Berko: Dump plain-vanilla Invesco
Tuesday, January 15, 2013 4:32 PM
Dear Mr. Berko:
We bought 260 shares of Invesco Ltd. in December 2007 at $31.45, and the
stock hasn’t been back there since. We have nine other stocks, but this
is the only one we are concerned about. We need to raise about $7,500
more in cash to modify our home so our Marine son, who was injured in
Afghanistan, can move in with us till he recovers. We are thinking of
selling Invesco. Should we sell now or wait until Invesco returns to our
purchase price? Also, our son has about $18,000 in his checking account
and receives a monthly government check. Are there any banks that can
give him more than 0.5 percent on his money? We appreciate your help.
R.P., Gainesville, Fla.
Dear R.P.:
Morgan Stanley took Invesco (IVZ) public with a 29 million-share initial
public offering priced at $14. Then, 18 months later, Morgan Stanley
underwrote 31 million more IVZ shares at $21.38. Today IVZ is trading at
$27 and has 445 million shares outstanding, of which about 190 million
shares are owned by Highfields Capital, Vanguard, Goldman Sachs,
JPMorgan Chase, BlackRock, T. Rowe Price and Wellington at, I suspect,
lower than the current price.
Invesco is a plain-vanilla, unimpressive money manager ($680 billion
under management) that runs plain-vanilla investment accounts for
institutions, corporations and high-net-worth individuals, with
plain-vanilla results. Not a particularly well-managed company, IVZ
trails its peers on a profitability basis, with operating margins of 21
percent, well below the industry standard of 29 percent. Its 2012
purchase of Morgan Stanley’s retail mutual fund operations, as well as
Van Kampen, put more than 1,100 different mutual funds under the IVZ
umbrella. Frankly, I can’t imagine how any management company has the
time, skills and personnel to effectively oversee the portfolio
management and marketing of 1,100 mutual funds while managing tens of
thousands of investment accounts for corporate clients, institutional
clients and high-net-worth individuals. That doesn’t seem to concern the
suits on Wall Street. But my opinion of IVZ differs from their bullish
projections. The Street appears enamored of IVZ’s management, its recent
acquisitions, its huge smorgasbord of mutual funds and its future
revenue, earnings and dividend growth. The consensus believes IVZ, in a
few years, could trade in the high $50s and report earnings of $3 a
share. I don’t see enough continuing demand for IVZ’s services or its
plain-vanilla product offerings.
In 2012, revenues grew to $4.2 billion from 2011’s $4.1 billion; net
income increased 8 percent, to $1.70 a share, as the dividend zoomed 43
percent, to 69 cents, and yields 3 percent. Those are good numbers, but I
doubt IVZ’s future share price performance will be worth a tinker’s
dam. I’m impressed that CEO Martin Flanagan owns 1.4 million shares, but
I respectfully advise him to diversify his portfolio to include some
telephone utilities, railroads, banks, drug stocks, toiletry issues, and
oil and gas pipelines.
I strongly doubt IVZ will return to your 2008 basis of $31.45 in the
coming couple of years. So sell your 260 shares and put a certain $7,000
in your hands. Then make those improvements so your Marine can move
home and recover in the bosom of his family.
Next, go to http://www.oldfnb.com and visit the Old Florida National
Bank – home-ported in Orlando and the 39th-largest bank in Florida. If
your Marine opens a checking account and applies for a debit card, OFNB
will pay him 3 percent interest on his checking account balance up to a
maximum of $20,000. There are a few minor caveats but no sneaky rules or
complex requirements like the big banks’. OFNB is a solid bank, and
several readers in the Orlando area tell me that OFNB is
consumer-friendly, that management doesn’t nickel-and-dime you to the
poorhouse and that the tellers greet you by name. This sounds like my
kind of bank.
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