Good Prospects in Asset Management
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Asset management companies are a strangely mixed bag. There are so many ways to manage investor money, such as loans, acquisitions, and even consulting. I would never suggest having a portfolio composed entirely of asset management companies, but that wouldn't be the worst thing to ever happen if they were high quality. I decided to focus on the return on equity for each company because it reflects the efficiency of management and how hard they can get each dollar in the company to work. I came up with the following investment ideas, and they look pretty decent upon first glance. Let's look a little closer and see if I just need glasses.
A Company That Changed Investing
T. Rowe Price Group (NASDAQ: TROW) was one of the first companies to offer mutual funds. But beyond that, they literally made up the idea of a growth stock. I like innovation, and Price offers it in spades. They were also the first company to charge fees based on their assets under management. I love that Price is globally diversified, with 12% of its business taking place outside the U.S. I also love the 28% profit margins. I'm okay with the 19.79 P/E considering the age and size of the company, and the 2.4% dividend yield isn't too bad either.
But I really respect that despite being a $16 billion behemoth, Price is still churning up a 23 ROE. For a company this mature, that's quite good, and it instills me with a lot of faith that they're going to keep innovating for the time being. However, nothing's perfect. Price's security breach in 2008 was well handled, but it still shouldn't have happened. One of the problems with older companies is that they tend to neglect the potential abuses of technology, and it's something to be wary of.
Adaptation on Steroids
Eaton Vance (NYSE: EV) handles a lot of wealth. With its market cap of $3.2 billion and pedigree going back to 1924, it's seen a lot of changes. I appreciate that Eaton has shifted with the times and moved into defined contribution investing and advisory from the defined benefit retirement plans that were popular a couple generations ago. In 2011, Eaton worked with Richard Bernstein Advisors to create an all asset strategy designed to maximize value without any prejudices about location or asset type.
I respect the company's 17.17 P/E ratio and the 17% profit margins are okay, but I really love the 43 ROE. For a mature company this is almost unheard of, and I take it as a sign that Eaton can still grow a good deal more. I won't lie -- the 2.4% dividend isn't too bad, either. If the profit margins were a little higher I'd get even more excited, but so far I like what I've seen of Eaton Vance.
Specialization and High Standards
Epoch Holding Corporation (NASDAQ: EPHC) is a good choice because it measures its benchmark against indices other than the S&P 500. Working solely for "big boys" like endowments, wealthy individuals, and corporations, Epoch has taken the unusually liberal step of going for small and mid-cap stocks over the larger blue chips you'd expect. While the annual returns for the investors the company serves can and will vary, the profit margins are a strong 24.48% and the dividend is a reasonable 2%. Those aren't bad, but I really respect the 36 ROE, which shows me that this small-cap powerhouse has a lot of room to grow. I personally can't wait to how it does. I love businesses that serve a smaller group instead of trying to be the next Wal-mart and serve everybody.
Good Enough for Mr. Softy
GAMCO Investors (NYSE: GBL) is the young upstart of this list, and I respect that. I also respect the fact that the founder, Mario Gabelli, still owns 50% of the company. Insider ownership naturally puts management in the same shoes as the investors, and that tends to lead to a lot less of the shenanigans Wall Street types have become infamous for. Not only that, but Microsoft founder Bill Gates even owns 1.3% of GAMCO through his private hedge fund.
I'm okay with the 21.3% profit margins, but this is where things get a little mediocre. For some reason, GAMCO pays a .3% dividend, and I have to wonder why they bother for such a small return. I'm also a little less than impressed with the 16.75 ROE. It isn't bad, mind you, but it's not as awesome as the others on this list. It seems like GAMCO may be resting on its laurels a bit.
A Solid Pack
I usually pick a group of companies because of some information from the stock screener and then analyze them only to find a couple of duds mixed in, but today I was pleasantly surprised. Every company here could be a solid addition to a healthy portfolio, and I'm gettin' hungry just thinking about the profits. Remember to do your research, though.
pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.If you have questions about this post or the Fool’s blog network, click here for information.