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With mixed numbers, look for M&A to fuel market

With the market trading in a muted range on mixed economic data, traders are increasingly looking at plays around bubbling merger and acquisition activity that might offer an upside.

M&A activity is already up 52 percent on the year compared with the same period in 2014, according to Thomson Reuters. May marked the second-best deal month in history for U.S. companies, according to S&P Capital IQ, and the cycle might be just kicking off.

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How some deals are paid for might be an indicator of the stage of the cycle, according to Sam Stovall, managing director at S&P Capital IQ, who calls the recent share-heavy Intel and Altera deal an outlier. "Usually in the beginning of an M&A cycle you have companies using cash, because they have a lot of cash on the sidelines and their stock really hasn't appreciated all that much," he said on CNBC's "Closing Bell."

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There is still a lot of cash and buying power hanging around, according to John Manley, chief equity strategist at Wells Fargo. And while shares of companies on either side of a deal could see a boost, Manley thinks it might be safer to stick with the buyer. "I'd actually buy some of the acquirers," he told CNBC. I think it's a better game trying to play an improvement in the industry cause of consolidation rather than trying to pick out which one goes next."

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And it's not just the chips and health-care industries that are heating up. Chief investment officer at Mendon Capital, Anton Schutz says a low-interest rate environment could fuel the M&A activity bubbling up in the financial sector, albeit among smaller banks.

"The companies that are under $10 billion in assets are absolutely buyers trying to stay under that $10 billion," he told CNBC. "Own a basket of stocks in the Southeast that are under a billion in assets and stuff will happen," he said, pointing to less regulatory pressure and good economies of scale as the main reasons to target banks that size.