Money Managers & Majors...

12/23/2005 12:00 am EST

Focus:

Several top advisors see opportunity in major brokers and money managers. Charles Carlson invests in Lehman Brothers; Richard Moroney banks on Merrill Lynch; Paul Tracy opts for Jefferies Group and Eaton Vance; Louis Navellier puts his money on Franklin.

(For more on the advisors cited below, please click on their photos.)

Carlson, Charles"I believe investing in Lehman Brothers Holdings (LEH NYSE) will make you money, and investors shouldn’t avoid a quality stock simply because of its high price tag," notes Charles Carlson, editor of The DRIP Investor. "Lehman is a major investment bank, specializing in debt and equity underwriting, trading, advisory services, and merchant banking. The firm also owns the Neuberger Berman fund family. "Lehman Brothers has been one of the more consistent performers on Wall Street. The stock has posted a higher high every year but one since 1994. Fueling the impressive stock price performance has been stellar earnings growth. Per-share profits more than doubled from 2002 through 2004. Per-share profits for fiscal 2005 should be up at least 35%. Despite the stock’s triple-digit price, the shares trade at a very reasonable p/e ratio of less than 12 times the consensus earnings estimate of $10.71 for fiscal 2005."

Moroney, Richard"Merrill Lynch (MER NYSE) is best known for its brokerage operations, but money management now provides nearly half of total revenue," notes Richard Moroney, editor of Dow Theory Forecasts. "In recent years, Merrill Lynch has concentrated on controlling expenses and improving profitability more than on growth. US operations have shifted their focus to such investments as commodities and derivatives. Less dependency on transaction-based revenue should provide a smoother profit stream in the years ahead. Over the last 18 months, Merrill Lynch has reduced its share count by over 50 million, or about 5%. In the September quarter, it bought back $856 million in shares and authorized the repurchase of another $4 billion worth. MER is being upgraded to a Focus List Buy."

Tracy, Paul"While most major Wall Street investment banks tend to concentrate on large-capitalization clients and large, high-profile deals, Jefferies Group (JEF NYSE) focuses on small to mid-sized companies," notes Paul Tracy, editor of StreetAuthority Market Advisor. "This is an attractive niche business, as these clients tend to be underserved. Even better, because smaller companies don't have dozens of international investment banks knocking on their doors, there's less competition in this niche. Overall, its business niche is small, defensible and nicely profitable. Over the past six months, the firm's CEO and CFO have been heavy buyers of the stock. In the past three months alone, insider purchases have totaled nearly $5 million. This vote of confidence bodes well for the future of this up-and-coming financial powerhouse."

"We also recommend Eaton Vance (EV NYSE). For the third straight year, this Boston-based money manager has led the industry in closed-end mutual fund sales, raising $5 billion last year in new offerings. The firm has also attracted plenty of new money into its open-end funds and separately managed accounts. Over the past decade, shares of Eaton Vance have delivered sensational average annual returns of 33%, trouncing the S&P 500 by more than 23% per year. With assets under management rising to record levelsand topping the $100 billion threshold for the first time the firm's fee-based revenues should continue to soar. As such, I remain confident that EV can continue its winning ways in the years ahead."

Navellier, Louis"Franklin Resources (BEN NYSE) has been added to the list of top buys in our Blue Chip Growth service," notes Louis Navellier . "Franklin Resources is an institutional money manager that offers a family of more than 100 funds that invests in international and domestic stocks, taxable and tax-exempt money market instruments, as well as corporate, municipal, and US government bonds. The firm also offers separately managed accounts for institutional investors, wealthy individuals through some brokerage firms. Currently, Franklin is the fourth largest mutual fund manager in the US. During November, its preliminary assets under management rose 2.5% to $453.2 billion from $442 billion a month earlier. The stock is a conservative buy up to $104."

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