As I write, global stock markets are crashing and investors are in a flap. There’s only one thing a wise Fool can do at times like these. Go shopping for bargains.
Geared play
If you can hold your nerve, now’s the time to pick up your favourite stocks at discount prices. Asset management companies make a tempting target, because they rise faster when investors are bullish, and fall faster when they are bearish, as they’re doing today.
Fund managers Schroders (LSE: SDR) and River & Mercantile Group (LSE: RIV) are both down more than 3%, double the current 1.5% loss on the FTSE 100. Things look even worse at Jupiter Fund Management (LSE: JUP), down 5.99% after publishing its trading update for the three months to 30 September.
Falling star
Jupiter has been hit by net outflows totalling £800m during the quarter, offsetting positive performance of £300m, with European fixed income funds bearing the brunt of it. The group still has £47.7bn assets under management, but the news was enough to spook investors.
This puts the tin lid on a tricky 2018, with the group’s share price starting the year at 624p and now trading at 355p, a drop of almost 45%. High redemptions from its dynamic bond are hitting plans to expand its UK focus to become a broad-based European fund manager.
Dark star
Jupiter looks cheap, though, trading at 11.9 times earnings with a whopping forecast yield of 7.2%, although cover is thin at 1.2. However, City analysts are pencilling in a 4% drop in earnings per share (EPS) in 2018, and another 1% drop in 2019.
This looks like a tough year all round for fund managers, with Schroders and River & Mercantile both down around 17% year-to-date. Schroders was briefly lifted by weekend press reports that it’s in talks with Lloyds Bank to create a leading wealth management business, although the stock market sell-off has wiped out those gains. It’s also winning the race for the £109bn mandate from Lloyds to manage its Scottish Widows investment assets.
Young man River
Schroders’ most recent results showed six-monthly pre-tax profits rising 8% to £371.1m, with assets under management up £1.2bn to £449bn, helped by healthy net inflows. Trading at 13.3 times earnings, it looks tempting. You also get a forecast yield of 3.8% yield with cover of 2. EPS growth looks patchy, falling 2% this year, but rising 5% next. If markets keep falling, this could be a real bargain.
River & Mercantile may have slipped lately, but its share price has nonetheless risen 50% since floating in 2014. It also has attracted a loyal band of enthusiastic investors. This is another high yielder, with a forecast income of 5.8% and cover of 1.2. That’s a mighty dividend from a relative minnow. Again, its yours for a slight discount of 13.8 times earnings.
Swept away
River & Mercantile is building its business by investing in its operating platform, international capabilities, and new product launches and, as my Foolish colleague Ian Pierce has pointed out, it was recently posting strong inflows and profits before tax. However, EPS growth has been erratic with a 5% drop in the year to 30 June 2017, and City analysts anticipate a 17% drop this year. Of the three, Schroders would be my tip.
