In today’s article, I’m going to look at two stocks I believe could be attractive takeover targets.

I’d buy this income stock

John Laing Group (LSE: JLG) invests in infrastructure and renewable energy projects in the UK and abroad. This may seem dull, but it’s vital for global economic growth and can be very profitable for investors.

John Laing’s net asset value rose by 14.3% to £1,016.8m last year, while the group’s pre-tax profit rose by 80% to £192.1m on a pro forma basis. The group’s total dividend rose by 7% to 8.15p last year, giving a trailing yield of 3.1%.

Although this isn’t a particularly high yield, the payout is structured to reflect the group’s proceeds from asset sales each year. This should mean that it’s always affordable, even if annual growth is uneven.

One potential concern I have is that John Laing may use too much debt in order to boost short-term returns. Luckily, the group’s 2016 results show no sign of this. Borrowings are low at just £161.4m, or around 16% of net asset value.

The shares now trade in line with their net asset value of 277p and offer a forecast yield of 3.4%. Management reports a healthy pipeline of new investment opportunities. In my view, this business would make an attractive long-term income investment and could easily attract a cash-rich buyer looking for income-generating assets. I’d buy at current levels.

Is another deal on the horizon?

Active fund management is an increasingly tough business. Cheap passive funds have performed well in recent years. Investors are growing reluctant to pay inflated management fees.

One area in which gains can be made is cost reduction. The Standard Life-Aberdeen deal will result in fewer, larger funds with lower costs. I believe other companies may follow this example and combine.

One company I believe could be an attractive takeover target is Henderson Group (LSE: HGG). This FTSE 250 asset manager reported net outflows of £4bn in 2016 and saw its underlying pre-tax profit fall from £220m to £212.7m. Underlying earnings per share dropped by 11% to 15.2p, leaving the shares on a P/E of 14.8.

The news wasn’t all bad. Henderson’s investment performance has been strong. Over the last three years, 77% of the group’s funds have outperformed their benchmarks.

Another attraction is that Henderson has already started down the road to consolidation. The company recently announced a planned merger with US firm Janus Capital. The combined group is expected to have assets under management (AuM) of more than $320bn and a strong presence in both the US and Europe.

However, Henderson-Janus will still only be a mid-sized player compared to companies such as Standard Life and Aberdeen Asset Management, which have combined AuM of about $825bn.

In my view, Henderson may yet be the subject of a bid or another merger deal. In the meantime, the firm’s 4.8% yield is well covered and looks appealing to me.

The post Why these 2 hidden income stocks could be takeover targets appeared first on The Motley Fool UK.

More reading

• Up 50% in a year! Now check out the intriguing BP share price forecast for the next 12 months
• Is now the perfect time to buy high-yield FTSE 100 dividend shares? 
• At 7,000 points, the S&P 500 looks bloated. How should investors navigate this market?
• How £100 can start a portfolio of UK stocks
• How £16,000 can generate a second income in a Stocks and Shares ISA

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Joint profits

In a previous life working in orthopaedic software, I got to know Smith & Nephew (LSE: SN), a company that manufactures replacement joints. Its products are highly regarded and are sold worldwide.

The share price took a slight knock today, down 2.4% to 1,172p, after full-year results were posted. Reported revenue in the fourth quarter was down 3%, though it saw an underlying drop of 1%, with underlying revenue for the whole year up 2%. Chief executive Olivier Bohuon said: “While we still delivered growth in 2016 it was not at the level we had wanted,” so the reasons for the unexcited response seem clear enough.

But the dividend was maintained at 30.8 cents per share, which equates to a rise of around 20% in sterling terms after the collapse of the pound. Yields are only around a modest 2%, but I see Smith & Nephew as a safe long-term investment, with reasonable barriers to entry and surely an increasing demand in the coming decades for its products.

Price hike

Also reporting today is a company I’ve had my eye on for a while, investment manager Ashmore Group (LSE: ASHM). For the six months to December, assets under management reached $52.2bn, up 5% over the same time a year previously, as the firm told us that “investor sentiment towards emerging markets continues to improve.“

An impressive 91% of Ashmore’s managed assets have, apparently, outperformed benchmarks over the past year, with 81% beating targets over three years and 86% over five years — and that’s a significant improvement since June 2016.

