NEW YORK (MONEY Magazine) - A return of IPOs and mergers would boost investment bank profits. Risk: Dealmaking is still a shadow of what it once was.

They're baaack. Investment bankers aren't yet partying like it's 1999, but there are signs that the four-year slump in stock and bond underwriting and merger-and-acquisition dealmaking is coming to an end.

With Google leading the way, last year was the best year for initial public offerings since 2000, according to Thomson Financial. In the ultralucrative M&A business, investment banks handled $538 billion worth of deals through late November, up from $468 billion in all of 2003. And while M&A is still a shadow of its former self, there's reason to think more companies will be turning to Wall Street for marriage advice.

Why? Just look at corporate balance sheets. S&P 500 companies now have nearly 10 percent of their assets in cash, double the relative cash positions that prevailed 10 years ago.

T. Rowe Price financial services analyst Jeff Arricale says this cash buildup indicates an unwillingness to plow more money into existing operations. The payoff is too uncertain.

"It's hard to find organic growth, and what that likely means is that a lot of companies are going to turn to mergers and acquisitions to generate growth," says Arricale. The falling dollar adds to the possibilities by making U.S. companies more affordable to foreign buyers.

An M&A resurgence is not a sure thing. But it would pay huge dividends for Wall Street, generating big advisory fees while also creating related underwriting business.

Says Arricale, "If there are some big deals, companies are going to have to issue equity or debt to finance them."

One way to play this is through Citigroup (Research). It's a well-diversified megabank that's been using its leverage as a commercial lender to bully its way into more lucrative investment banking assignments.

A more direct investment banking play -- and perhaps the stock best-positioned to take advantage of an M&A rebound -- is Goldman Sachs (Research). At a recent $104 a share, Goldman now trades at 12 times its projected 2005 profits -- well below its average P/E of 17 since going public in 1999.

"Goldman still has that shine of being the best investment bank on the planet," says fund manager Matthew Kelmon, who has 8 percent of his Kelmoore Strategy fund invested in the company's stock.

These days Goldman is making most of its money off trading and its own investments -- in everything from bonds to power plants. And there are those who wonder if Goldman's weaknesses on the lending side could eventually make it a weaker competitor to Citigroup in M&A. But right now it remains a leader.

It's also the rare financial company that could benefit from a modest rise in interest rates. Higher rates would encourage corporate clients to finance deals by selling stock (a Goldman strength) rather than via bonds (a weakness). All in all, if investment banking rebounds the way Kelmon anticipates, he sees a 20 percent upside for Goldman shares in 2005 and even more longer term.

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