Brett Owens is a leading on income investing; the editor of the industry-leading Contrarian Outlook ...
Bank on Oppenheimer
04/17/2019 5:00 am EST
Many people think Oppenheimer is an investment bank, when it is really a good-sized asset management firm with a little investment bank on the side.
This private client wealth management and asset management company is putting technology costs behind them, putting regulatory settlements behind and now are ready to be sold to a much larger financial institution.
Tangible book value grows rapidly due to strong earnings and a low dividend payout ratio. Even without incentive fee income, the bank makes a mint today; rising short-term interest rates over the past two years have created a stable earnings machine. Meanwhile, many other parts of the business are doing very well, which can be viewed as an added bonus.
We always like to invest with significant insider ownership; here we have that in spades. In fact, insiders never seem to sell. In fact, I can only name a handful of banks — and almost no asset management firms — where insiders never sell. This is a strong statement.
The market is active for wealth management firms as brokers and banks are trying to grow client assets. The CEO is in his mid-seventies and he keeps buying stock back even at today's prices.
In early 2014, the stock traded at $29 with a price to book value of 1.2; the stock currently trades under tangible book, even with its strong earnings growth. In my view, this seems insane.
Bottom line, this is a liquid stock, that is extremely undervalued. I believe that the shares are worth at least $50, using a current price times book and P/E ratio.
Despite the 100% rise from the lows of $13 and change a few years ago, it is cheaper today than back then, due to all the earnings growth and book value growth. This firm will earn well over $5.00 a share in 2020, either way on a takeout or based on earnings growth.
The CEO said also “we look forward to higher levels of profitability with higher interest rates and also that the future looks bright” There is no way they would be buying back shares at these levels if they didn’t see a great future or they are getting ready to sell.
A number of players would love to get their stable earnings power going forward and with so many deals in this space the past ten years it is easy to comp this one at $50 as share or almost a 100% gain from today’s levels.
This stock trades over 60,000 shares a day on average so it is very easy to get a large position. For a liquid stock, it is by far the cheapest and safest in this sector today.
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