Some were getting a bit twitchy over Ashmore’s forecast 5.4% dividend yield, but the reversal of the earlier fall in asset values will surely improve confidence there, and the interim dividend was maintained at 4.55p per share.

The shares perked up 5.7% to 337p, giving us a P/E of around 18, which I think is good value for what is looking like a reliable cash cow.

Asset rise

My third pick is another investment firm, Henderson Group (LSE: HGG), which revealed its full-year 2016 results. We again saw a rise in the value of assets under management, this time a 10% boost to £101bn. But against that, the company reported a net outflow of £4bn for the year, with underlying pre-tax profit down 3.3% to £212.7m and underlying EPS down 11.6%.

Looking to the longer term, 77% of funds were reported to have beaten their relevant metrics over three years. Chief executive Andrew Formica described the firm’s performance as resilient, while speaking of “a year of extraordinary turbulence in politics and financial markets.“

In an encouraging sign, we have full-year dividend of 10.5p per share, covered around 1.5 times by earnings — the share price is down 2.5% to 211.5p as I write, so that represents a yield of 5%, and that’s not a bad return at all.

The shares are on a P/E now of around 14, and again I see that as good value, especially with those above-average dividends.

And I do think we could be looking at a good time to buy into investment managers right now.

The post 3 top FTSE 350 shares you should consider buying today appeared first on The Motley Fool UK.

More reading

• A once-in-a-decade chance to earn a sky-high passive income from these red-hot FTSE 250 stocks?
• £7,000 in savings? Here’s how to aim for £540.40 in passive income overnight!

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Indeed, City stalwart St. James’s Place (LSE: STJ) reported its third quarter results earlier this week, and Henderson Group (LSE: HGG) has published its Q3 figures today. 

Barometer of sentiment 

The results of money managers can be highly informative as they’re considered to be a barometer of wider market sentiment. Henderson, which is in the process of merging with US asset manager Janus Capital, reported today that the group had experienced heavy retail outflows since the EU referendum at the end of June. During the third quarter, £1bn of assets tied to investors falling into the retail classification left the company’s funds and 70% of this outflow occurred in June in the immediate aftermath of the referendum. The company reports that retail sentiment has remained cautious ever since. On the institutional side, net inflows of £0.4bn were reported for the period. 

The evidence that retail investors left Henderson’s funds after the Brexit vote, and haven’t come back, is telling. Henderson is one of the UK’s most successful UK fund managers and 77% of the group’s funds have outperformed their benchmarks over the past three years. 

However, it seems investors are leaving the group for reasons other than Brexit as St. James’s Place reported strong inflows for its third quarter. 

Specifically, for the three months ending 30 September 2016 fund inflows for the company rose 21% year-on-year to £2.8bn. After deducting client outflows during the period, net inflows came in at £1.7bn.  Group funds under management are £12.8bn higher than at the beginning of the year at £71.4bn, a record for the group. 

Plenty of demand 

St. James’s results make it clear that there’s a demand from investors out there for money managers, but it’s apparent from the figures above that Henderson isn’t offering what its customers want. With this being the case, St. James’s Place looks to be the better wealth manager for your portfolio. 

Unfortunately, the company’s shares don’t come cheap. The shares currently trade at a forward P/E of 28.7 and support a dividend yield of 2.9%. City analysts are forecasting that the company’s earnings per share will fall 9% this year before rebounding by 28% for 2017. If the company meets this target, between 2011 and 2017 earnings per share will have risen by 110% — that’s growth worth paying for. 

On the other hand, Henderson has floundered over the past five years. The company’s revenue has increased by a disappointing 10% for the period, and earnings per share are up by around a third. 

So, if you’re looking for a wealth manager for your portfolio, St. James’s Place seems to be the best bet although the company’s premium valuation may be too much for some investors. 

The post Which wealth management stock deserves a place in your portfolio after this week’s results? appeared first on The Motley Fool UK.

More reading

• Up 50% in a year! Now check out the intriguing BP share price forecast for the next 12 months
• Is now the perfect time to buy high-yield FTSE 100 dividend shares? 
• At 7,000 points, the S&P 500 looks bloated. How should investors navigate this market?
• How £100 can start a portfolio of UK stocks
• How £16,000 can generate a second income in a Stocks and Shares ISA

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.