BlackRock (BLK - Get Report) , the world's biggest asset manager, has stumbled in the wake of third-quarter earnings that fell 8% from the same period last year. A higher tax rate also significantly dented the company's bottom line.
The question on the investment community's collective mind is whether finance guru and Chief Executive Larry Fink's magic is rapidly dwindling. The answer is probably not. Investment capital in its products grew and revenue beat analyts' expectations. The current price-to-earnings ratio is lower than the industry average.
Below are three reasons why you should still count on this giant, and tank up on BlackRock.
On the flip side, here are 29 dangerous stocks you are better off avoiding.
1) Total net flows are rising
For asset managers like BlackRock, a main goal is to attract inflows for its products. While the third quarter may have seen tepid earnings, the company also witnessed $50 billion of total net flows. More importantly, it took in $35 billion as net long-term flows (inflows excluding cash-like products) beat analysts' estimates of $24 billion.
And $23 billion of these net inflows went into its higher-fee iShares portfolio.
Performance fees from funds also jumped from $75 million for the quarter to $208 million, the credit for which goes to the "strong" performance of an unidentified hedge fund. Bear in mind, BlackRock earns high fees on such alternative investments, which account for just 3% of the firm's long-term assets under management but 8% of base fees.
The company has also been expanding offerings including exchanged-traded funds and social impact funds, such as the World Equity Fund. Such diverse products in this kind of a market underlines the company's platform strength and a differentiated portfolio experience for its clients.
In a volatile market that saw double-digit quarterly declines in a number of global equity industries and sharp currency swings, clients continue to put faith in BlackRock. That says a lot about its relationship with the investing public.
2) Intact finances
Even though BlackRock's quarterly profit inched lower, there were many positives in its earnings scorecard. Revenue grew at 2% year over year while analysts expected a 1% slump.
The company's operating margin for the trailing 12 months is at a good 41%, considerably higher than the industry average of 35% and those of its direct competitors, such as State Street (STT - Get Report) , at 31%; Legg Mason (LM - Get Report) at 19%; and UBS Group (UBS - Get Report) at 7%.
While another rival in the business, T. Rowe Price Group (TROW - Get Report) does have a higher operating margin of 47%, BlackRock has significantly more cash on hand. This cash hoard offers more flexibility in making varied investments and provides a big cushion for short-term liabilities.
3) Shares trade at a bargain
BlackRock currently trades at a trailing 12-month price-to-earnings (P/E) ratio of roughly 16, slightly cheaper than the industry average of 16.5.
What's more, the stock of this mammoth money manager is available at a discount to its 5-year average P/E of 18. Now's a great time to buy this company, while it's temporarily priced at a bargain.
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