This Name Flies Under the Radar, but Is a High-Performer

Lesser-followed stocks often offer the best returns. Few analysts bother to cover them, which allows for less efficient pricing. Janus Henderson Group PLC was formed by the merger of US-based Janus Funds and UK-based Henderson Group which further limited coverage due to its now multinational status. The firm has a lot going for it. It holds more corporate cash than it has total debt. JHG has no preferred shares and no defined benefit pension plan to deal with. Management has been generous to shareholders. Annual dividends grew from $0.61 in 2012, to a present rate of $1.44. The spotless balance sheet allowed JHG to leave that rate untouched despite virus-related disruption this year. A $487.3 million non-cash write down of goodwill caused a $1.35 per share loss in this year's first quarter, which served to turn off investors who didn't understand the situation. That accounting charge makes JHG's next year or two of earnings essentially tax-free. Ignore the distorted EPS from that adjustment and JHG's future prospects look excellent. Value Line sees 2021 EPS coming in at $2.25 while Yahoo Finance's consensus' view says it might make $2.42. Even the lower number puts JHG, now offered for about $21, at around 9.3-times next year's estimate. That compares quite favorably to its 2012 through 2019 average price-to-earnings of 15.4-times. Those eight years saw typical yields of 3.1%. As of Monday, JHGF's current yield ran more than double that, at 6.86%. Assuming a conservative 14 multiple on Value Line's 2021 estimate for JHG supports an 18-month target price of $31.50. That implies greater than 50% upside potential plus any dividend income collected along the way. That goal is not farfetched. JHG peaked between $27 and $41.60 during each of the past eight years including 2020 YTD. Next year's EPS are expected to be above all but one of those other years' results. Its quarterly cash dividend has never been higher. Yahoo Finance notes the stock's 52-week high of $27.50. JHG changed hands at $26.05 as recently as Jun. 8, 2020. Today's price represents just 8.7-times Yahoo's more optimistic 2021 estimate. Long-term prospect appear bright. Value Line sees EPS ramping back up to $2.95 within three-to-five years, supporting a range of from $35 to $55. The returns shown below were from a $22.40 starting price. Potential gains are somewhat larger now. Owning JHG shares outright looks like a good play. Option-minded traders could also consider selling puts out to March 19, 2021, at strike of $20 or $22.50. With the shares at $21.11 those were bringing in $2.60 or $4.60 respectively, dropping worst-case, if exercised prices to either $17.40 or $17.90. Maximum gains on these, or any other options sales, always equal keeping 100% of all premium received up front. In these examples that would be $260 or $460 per 100-share commitment. My favored buy/write combination play on JHG uses the Mar. 19, 2021 expiration date and the $22.50 strike price for both the covered call and the naked put. Actual pricing for those transactions, and the cash flow involved with JHG at $21.11, are shown below. If JHG climbs to $22.50 or higher by expiration day and closes there the following best-case scenario will unfold. Any upturn of 6.6% or better would morph into a 61.1% total return over just 221-days. Where else can you grab greater than 100% annualized on such a modest gain in the underlying shares? If JHG fails to rise, and hold $22.50 by next March 19, the worst-case scenario on this buy/write would play out. Barring a major disappointment, though, even that does not appear scary. You'd end up with a double-sized position and need to pony up some more cash. That said, the stock's average cost to you would be down to $17.82 per share. JHG could fall by up to 15.5% without causing a loss. That's a very nice margin of safety on a stock that appears quite undervalued at present. Future stock market action can never be guaranteed. We can know for sure, though, that owning JHG at $17.82 would have been a winning position during 46 of the past 48 months, almost 96% of the time. Risk/reward doesn't get much better than that. There you have it. Janus Henderson offers a rock solid balance sheet, close to 7% in current yield and upside potential of at least 50%. Take advantage of JHG's currently cheap price to own shares, sell puts or structure a full buy/write combo.

This Name Flies Under the Radar, but Is a High-Performer

Let's look at how to play this hidden gem -- Janus Henderson Group -- which was formed by the merger of Janus Funds and UK-based Henderson Group.

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