasingly demanding high levels of bandwidth, fixed line telecoms networks are becoming more and more highly prized. The recent M&A activity around Virgin Media shows just how attractive these sorts of assets are."
 
Alex Wright, Portfolio Manager, Fidelity UK Smaller Companies Fund and Special Values Investment Trust:
 
Creston:  "Creston is a small company, with a market capitalisation of around £50m. It is extraordinarily cheap, trading on only 4 times next years' earnings. It has strong positions in attractive niches such as social media and healthcare marketing, and as such could be seen as an attractive acquisition target for larger marketing and media groups."