How UPS's Latest Acquisition Could Boost Its Stock

In addition to the shocking outcome of the presidential election, 2016 will likely be remembered as a big year for mergers and acquisitions. In October alone, U.S. companies signed off on $250 billion of mergers and acquisitions, the biggest monthly total in history.

Megadeals are all the rage these days, headlined by large ones such as the proposed $85 billion purchase of Time Warner by AT&T and Microsoft's $26 billion acquisition of LinkedIn.

And if the cash balances of S&P 500 companies are any indication, there are more to come: combined, they're sitting on $1.46 trillion in cash and short-term investments as of the end of the second quarter, up 1.1% from a year ago. Microsoft and Alphabet boasted the biggest cash hoards, at $113.2 billion and $78.5 billion, respectively.

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But while the big deals get all the ink, smaller so-called "bolt-on" acquisitions can also profoundly change a company's direction and pay off handsomely for investors.

One deal that could fall into that category is the purchase of privately held Marken by United Parcel Service (UPS) , announced on Monday. Marken, which is based in Durham, N.C., and Chiswick, England, ships around 50,000 medicines and biological samples to 50,000 destinations around the world every month.

Terms of the deal weren't disclosed; UPS expects it to close by year-end.

The move extends UPS's reach into the health care space, an area where the company has built a lot of expertise in recent years.

In October 2015, for example, the shipping giant opened a facility in Swedesboro, N.J., devoted exclusively to storing and delivering medical devices. That's in addition to UPS's 1.4-million-square-foot temperature-controlled space in Louisville, Ky., that's designed specifically for handling drugs, medical devices and biological samples.

It sounds like an obscure niche market, but biopharma logistics is big business, with spending expected to hit $12.6 billion in 2016 and $16.7 billion by 2020.

UPS's growing health care operation also helps it offset consumers' increasing preference for slower (but cheaper) delivery options, a shift that's weighed on the company's express-delivery business, as well as those of other couriers, including main rival FedEx (FDX) .

Lastly, specialized services make UPS's vast global network even tougher for competitors to replicate. That's a key advantage, particularly with Amazon.com (AMZN) bulking up its delivery fleet and being cagey about whether it aims to become a third-party shipper.

Meantime, UPS is the market leader in the courier space and remains an attractive investment for investors looking to profit from the rise of e-commerce, which, despite its breathtaking growth, still only accounted for 7.3% of total U.S. retail sales in 2015.

The stock has gained 16.2% year to date, well ahead of the S&P 500's 4.6% rise. It's a great candidate to add to your watch list and buy on any significant pullback.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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