This Stock Has Been Around a Half Century; I Bet You've Never Heard of It

SEI Investments is now in its 53rd year yet most individual investors are unaware of it. It has a cool $1 trillion in assets under management, while also providing platforms, IT solutions and assorted back office services to other financial service firms. Founded in 1968, it has 4,000 employees and 11,300 customers globally. SEIC has a solid record of long-term growth. From 2011 through the current year's estimates, every major business metric has doubled or tripled. Continuous shareholders have nothing to complain about. Total return in exactly 10-years through Friday totaled almost 153%. The company accomplished all that with a debt-free balance sheet. As of Sept. 30, 2020 SEIC held over $1 billion in net cash and receivables with only about 144 million shares outstanding. Value Line rates the firm highly in all four of its major categories. Being debt-free and cash rich suggests a higher than A financial strength rating might be warranted. During the full decade just concluded SEIC's average P/E was a solid 20-times, accompanied by around 1.22% in current yield. As of Feb. 7, 2021 the shares were available for just 15.3-times this year's estimated EPS, along with a better than typical 1.32% dividend. A simple regression-to-the-mean multiple would support a 12-month target price of $73. That implies year-ahead total return potential of about 32% on this very blue-chip name. I placed that double-headed yellow arrow on the image above to illustrate how important it is to buy when shares are out-of-favor and sell when valuations get extended. SEIC shares peaked at $55.49 during September 2015 when the stock fetched greater than 28-times earnings and yielded just 0.9%. That was clearly too rich a valuation based on the firm's previous, and future trading history. As of early February 2021, though, the reverse is true. Despite solid six-year growth SEIC is now offered for almost the exact same absolute price as it did in September of 2015. Now, however, its P/E is well below normal and its yield is higher than average. Today's valuation profile appears very similar to what SEIC looked like at the seven previous best buying opportunities (green-starred above) of the last 10 years. Conversely, all four of SEIC's should have sold moments (red-starred) reflected above average multiples and below par yields. The combination of solid growth and stagnant share price action says that SEI Investments is overdue for a substantial catch-up move higher. Yahoo Finance agrees. It conservatively calls for SEIC to bounce back to $68.60 by this time next winter. That assumes it stills trades for just 18.8-times its own 2021 estimate rather than its average 20-times P/E. Independent research house Morningstar lists the shares as a 4-Star, out of 5, Buy. It deigns to provide 12-month targets, but does let us know what it feels is present-day fair value for each stock it rates. For SEIC that number sits at $62. Morningstar's valuation also appears very conservative. The stock changed hands at $62.37 as recently as Jan. 8, 2021. Quantitatively-based FastGraphs is more in harmony with my view of SEIC. It sees the shares reaching $84.58 by Dec. 31, 2021. Regardless of which projection you think is most likely, SEIC is almost certain to provide solid total returns for anyone buying near today's $56 price point. Owning SEIC outright looks extremely tempting. Option-oriented traders can play SEIC via shorting puts or setting up buy/write combinations out to Sept. 17, 2021. The graphic below details actual pricing for the stock's $60 and $65 calls and puts with the shares at $55.92. Selling in-the-money puts works as a proxy for stock ownership up to the per-share premium collected up front. It also provides a modicum of downside protection versus simply buying the stock outright. If you agree that SEIC is destined to reach for higher ground then committing to potentially own some at either $53.00 or $54.80 should not appear daunting. Traders willing to go with a $60 buy/write would see the following cash flow details on each 100-share commitment. At 4 p.m.on Sept. 17, there are just two possible outcomes. SEIC will either finish at $60 or higher, or below $60. If the former situation plays out the best-case scenario detailed next will unfold. Any upturn of at least 7.3% will deliver a cash-on-cash total return of 33.7% over a 224-day holding period. That annualizes at a very nice 54.9%. If SEIC somehow fails to reach $60 on expiration day the following worst-case scenario will occur. Combination writers would end up with double-sized positions, but at an average price of just $52.34 per share. Any decline of less than 6.3% would still allow for immediate liquidation for at least a small gain. People very bullish on SEIC could also play more aggressive, $65 buy/writes with the following characteristics. It offers larger potential upside while providing a bit less downside protection. SEI Investments is top-quality merchandise selling for a marked-down price. That situation is unlikely to last. Buy some SEIC shares, sell some puts or consider setting up full buy/write positions.

This Stock Has Been Around a Half Century; I Bet You've Never Heard of It

SEI Investments is tremendously successful, yet nicely under-priced.

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