BlackRock: Investing in an Investment Management Company

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.