BlackRock (NYSE:BLK) is one of the world’s largest asset management firms with over $3.6 trillion under management and offices in 26 countries. The company’s stock has fallen out of favor with the market due to concerns over the debt crisis, but the concerns are unwarranted and are creating the great contrarian investment that is BlackRock.
The first thing that caught my attention was the low PEG ratio. BlackRock’s PEG is at 0.7, which means it is technically “cheap” in terms of price.
Currently trading at $161.18, BLK fundamentally undervalued for what it owns. It currently trades at only 1.2 times its book value, which resides at around $135 a share. The stock could easily trade up to 1.8 times its book value.
Now if an investor were to do a quick comparable analysis of BlackRock with, say, T. Rowe Price (NASDAQ:TROW), she would quickly notice that BlackRock is failing in the management department, but what a comparable will not show is that BlackRock has acquired two firms in the past year to add value to its bottom line. That is important because when you examine the quarterly earnings of each company, TROW should in theory hit or beat the consensus for its earnings reports and BlackRock should miss the consensus, but instead BlackRock has surpassed the highest earnings estimates for three of the last four quarters. TROW has missed the consensus for two of the last four quarters.
BlackRock’s management team understands what it means to make a buck. It's grown from $1 billion to $3 trillion in assets in 23 years. This is an ideal time to get in on an ideal stock.
BlackRock is a smart investment. 15 analysts covering the stock have it rated a buy with a price target of $223 per share over the next 12 months, which will represent about a 35% return. As an added bonus, the stock has a growing quarterly dividend.
Beyond the fundamental look, BlackRock has been acquiring new businesses left and right it seems, with one in October of 2010 and the other in January of 2011. Any time a company begins to expand, the management ratios will be impacted. This is often due to adjustments within the culture of each firm. An investment in BlackRock now is a sensible contrarian move that will reward investors in the months to come.
Disclosure: I am long BLK.