Whether we
earn sufficient money to support our desired lifestyle or not we all try to
save some money or invest money (not necessarily investment products that trade
in the stock markets) to build a nest egg
at some point of time in our life. The purpose for the investment may
not be the same and at the same time, the returns expected might not be the
same, because people invest for various reasons. The continual change and
modernization of society means that reasons behind investment are continually
changing and the appetite to earn more is increasing as each day passes. And
the evolving world with its volatile monetary systems is becoming more complex
and troublesome for those people who do not save and spend more than they earn.
At the same time the living standards and opportunities for achieving a
luxurious life is improving for many, which may lure more people (with an
insatiable desire for more or to continually better themselves), to invest to
earn more. If this trend continues, we can say that the interest towards
investing (In equities and related products also) will continue to increase in
the future.
As the desire
to earn more grows, people start to increase their risk taking capabilities.
This drives them towards investments like equities, mutual funds and other
complementary and related products that offer high risk–reward investment
opportunities. But everyone who invests in these products does not know how to find
or manage the risk–reward inherent in the underlying investments (example:
individual stocks). This is creating an abundant opportunity for asset
management companies like BlackRock to grow.
Company and Financials
BlackRock,
Inc. (NYSE:BLK) provides various products and services including investment
management, risk management and advisory services to its clients around the
world. At the end of December 31, 2013, BlackRock had $ 4.324 trillion assets
under management, which is a 14% increase from 2012.
BlackRock
reported diluted EPS of $ 16.87 for the full 2013 year, an increase of 22% from
the previous year. The Board of Directors of the company declared a quarterly
cash dividend of $1.93 per share of common stock for the fourth quarter that
included a 15% increase from the previous quarter. The company’s cash dividends
(paid and declared per common share) for the full 2013 year were $6.97. Very
few companies pay this high a cash dividend per year, and this is a rare
opportunity in the stock market.
Macro Environment
Though there
is no saturation in marketed products and services (individual products and services
are growth driven) related to investment, overall performance of the economy is
key to understanding and predicting how well Blackrock will perform. I do not
see any negative factors for the growth of the company as long as the US
economy is in a positive GDP growth trajectory.
The pace at
which the economy grew in 2013 is likely to continue in 2014, thanks to a growth
friendly environment. Federal Reserve tapering seems to have started at the
right time and there are no major negative effects from it so far for Blackrock.
Valuation
BlackRock
was trading at $300.35 per share at the close on March 03, 2014 with a price to
earnings ratio (ttm) of 17.79 and a price to book ratio (mrq) of 1.95.
Considering the size and growth rate at which the company is growing, it deserves a much higher
valuation. The recent stock price dip is a good opportunity to enter into the
stock.
The demand
for investment related products and services is rising as a result of the increasing
complexity of life and because many are wanting a better life style. Well run
companies like BlackRock, which has a presence in both developed and emerging
economies, have opportunities and potential to continue to grow at the rate from
its recent past.
Disclosure: I do not
hold any positions in the stocks mentioned in this article and don’t plan to
initiate any in the next seven days. The views expressed in this article are my
own.