I Let You Know About These Great Opportunities -- Now I Have Another

There's been a rash of interest in financial services companies recently. Trian Fund Management shelled out about $900 million to buy 9.9% stakes in both Invesco and Janus Henderson Group as detailed below. Morgan Stanley just announced the purchase of Eaton Vance at a huge premium. It previously penned a deal to acquire E-Trade Financial . Schwab closed on TD Ameritrade (formerly AMTD) this week. Clearly, all of those firms were selling at major discounts to their true values. Real Money Pro readers could have benefited greatly on these deals. I'd written favorably about all those companies previously. Last April I recommended IVZ in the strongest way, when it was available for just $7.38. I suggested Invesco could rebound to north of $20 over the coming nine months. As of Wednesday, it was well along on that path fetching as high as $14.32 intraday. I wrote about JHG in May, with the shares at $17.54 and yielding 8.21%. On Wednesday, JHG was already up to $28.57 and still yielding over 5%. Eaton Vance's rise from its March low has been spectacular. In each of these cases sharp sell-offs were followed by even greater percentage rebounds. That goes back to a premise I've spoken about many times. Asymmetric returns are typically available to brave investors willing to buy low, or average down. A stock that falls 50%, then recovers to its original price, delivers 100% gains to those who caught the nadir. The easy money has been made in the stocks already mentioned. What could be next to provide outsized upside from a very depressed price? Check out Affiliated Managers Group . The stock traded above $200 during five of the seven years stretching from 2013 through 2018. Last March it hit a momentary panic low of $44. Earnings appear on the uptrend again with years of improving results on tap. Non-cash write-downs of goodwill over the past few years will allow the company to earn essentially tax-free for the next few years. I see AMG reaching at least $114 by Dec. 31, 2021. It could go much higher if things play out well. That goal is not far fetched. AMG topped out from $113 to $230 during eight of the last nine years. Value Line's analyst sees 2023 - 2025 upside for AMG to a range of $135 - $205. Since the end of 2016, AMG's management have been aggressively repurchasing shares. By the end of this year about 18.9% of all outstanding shares will have been retired. From March through September of 2020, company officers and directors gave a major vote of confidence by placing open market buys for a total of 45,469 shares at an average cost of $62.38. Their timing looks good so far with AMG trending above $77 on Oct. 14, 2020. Option players can nibble at the edges of an upturn via shorting of puts out to Mar. 19, 2021. Actual put option pricing, with AMG at $78.33, is shown below. Strikes of $75 to $90 are detailed. Worst-case break-even prices run from $67.60 to $73.90, providing margins of safety between 5.6% - 13.7% vs. the trade inception price. I'll be quite surprised if AMG is not above even the most aggressive of those strike prices by expiration day. AMG could be a going private candidate or a target for an opportunistic larger firm looking to scoop it up while the price is depressed. Fundamentals should drive it higher in the absence of those actions. A very quick rise would be virtually guaranteed if an internal or external bid for the whole company materializes. I'm betting AMG will be a big winner either way.

I Let You Know About These Great Opportunities -- Now I Have Another

Let's see how Affiliated Managers Group could bring great returns.

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