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The overall market was volatile in the first quarter, but major U.S. equity indexes showed strength. The volatility stemmed from various issues including the Federal Reserve's tapering of fiscal stimulus, sluggish growth in emerging markets and the geopolitical tension that took place when Russian troops advanced towards Ukraine's Crimean Peninsula.
However, investors' confidence has been improving at a modest level and consequently the investment management industry is currently benefiting from the broader trend. The investment management industry currently holds a Zacks Industry Rank #35 out of more than 250 industries. This reflects that it stands out in the top 14%. As a result, we remain optimistic about the performance of asset managers this earnings season.
Further, the asset managers have been showing some encouraging trends in the last few quarters. These include growth in overall net inflows due to growing demand from investors as the industry exhibited stable returns over a long time frame. This may support asset managers' bottom line this time around.
On the other hand, investment managers are striving to launch technologically advanced products, alternative AUM products and expand business to attract new assets and clients. Moreover, the competitive environment and stringent regulatory landscape have led to a rise in expenses in the industry
However, we think the overall industry has advanced to a great extent. Given the positive sentiment in the first quarter, it's a good idea to bet on a few investment management stocks that are poised to beat earnings estimates this quarter. An earnings beat will raise investors' confidence in these stocks, leading to rapid price appreciation.
How to Single-Out?
Picking the right stocks from the investment management space isn't an easy task. One way to narrow down the list of choices is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chances of posting a positive surprise in the upcoming announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, a positive earnings surprise happens nearly 70% of the time.
The Chosen Ones
For investors seeking to apply this strategy to their portfolio, we have handpicked 4 investment management stocks that are poised to beat earnings estimates this quarter:
Affiliated Managers Group Inc. (AMG) is a Zacks Rank #2 stock with an earnings ESP of +0.42%. The Zacks Consensus Estimate for the first quarter is $2.37 per share. In the past 30 days, estimates have inched up by 1.3%
Headquartered in Prides Crossing, Massachusetts Affiliated Managers is engaged in providing investment management services to mutual funds, institutional clients, and high net worth individuals across the U.S.
The company has registered an average earnings surprise of 9.1% in the trailing 4 quarters.
--Affiliated Managers is scheduled to announce its first-quarter results on Apr 29.
The Carlyle Group LP (NASDAQ: CG) is a Zacks Rank #3 stock with an earnings ESP of +4.08%. The Zacks Consensus Estimate for the first-quarter 2014 is 98 cents per share. In the past 30 days, estimates have risen by 46.3%.
Based in Washington, with additional offices across North America, Latin America, Asia, Africa, and Europe, Carlyle Group as an investment firm is engaged in direct and fund of fund investments.
The company has registered an average earnings surprise of 9.5% over the trailing 4 quarters.
--Carlyle Group
AllianceBernstein Holding L.P. (NYSE: AB) has a Zacks Rank #3 along with an earnings ESP of +2.44%. The Zacks Consensus Estimate for the first quarter is pegged at 41 cents per share.
New York based AllianceBernstein offers investment management and associated services in the United States as well as globally.
The company has registered an average earnings surprise of 15.3% in the past 4 quarters.
--AllianceBernstein is scheduled to announce its first-quarter 2014 results on Apr 30.
Legg Mason Inc. (NYSE: LM) has a Zacks Rank #3 along with an earnings ESP of +1.12%. The Zacks Consensus Estimate for the fiscal fourth-quarter 2014 stands at 89 cents per share.
Baltimore, Maryland based Legg Mason through its subsidiaries offers investment management and associated services to institutional and retail clients, company-sponsored mutual funds as well as other pooled investment vehicles.
--Legg Mason is scheduled to announce its fiscal fourth quarter 2014 results on May 1.
The Road Ahead
Investment management stocks are expected to perform well in the upcoming quarters with the rebound of the equity markets and rising demand for personalized investment solutions. Further, even if the interest rate environment doesn't reverse, asset managers will not suffer like banks.
Moreover, high shareholder return is a bonus for these stocks as most of the asset managers return a major part of their earnings to shareholders in the form of dividends and share repurchases.
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ALLIANCEBERNSTN (NYSE: AB): Free Stock Analysis Report
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