University of Virginia
Wharton School of Business
. McVey joined
Morgan Stanley Dean Witter
in 1993 as a research associate covering asset management, brokerage and life insurance. He left the firm in 1995 to pursue his M.B.A., subsequently rejoining in 1997 as an asset management and brokerage analyst. Previously, McVey spent two years at
Wheat First Securities
, where he developed asset management products.
Industry Outlook and Style
Henry McVey notes that business has lately been lumpy for the brokerage industry. This could lead to significant near-term earnings volatility, he warns.
Still, he remains keen on the group's prospects. "Our thesis is that the secular trends remain intact," he asserts. The trends he points to include restructurings in Europe as well as a greater usage of debt and equity products there. He also contends that in the U.S. retail brokers are capturing more and more of the customer's wallet. Taken together, these developments should spur continued top-line growth in coming quarters, he says.
McVey's favorite stock in the group is
, which he put a buy on in early May, when the stock dipped to $78 during a choppy market with rising rates. His rationale for the late spring upgrade: "We pointed to Lehman's upward earnings revision and attractive valuation and called it a 'cheap' way to play the European growth story," notes McVey, referring to the 30% to 50% revenue growth being enjoyed by wholesale investment banks operating in Europe. Lehman is going head-to-head there with more established U.S. counterparts Merrill Lynch and Goldman Sachs.
Lehman's stock has nearly doubled since McVey tagged it: Shares climbed above $150 in early October, though they have since fallen back, recently trading near $123.
McVey also has buys on online broker
and financial conglomerate
. In the latter's case, he believes that the consolidation of power under
after John Reed's departure will result in an even better managed company. In addition, Citi has benefited in 2000 from what Morgan Stanley terms "global healing." Early this year, the firm predicted that companies with major interests in the emerging markets would post superior returns as emerging economies finally recovered from the Asian currency crisis of 1998. Citigroup has indeed done well: At $37 at the time of McVey's February buy, the stock rallied as high as $56 in August. Shares have lately fallen back along with the rest of the market to trade around $51.
Looking to another corner of the financial sector, McVey advises investors to increase their exposure to asset management stocks. In his view, continuing market volatility and dissipating outsized returns in the Internet sector are causing retail investors on the margin to move from trading stocks online to seeking professionally managed equity products.
Among the stocks McVey favors in this group is
, which he upgraded from a hold to a buy on Sept. 21 at $23. His 12-month price target of $30 is premised on the company's "compelling valuation, strong earnings growth and ample cash to buy back stock." The Morgan Stanley analyst figures Federated can earn $1.24 per share this year, up from $0.95 in 1999, and can increase its EPS to $1.45 by the end of next year. The stock has climbed 80% year to date, handily trouncing the performance of the broader market: The
index has lost 4.6% so far this year.
McVey also likes
, a financial-services holding company for
Nelson Money Managers
. (Stilwell was spun off in June by rail transport company
Kansas City Southern Industries
wrote about the spinoff in a
separate story.) Stilwell's stock has an attractive valuation, says McVey, who cites share repurchases as another reason he rates the company a buy. Stilwell's shares had ascended as much as 40% following the company's June 26 debut as a standalone entity, but they have since lost all those gains, closing on Oct. 16 at $40.81, up 6.4% from its first-day close.
Favorite stock for next 12 months:
Lehman Brothers; 12-month target price: $172
"We think institutional firms will outperform retail firms in the near term. Lehman is still trading at less than 12 times earnings, compared to 18 times for its peer group. We estimate its earnings per share, which were $8.15 last year, will be $12.75 this year and $13.23 next year. That's a lot of earnings growth."
Rate Their Stock Picks:
Which stock do you like best?
McVey: Lehman Brothers
Moszkowski: Merrill Lynch
Eisman: Fannie Mae