Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Polar Capital (LSE:POLR)
Why we like it: “Polar Capital (LSE: POLR) is a London headquartered fund management company that boasted £19.2bn in assets under management (AuM) as of January 2024. While the investment management space often gets a bad rap – with the assumption that it charges high fees for poor performance – we have no problem recommending asset managers with long-term, Foolish investment styles, and believe that Polar’s technology and healthcare focus is appealing.“One of the attractions of fund management businesses is that they have massive operational leverage. Revenues typically grow at a rate that’s proportional to AuM, although costs stay much the same, so profits should grow at a faster rate. In the good times, when markets rise and revenues surge, then the company’s profits should grow even faster – which could potentially make owning the business a proxy for the market’s progress.”
Why we like it now: The last 12 months have seen technology stocks rise, as macroeconomic worries eased and investors have again appreciated the qualities of businesses that boast potentially world-changing technologies. Amid that backdrop, Polar Capital’s investment performance was strong in its third quarter, resulting in investment gains of £2.1bn. Performance fees jumped by 5x to £9.6m, which should give a boost to full-year earnings. My feeling is that many businesses in Polar’s universe might benefit from transformational technologies – such as AI – and that investors could also want to benefit from these themes in the long run. This should benefit Polar’s business both if the valuation of its investments improve and its funds see improving demand. Its forward P/E of around 11 could offer good value for patient investors willing to hold the business across the market cycle.
