26 Jan 3 High-Yield Financial Stocks For A Late-Term Bull Market
Today’s vernacular is riddled with acronyms ending in the letter “O”: IMO, YOLO, BOGO, and the newest one that’s most relevant to the investing racket, FOMO, which stands for “Fear of Missing Out”.
FOMO can often drive the type of investment behavior that can lead to bubbles and mania. We saw lots of FOMO during the dot-com bubble of the late 90s.
However, professionally speaking, “fear of missing out” sounds almost as absurd as “fear of success”. FOMO in relation to investment behavior is the notion that an investor will chase prices without regard to valuation or fundamentals, driven solely by the fear of not being able to participate in a rally. When this happens on a widespread scale, many hearts are broken, and a lot of money is lost.
Pundits and talking heads contend that the market is entering this phase. I can neither confirm nor deny this. However, there are a few late-cycle bargains level-headed investors can take advantage of at the expense of FOMO lemmings.
The Financials I Like Right Now
If you’ve followed my writing on StreetAuthority, you’ll know that I’m a frequent fan of asset manager stocks and master limited partnerships (MLPs). These firms manage the mutual funds and other investment vehicles many FOMO investors are currently throwing money at. These companies earn fees based on the assets they manage. As the value of the assets increase, their fees and, thereby, their earnings, rise.
AllianceBernstein (NYSE: AB )
With nearly half a trillion dollars in assets under management (AUM), AllianceBernstein has always been one of my default asset manager stocks. Its MLP structure has always ensured a generous distribution, which currently sits at an attractive 7.5%. The firm is equally adroit at managing both equities and fixed income. Its investment research arm is also widely respected. Shares trade at around $27.35, with a forward P/E of 12.9, a 31% discount to the S&P 500 on a forward P/E basis.
Artisan Partners Asset Management (NYSE: APAM )
Another asset manager MLP that has piqued my interest, Artisan employs an organic, creativity-driven investment process managing money in the small-cap, mid-cap, value, and international equity spaces. All of the firm’s investment management teams are afforded autonomy in pursuit of their particular investment discipline. At the end of 2017, assets under management (AUM) stood at $115.5 billion. At around $40.70 per unit, the stock is at the upper end of its 52-week range. However, on a forward P/E basis, APAM is still attractively priced with a forward P/E of 16.6, an 11% discount to the S&P 500. It also pays a 5.9% yield.
The Carlyle Group (Nasdaq: CG )
The last asset manager we’ll look at falls into the alternative investment management sleeve. Carlyle focuses its efforts on private equity, real assets, and global market strategies. These spaces are particularly timely with the recent tax reform package, as well as the anticipated ramp-up in U.S. infrastructure improvement.
Managing over $100 billion in assets, the company has created gross operating margins of nearly 75% and an impressive return on equity of over 37%. The MLP units trade at $25.30, again right about at their 52-week high. However, the forward P/E of 8.2 suggests that there’s some definite upside. The dividend yield is 4.9%.
Risks To Consider: The biggest risk facing all three stocks, is, of course, the current bull market running out of gas. Any whiff of a correction will send investors running for the hills, translating into fund redemptions, fee shrinkage and, in turn, earnings shrinkage.
Presently, it seems that the market is moving on its own, perhaps outstripping where the actual economy sits. Financial markets often become overconfident. When the economy doesn’t match that confidence, corrections ensue. In that event, the consolation prizes for investors are above-average yields and acquisition costs at valuations well below that of the overall market.
Action To Take: All three MLPs when held as a basket currently yield 6.2% and have an average forward P/E of 12.6, meaning these names should have room to move. Should the market continue its run, investors could see total returns in excess of 20%.
Editor’s Note: While most companies have to start each day at $0 in sales… my favorite monthly payer generates daily profits rain or shine — and regardless of what’s going on in the economy. Plus… its revenue has risen more than 60% over the past four years. That’s why I’m urging you to grab this company right now. Don’t wait… Get the buy details here ASAP .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.