A Leading Global Money Manager on Sale
More commonly known as Franklin Templeton Investments, a global investment management firm and investment funds services company which was founded and made famous by the late Sir John Templeton. Sir John essentially pioneered global investing when most of his peers never left their own country when it came to investing. Other brand names under the holding company include Mutual Series, Bissett, Fiduciary and Darby.
Investing in money management and services companies come with extra leverage in that their business is leveraged to the market at large and hence their stock price correlates to the overall market performance in a leveraged way.
When markets are on the rise, its stock price rises on expectation, and vice versa.
Lately, this has not been the case, where markets have drifted sideways for the past 6 months, yet Franklin Resources (BEN) stock price has continued trending lower, and hence an opportunity now exists to invest in a leading global money management firm on the cheap.
I already own stock in Franklin Resources but I am looking to add more to our long-term portfolio over the coming days. Here I will get straight to the point, as I believe it makes for efficient decision-making.
Please note, I am both a long-term deep value investor as well as a medium-term trader who utilizes the combination of both fundamental and technical analysis to form a view of every investment I make. Doing so I believe leads to low risk and superior market beating returns over the long run.
Fundamental Factors;
The Bad
Forecasted weak Earnings per Share growth (EPS).
The Good
Valuation of $50-$55 (approx.) based on adjusted discounted cash flow analysis, so BEN is undervalued at current prices.
Currently trades at a very conservative P/E, and forward P/E of less than 12.
Earnings per share (EPS) has been good for the past 5 years.
Return on Equity (ROE) of over 18% is more than satisfactory.
Net Debt to Equity (D/E) of just 18%.
Long-term cash flow relative to reported profits is strong.
And long-term funding surplus.
Technical Factors;
The Bad
Clearly broken the $50 and now $45 key price support levels.
Currently below both 50 and 200 day moving averages.
Seems to follow a confirmed down trend line.
The Good
The stock is oversold on a variety of momentum indicators and buying volume seems to be increasing at these prices.
It is more than likely that value seeking fund managers like myself are coming in to take advantage of these depressed prices.
Other Factors
For longer-term investments, I generally like to see who else is on-board with me and where the smart money has found its home.
In my opinion, actions always speak louder than words.
In this case, SEC filings report the following world-renowned deep value investors holding significant stakes in Franklin Resources.
David Winters 16.87% of funds managed
Mason Hawkins 2.73% of funds managed
Conclusion
Franklin Resources is currently undervalued and temporarily out of favour but it is a fundamentally strong investment management company with a large market share of the assets management industry (5.78%) and smart money support.
I will be personally adding more Franklin Resources into our long-term portfolio over the coming days.
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