Franklin Templeton expects mergers and acquisitions at US companies, especially in the technology sector, to accelerate, as large firms are seeking fast growth, are bulging with cash and valuations are still cheap.

“We are in that early stages of what we see is an M&A cycle,” Grant Bowers, vice president and portfolio manager, who helps manage the US$932 million ($1.3 billion) Franklin US Opportunities fund, told Reuters in an interview.

“Technology is an area where we find a lot of growth companies, a lot of very high quality companies and we find valuations are very reasonable, actually quite cheap in some. We are overweight on tech companies.”

His comments came after chipmaker Intel Corp <INTC.O> agreed to pay US$7.7 billion ($10.4 Billion) for security software maker McAfee Inc <MFE.N>, and tech giants Hewlett-Packard Co <HPQ.N> and Dell Inc <DELL.O> sparred over data storage company 3PAR Inc <PAR.N>.

Bowers, whose fund’s top holdings include Apple <AAPL.O> and Qualcomm <QCOM.O>, said the US companies — even outside the tech sector — will search for new growth avenues and M&A will be the most efficient and fastest way to do it.

The US Opportunities Fund has 16% of its portfolio in the technology, hardware and equipment sector and 13.7% in software & services sector.

The fund is up 16.8% over the last one year up to July 31, outperforming its benchmark Russell 3000 Growth Index, which rose 13.9%.

Franklin Templeton is part of US money manager Franklin Resources, Inc <BEN.N>.

BULLISH ON APPLE, MASTERCARD
Bowers said when his fund invests in a company it takes into account whether a company could become two to three times larger over three to five years in terms of revenue or market share.

He said Apple, which the fund has owned since 2003, could potentially double its earnings in five years fuelled by the success of iPad.

Apple trades at 16 times 2011 earnings, which, Bowers said, was “very inexpensive” for a company that has had a string of successful consumer products.

He said the fund is also overweight on MasterCard <MA.N> which trades at about 12 times earnings, in line with the S&P 500 index <.SPX>, but the stock should enjoy a multiple of high teens.

MasterCard shares are down 19.8% so far this year, weighed down by concerns about the US government’s move to tightly regulate the financial sector and weak US consumer spending.

But Bowers said MasterCard is not just a US story.

“It is a global story. In the US, 60% of transaction is electronic. For other countries, emerging markets, it is anywhere between 5 to 20%,” he said adding there was tremendous room for growth.

Bowers is also overweight on the healthcare sector where the fund made a killing on Intuitive Surgical <ISRG.O>, which makes robotic surgery equipment. It bought the stock at US$100 in March 2009 and the stock last traded at US$282.94 a share.

But not all investments have worked in the fund’s favour. It cut its holding in healthcare firm Gilead Sciences <GILD.O> to 0.5% from 1.5% over the past year as it saw the firm being hurt by US healthcare reforms. The stock is down 24% so far this year after falling 15% in 2009.