Financial Firms Depend on Each Other
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many times people expect financial companies to perform well due to the fact they supposedly understand finance. However, many times, partnerships and spin-offs fail miserably. The truth of the matter is this: financial firms are often dependent on their competition.
Revenues have increased more than 17% for three consecutive years at Invesco (NYSE: IVZ). Invesco has an operation network spanning over twenty countries, and believes that “great ideas transcend borders.” The company provides investment solutions for retail, institutional, and high-net-worth clients around the world. The company's market cap is $12.3 billion, and shows a 4.7% FCF yield. Shareholders of the company have experienced a 23.5% growth in the past twelve months. Let's take a look at some of their competition, and some of their partners.
Legg Mason (NYSE: LM) is an investment firm that survives because of partnerships. Legg Mason owns companies such as Royce & Associates, Batterymarch Financial Management, and Clear Bridge Investments. Their vision is “to be a proven leader in global asset management by delivering specialized investment solutions that meet our clients' objectives and by rewarding our shareholders and employees.”
In 2012, its shareholders weren't rewarded as the stock basically remained level. Revenues have been sporadic for Legg Mason; however, it does show a 7.1% FCF yield. Approximately 20% of Legg Mason's Assets Under Management (AUM) are derived from outside of the United States. With over $650 billion in AUM the firms client base remains skewed towards institutionalized investors.
Genworth Financial (NYSE: GNW) is a Fortune 500 company that was founded in 1871. The company has over $100 billion in assets, and is established in over 25 countries. Genworth is another company that has partnered with other financial institutions, brokerage general agencies, independent marketing organizations, and mortgage professionals.
Genworth's stock has increased over 11% in the past year and has a market cap of $4.5 billion. The stock fell after selling Genworth Financial Investment Services to Cetera Financial Group,. in April, but rebounded starting in October. With a P/E of 15.11, it is lower than both Legg Mason and Invesco.
Primerica (NYSE: PRI) spun off from Citi in April of 2010, and is the largest financial services marketing organization in North America - with approximately 100,000 licensed representatives in the United States, Canada, Puerto Rico, and Spain. Primerica's IPO has been argued as the best of 2010 (surging 33%), and its stock has continued to grow, increasing 30% in the past year.
Primerica's goal is to educate middle income America on how to eliminate debt, become properly protected, and reach the goal of financial independence. The company offers a complementary Financial Needs Analysis, which shows a client what they are doing well, and what to improve on in regards to retirement, debt, savings, insurance, etc... Primerica's partners include Invesco, Legg Mason, and Genworth, all of whom have designed products to help Primerica's clients. Although Primerica has consistently posted good dividends, last November the company increased them by 29%. Primerica has surpassed earnings estimates in each of the last two quarters - by an average of 7.6%.
The chart below shows how competition and partnerships seem to benefit everyone.
data by YCharts
Primerica's Durable Competitive Advantage...
Primerica has a few competitive advantages over some of these other companies. First of all, the company believes word of mouth referrals is the best form of advertising. The company may not be as popular as Invesco or Genworth, but they don't have the expenses related to typical marketing. The next major advantage is Primerica's market which focuses on middle and upper middle income America ($40,000 - $150,000/year). This means their market includes 80% of Americans, as opposed to the 5% of wealthy American's other companies focus on. Clients are able to invest in Primerica's mutual funds for as little as $50/month. The company also has unbelievable leadership. With more $100,000 earners than any company in America, 20% of its representatives have been with the firm for at least twelve years. Lastly, because Primerica doesn't charge for their services, the company is able to acquire business that other companies may not.
The Foolish Conclusion...
Although all of these companies are competitors, they all seem to partner with companies as well. Although Legg Mason didn't perform very well in 2012, it may be the best value for bargain investors. Other companies, such as Invesco, may not present the bargain that Legg Mason does; but it still shows potential for interested investors. Because of Primerica's unique marketing strategies, Primerica should provide a stable solution for the long term investor. In one way or another, all financial firms are dependent on other financial firms for success - even if it is simply by replacing their products.
tlwofford has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!