With all eyes on the potential new economic policies coming from the Trump administration, U.S. financial markets are expecting to see higher economic growth, higher interest rates and lower tax rates. As a result, cash is moving from the sidelines into stock sectors that are most likely to benefit from these changes. Global asset managers are on my list, and one large cap growth stock in that niche stands out.
U.S. stock market indexes performed well at the end of 2016— the S&P 500 and Dow Jones Industrial Average finishing the year up 9.5% and 13.4%, respectively—and investors remain bullish on U.S. stock markets in 2017.
So it’s time to turn our attention to asset manager companies that will benefit from the cash inflows.
Affiliated Managers Group (AMG) is certainly one. It’s a global asset manager, serving institutions, high net worth individuals and other investors through mutual funds and private asset management. The company is based in Florida.
AMG has $672 billion assets under management (AUM), with third quarter 2016 AUM growing 13.2% vs. a year ago. AUM growth is highly dependent on stock market returns, and could easily range from 5% to 30%.
And global asset managers like AMG are expected to perform better than U.S. asset manager stocks in 2017, due to recent changes in U.S. securities laws that harm the investment industry. The Department of Labor’s new Fiduciary Standard Rule goes into effect in April 2017. Watch for a possible repeal under the Trump administration.
Wall Street consensus estimates point to AMG’s earnings per share (EPS) growing 1.9% and 16.3% in 2016 and 2017. Full-year revenue results are expected to reach $2.22 billion and $2.44 billion in 2016 and 2017. In each of the last five years, analysts underestimated annual EPS and overestimated annual revenues. Fourth-quarter and full-year 2016 results are expected to be reported in late January (December year-end).
There’s no predictable price/earnings ratio (P/E) range for AMG. Until 2015, AMG traded with P/Es in the 20s and 30s. Then the P/E dropped as low as 9.1 in early 2016. The current P/E is 10.0, which means that even if the stock just travelled halfway back to the bottom of its normal P/E range, the P/E will be 15 and the share price will rise 50%!
AMG is a large cap growth stock that does not pay a dividend. As of December 30, AMG has 8 Buy and Outperform ratings on Wall Street, one Hold rating and one Sell rating.
Institutions own 96% of AMG shares. That is an astonishing number, and should tell investors that professionals see AMG as a very smart investment.
AMG’s long-term debt-to-capitalization ratio has held steady around 30% for five years, down from 72% in 2007.
The stock rose to a new all-time high of 226.76 in June of 2015, then spent the next 18 months in a period of heightened volatility, price corrections and stabilization. Based on current price chart patterns and favorable market outlooks for both financial stocks and stock market performance, I believe AMG has begun its rebound. There’s some upside price resistance at 162, and more at 180. AMG could reach 180 this year, giving new investors a 20% capital gain.
Large cap growth stock investors should buy AMG now for outsized capital gains in 2017. For more updates on AMG, consider taking a trial subscription to Cabot Undervalued Stocks Advisor. Get more details here.