These stocks were hit hard in the sell-off and offer great potential on a recovery

shares in this article

indexes in this article

Wealth managers closely linked to stock and bond markets
Equities are weighed down by poor market sentiment
There could be great potential if there is a recovery

Concerns about inflation, interest rate hikes and fears of recession are currently dominating the picture on the stock markets and have resulted in significant losses in many places. The leading US index, the Dow Jones, has already fallen by around 14.8 percent this year, the NASDAQ Composite tech stock index has even fallen by almost 29 percent, while the market-wide S&P 500 recorded a minus of around 20 percent. The leading German index, the DAX, lost around 17 percent of its value this year.

Asset manager stocks currently attractive

One industry very closely linked to the equity and bond markets is money managers, which has been hit hard by this year’s market sell-off as it weighs on assets under management, revenue and profits. Barrons reports that earnings estimates have been falling in the recent past and there are threats of earnings declines.

Still, wealth manager stocks are attractive right now, with many trading at 10 times or less than 2022 forecast earnings, and yielding between 3% and 5%. Most companies also have strong balance sheets and dividends generally appear safe.

Leading public money managers BlackRock, T. Rowe Price Group, Invesco, AllianceBernstein and Franklin Resources are currently trading at lower valuations than specialists in higher growth and higher fee alternatives like Blackstone. “A lot of these stocks are extremely cheap compared to our fair value estimates,” Barrons quoted Morningstar analyst Greggory Warren as saying he favors industry leader BlackRock and T. Rowe Price.

BlackRock stock

BlackRock had $9.6 trillion under management at the end of the first quarter and has iShares, the leading platform for exchange-traded funds, according to Barrons. “BlackRock stands out because it is driving the secular shift toward passive investing,” said Warren. “Between its index-based and ETF businesses, it generates 3% to 5% organic annual growth in assets under management, while most others have struggled to generate positive organic growth,” said the Morningstar analyst. BlackRock’s flows into long-term strategies came in at a 5 percent annualized rate in the first quarter, Barrons said, while the company reported operating profit margins in excess of 40 percent.

BlackRock stock is down more than 30 percent this year on the NYSE and was last trading at $609.28 (as of the closing price on 06/22/2022). This puts it back roughly at the level it was in early 2018. At that point, the company’s assets under management were still $6 trillion. The stock is trading at 15 times forward 2022 earnings, Barrons reports, and yielding 3.3 percent. Morningstar analyst Warren put the fair value at $880 per share, up 44 percent from current values.

T. Rowe Price stock

T. Rowe Price stock also fell sharply this year. The share has lost around 43 percent on the NASDAQ since the beginning of the year to 111.33 US dollars and has thus suffered one of the biggest setbacks in the industry (closing price on June 22, 2022). T. Rowe Price had $1.40 trillion in assets under management as of May 31, 2022, down from $1.55 trillion at the end of the first quarter. So the company has been draining and the performance of its growth mutual funds has been dismal this year. One of the flagship funds, the T. Rowe Price New Horizons (PRNHX), is down almost 40 percent this year (as of 06/22/2022).

However, the company has one of the best franchises among traditional managers, according to Barrons. For example, T. Rowe Price ranks third behind Fidelity and Vanguard for target date funds and has a historically strong fund performance. The company has an impressive track record of growing 17 percent annually in earnings and dividends over the past 30 years, is now trading fairly cheaply at 10.5 times forward 2022 earnings and is yielding 4.5 percent . In addition, T. Rowe Price has one of the best balance sheets in the industry with $3.5 billion, or $16 per share, of net cash and fund investments. “It’s the best of its kind among active managers,” said Barrons Warren. “The actual multiple of 10 through 11 is unfamiliar to T. Rowe.” The analyst has put the fair value for T. Rowe Price at $155 per share, which is almost 40 percent above the current price level.

AllianceBernstein stock

Another money manager that offers upside if markets recover is AllianceBernstein. The company, which is 65 percent owned by insurer Equitable Holdings, reported net inflows of $11.4 billion in the first quarter of 2022 despite the volatile market environment. Assets under management were $735.4 billion at the end of March, down 6% from the end of December 2021 but up 5% from the first quarter of 2021. Barrons said AllianceBernstein’s asset mix is ​​about 45% equities, 40% percent from bonds and 15 percent from alternatives and other investments. In addition, the company has an attractive brokerage business for private customers, which is aimed at wealthy customers. Because AllianceBernstein is structured as a partnership, the company pays a low tax rate of less than 10 percent and has no fixed payout – instead, it pays out virtually all of its profits in the form of distributions and currently yields about 10 percent, based on the trailing 12- monthly payments. The AllianceBernstein share on the NYSE fell by 16 percent this year to 41.01 US dollars (closing price on June 22, 2022).

Invesco share

In a difficult market environment, the Invesco share lost around 28 percent on the NYSE this year and most recently cost USD 16.60 (closing price on June 22, 2022). This means that the paper is only trading at around 6.5 times the profits forecast for 2022 and brings a return of 4.7 percent. The company had $1.6 trillion in assets under management at the end of the first quarter of 2022, up from $1.5 trillion at the end of May. The business is broadly diversified, including active and passive vehicles. The ETFs stand out positively: The USD 150 billion Invesco QQQ Trust is the number 4 in terms of ETF assets, behind iShares, Vanguard and State Street, even if it has lost around 30 percent in value this year (as of January 2017). : 06/23/2022). “Management has worked hard to reverse the fund’s performance and flow trends have been positive this year,” quoted Barron’s CFRA analyst Cathy Seifert.

Franklin Resources stock

Franklin Resources completes the list of leading public money managers that may offer upside if the market recovers. The company has made several acquisitions in recent years to spur growth, according to Barrons, including the $6.5 billion deal for Legg Mason two years ago that roughly doubled assets under management. At the end of March this year, Franklin Resources had $1.5 billion in assets under management, compared to $1.6 billion at the end of December 2021 and $1.5 billion at the end of March 2021.

On the NYSE, Franklin Resources shares have fallen by 28 percent since the beginning of the year to USD 24.10 most recently (closing price on June 22, 2022). Thus, the paper currently only costs a little more than six times the forecast profit, brings a return of five percent and the dividend looks solid in view of a payout ratio of less than 35 percent. Barrons said the low valuation reflects continued net outflows. However, the company wants to counteract this by developing its alternative asset management business.

It remains to be seen if and when a market recovery will set in and which asset managers will actually be able to benefit the most from it.

Editorial office finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

Image sources: bluebay / Shutterstock.com, PopTika / Shutterstock.com