Right now, one my guru strategies likes the asset management industry. Several companies in the industry earn high grades from this strategy, which suggests now is a good time for investors to take a position with asset managers.
Years ago, I computerized the strategies of a number of highly regarded Wall Street investment gurus, such as Benjamin Graham and Warren Buffett. These are the tools I use to find stocks to recommend.
The strategy that is hot on asset management is based on the thinking of Peter Lynch, the legendary mutual fund management and author of the best seller, "One Up on Wall Street."
My Lynch-based strategy has been a strong performer in the over 12 years I have been following it. During this time, the S&P 500 has produced a 5% annual return, while my Lynch strategy has enjoyed a 6.3% annual return, a 25% outperformance of the market. You do not want to ignore the recommendations of this strategy.
The most important variable of the strategy is the P/E/G ratio, which is price-to-earnings relative to growth and is a measure of how much you are paying for growth given today's stock price. A P/E/G of up to 1.0 is acceptable. This is paying $1 or less for every 1 percentage point of growth. A P/E/G of 0.50 or less is considered especially favorable.
Three asset managers currently are Lynch strategy favorites: Waddell & Reed Financial (WDR), Lazard (LAZ) and Blackstone Group (BX). The P/E/G ratios of these companies is 0.40, 0.14 and 0.77 respectively. Note that Waddell and Lazard have P/E/G ratios that are in very favorable territory.
In addition to the P/E/G ratio, the strategy looks at the equity-assets ratio and the return the company earns on assets. The strategy wants the E/A ratio to be at least 5% and the return on assets to be no less than 1%. All of these companies easily surpass these minimums. Waddell's E/A ratio is 58% and R/A is 20.5%, Lazard's E/A is 28% and R/A is 28.1%, while Blackstone's is 28% and 4.9%.