STOCKS

This asset management firm trades at 14.1 times latest earnings per share, offers a huge dividend yield, and has begun a major turnaround, says J. Royden Ward in Cabot Benjamin Graham Value Investor.

AllianceBernstein LP (AB), a master limited partnership, is one of the largest US investment advisors. It actively manages stock and bond accounts for institutions, mutual funds, and well-heeled clients.

France-based AXA owns 61% of AllianceBernstein units. One-third of AllianceBernstein's assets under management belong to clients domiciled outside the US.

Improved inflows into the company's target-date retirement funds, and strong sales in Asian operations will help push revenues and earnings higher during the next 12 months.

AllianceBernstein has begun a major turnaround. The company produced weak sales and earnings from 2008 through mid-2012, caused by poor investment advice to its debt and equity institutional clients.

During the past 12 months, though, the company's investment advice to clients has been among the best in the industry. Its new success has attracted many new clients seeking market-beating returns in the equity and debt markets.

Sales advanced 7% and EPS rebounded 65% during the 12 months ended September 30, 2013. Lower costs and higher performance fees helped earnings to surge.

The company's turnaround should strengthen during the next 12 months. My forecast includes a revenue increase of 10% and an EPS jump of 27% to $2.01.

During the most recent quarter, revenues were unchanged because of slow demand for bonds, due to the debt ceiling fiasco and uncertainty over the direction of US interest rates.

The lackluster sales caused the stock price to stagnate, thereby offering you an excellent opportunity to buy AB.

The dividend, which is directly correlated to profits, is now 85% higher than a year ago, and provides a high-yield of 7.0%. Dividend payments should climb further during the next 12 months.

AB shares are clearly undervalued. I expect the stock price to reach my minimum sell price target of $33.33 within two years.

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Tickers Mentioned: Tickers: AB

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