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Lazard: An "Exceptionally Cheap" Stock
09/29/2017 5:00 am EST
Lazard Ltd. (LAZ) is a mid-sized, but highly profitable, financial advisory, asset manager and investment bank serving primarily institutional clients, asserts growth and income expert Mark Skousen, editor of High-Income Alert.
This is an excellent time in to be in the asset management business, as both stocks and bonds are in a pronounced uptrend. That means that institutional clients are anxious for Lazard’s research to help them outperform their benchmarks.
Plus, rising prices also are a huge boon to money managers like Lazard, who are paid based on the total value of assets under management. Not only is new money moving off the sidelines and into higher returning assets, but loftier stock and bond prices mean higher fees.
Another compelling reason to own Lazard is surging mergers and acquisition activity. Since the financial crisis, companies have cut costs to the bone, laid off nonessential personnel and refinanced their debt at lower levels.
However, revenue growth for most of them is still at low- to mid-single-digit-percentage levels. In order to boost sales and earnings, many companies need to make acquisitions.
The economy is growing too slowly for most companies to count on a big boost in consumer and business spending, but a rising equity market gives potential acquirers plenty of firepower, as many deals are done all or partially in stock.
As business confidence improves with the economy, more deals are likely to be announced. The numbers here are already superb.
In the most recent quarter, earnings per share at Lazard jumped 50% on a 36% increase in sales. Management is earning a massive 38% return on equity. And the investment bank enjoys an operating margin of 25%.
Despite these strong numbers, Lazard is exceptionally cheap, selling for less than 12 times trailing earnings. (That makes it a compelling takeover candidate.) Plus, you’ll collect a 4% dividend yield here. I expect good news when Lazard reports quarterly results again on Oct. 26.
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