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Barron's: Asset managers offer value

Dec. 20, 2015 8:30 AM ETBlackRock, Inc. (BLK) StockMS, BLK, AMG, JNS, TROW, BEN, IVZBy: Stephen Alpher, SA News Editor8 Comments
  • The bear case - the ongoing shift to passive investing via ETFs and Vanguard - is well known, but investors are overlooking favorable industry characteristics like modest capital requirements, high profit margins, and strong cash returns to shareholders, writes Andrew Bary. Compensation levels remains generous as well, meaning there's plenty of room to cut expenses.
  • Stocks of the biggest players like BlackRock (NYSE:BLK), Invesco (NYSE:IVZ), Franklin Resources (NYSE:BEN), and T. Rowe Price (NASDAQ:TROW) trade at a below-market 11-15x projected EPS and sport sizable dividend yields.
  • The sell-side generally isn't very bullish on the industry, but JPMorgan's Ken Worthington thinks a value approach - a focus on capital returns and efficiencies - could trump analysis of sales growth. His favorite is BlackRock (which also has a sizable ETF business) - it's seen the best inflows outside of Vanguard.
  • Others to consider include Affiliated Managers Group (NYSE:AMG) which has the distinctive approach of buying stakes in private investment firms, and giving the firms' managers autonomy. Particularly stung by the Third Avenue debacle, Affiliated trades for less than 12x estimated 2016 earnings which could be about to get a lift from three accretive acquisitions made last month. Eaton Vance (NYSE:EV) and Janus Capital (NYSE:JNS) make the list as well.

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