You Can Benefit From the Explosive Growth of These Companies
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When a company's stock price is increasing continuously, investors are usually divided in their opinions about its outlook. Some investors are doubtful about the growth potential of high growth stocks, but companies look out for different strategies in order to maintain their growth, and hence, investors' confidence. Here are three companies, Boeing (NYSE: BA), BlackRock (NYSE: BLK), and MetLife (NYSE: MET) that have appreciated about 25% year to date, and a detailed analysis of their strategies going forward.
Source: Yahoo! Finance
Flying high with the Dreamliner
Boeing's 787 Dreamliner resumed flying at the end of May after being suspended for about four months due to overheated batteries. Boeing is now on the path to ramp up production of the 787 Dreamliner. In May, it increased the 787 build rate from five aircrafts per month to seven aircrafts per month. Earlier, the company had expected to achieve this production rate by mid-year.
This will further help the company achieve its target of producing 10 aircraft per month by the end of this year. Currently, the Boeing Everett factory produces all seven aircraft per month, but the Boeing Charleston factory is scheduled to deliver three 787 Dreamliners per month by the end of 2013. With the additional production, the company should generate additional revenue of more than $4.5 billion per year from 2014.
Boeing launched the 787-10 Dreamliner at the Paris Air Show on June 18, 2013. It is the third aircraft of its flagship Dreamliner program, after the 787-8 and 787-9. This new aircraft features high bypass engines, a lightweight body, and a new wing shape. This will reduce operating costs by 20% compared to the Airbus A330-300. The first delivery of the 787-10 is targeted for 2018. The new aircraft is expected to be priced around $290 million, which is about $40 million more than the 787-9 aircraft. Boeing has already received an order of 102 aircrafts from five customers across Asia, Europe, and North America. The total revenue generation from these deals is around $30 billion.
Asia-Pacific and Europe will drive profitability
In May 2013, BlackRock announced that it would acquire MGPA, a private-equity real estate investment advisory firm. The transaction is expected to be complete by the third-quarter of 2013. MGPA is focused on real estate investments in Asia-Pacific and Europe, with more than 60% of its assets invested in these regions. BlackRock’s real estate investment business is worth $13 billion in the U.S. and U.K.
This acquisition will help BlackRock grab the real estate market in Europe and the Asia-Pacific. MGPA's real estate investment business amounts to $12 billion, so its addition to BlackRock's portfolio will almost double the amount of money the company has invested in the real estate business to $25 billion.
BlackRock, along with Euroclear Bank, will soon issue the first iShares Exchange Traded Fund. This ETF will be launched in July 2013 with an international security structure in Europe. Currently, all cross-exchange ETFs are issued and traded on one or more national stock exchanges, and are settled in the national central securities depository of the respective exchange where the trade is executed.
This process often causes inefficiencies when ETFs are traded across borders. The international security structure will centralize settlement for the ETF trades. This single European settlement location will ease cross-border ETF processing, improve trading liquidity, and lower transaction costs for investors. BlackRock estimates that for 15 iShares ETFs, it will save around $261.7 million per year.
Japanese market and lower RBC ratio will lead to better long-term opportunities
Japan has a large life insurance market that generates about 50% of Asia's premiums. MetLife earns more than half of its international premiums from the Asian market. The number of life insurance companies in Japan is only 5% as compared to those in the U.S. The Japanese insurance market is growing with 136 million individual insurance policies in April 2013 from 125 million in 2011.
Life insurance penetration was about 10.5% in Japan this year. With 2.5% GDP growth forecast for fiscal year 2014, the Japanese insurance market provides growth potential. Note that MetLife has low exposure to the younger age group with a market share of only 4%; this provides an opportunity for the company to expand further in Japan.
MetLife is planning to merge its four subsidiaries into one new entity. The new entity includes MetLife Insurance Company of Connecticut, MetLife Investors USA Insurance Company, MetLife Investors Insurance Company, and Exeter Reassurance Company. The transaction is expected to be complete by 2014. With this, the Risk Based Capital, or RBC ratio, will decrease from 466% in fiscal year 2012 to a projected ratio of around 400%.
RBC is used to measure the minimum amount of capital required to support the business operations of a company. The ratio takes into account the risk profile of the company and hence the limits on the amount of risk it can take. By lowering the RBC ratio, MetLife has reduced its risk profile. This will free some of its capital required to back up its operations and, in effect, will allow it to use existing capital in other entities.
Boeing is gradually increasing the production rate of its 787 Dreamliner. The company has also received orders for its new 787-10 aircraft. This will lead to additional earnings for Boeing.
BlackRock's acquisition of MGPA will increase its presence in Asia-Pacific and Europe. BlackRock is also aiming to ease up the settlement process of ETFs in Europe. These plans will drive the company's profitability.
MetLife is eyeing more revenue from the potential Japanese insurance market and is reducing its RBC ratio. This will make the company’s future bright.
All three of these stocks are worth buying.
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Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends BlackRock. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!