Wednesday, January 30, 2013

Bull market buys: BlackRock & Morgan Stanley


As the general market has heated up, we�ve noticed more and more �Bull Market stocks��brokerage, investment bank and asset management firms, each of which directly benefit from higher stock prices and increased trading activity�pushing to new highs.

Our favorite of the week is BlackRock (BLK), which recently reported a great quarter. It�s not going to triple, but after a long rest period the stock is under very strong accumulation. We also recommend Morgan Stanley (MS), another hot-topic to emerge from the financial sector.

BlackRock

BlackRock might be the granddaddy of the group; the company has an almost unbelievable $3.8 trillion of assets under management! Obviously, that�s not mom-and-pop investors, but big institutional pension and hedge funds, as well as some very wealthy individuals.

One big driver is the firm�s iShares business, which it purchased in 2009 and has been a big hit; BlackRock�s top brass alluded to a secular shift into ETFs and more passive investments, which plays right into iShares� hands.

Best of all, management is committed to returning cash to shareholders�it just hiked the dividend 12%, resulting in an annual yield just south of 3%, and continues to buy back shares quarter after quarter; the company repurchased about 5% of its shares last year, and has authority to buy another 5% going forward.
With sales growth picking up, earnings growth accelerating and the potential for better-than-expected earnings in 2013 if the market continues its winning ways, we think BlackRock has solid upside.

BLK actually peaked back in January 2010 at 244; since that time, earnings have grown quarter after quarter, yet the stock hasn�t been able to make any progress.

That looks to be changing now, however�after bottoming last May, the stock tightened up beautifully for a few months, and now it�s climbing steadily, punctuated by last week�s solid upmove. BLK isn�t a runaway-type stock, so we think you can get in on a small pullback in the days ahead.

Morgan Stanley

The company created a firestorm for investors by reporting earnings of 45 cents per share, excluding items, reversing a loss of 20 cents per share last year. Revenue soared 37% to $7.5 billion.

Morgan�s Wealth Management unit was the centerpiece of the report, with revenue rising 8% on strong margins and investment banking returns bolstered by initial public offerings and global mergers. Driving wealth management gains was Morgan�s steal-of-a-deal to acquire most of Citigroup�s Smith Barney brokerage.

And, while trading revenue fell short of expectations, management emphasized a focus on future returns centering on growing consumer strength in the U.S. economy. This optimism should continue to support Morgan Stanley as the firm strives to improve return on equity.

�After a period of turmoil, a period of restructuring, a period of development, we�re now pivoting to a period of growth and performance,� Morgan CEO James Gorman told Bloomberg TV. After slashing some 6,000 jobs in the past year as part of the restructuring effort, Morgan Stanley is leaner, and more focused on growing its bottom line than ever.

After failing to hold above potential support near 20 in early 2012, MS shares followed the rest of the market lower throughout the summer. Shares found a floor near 12 in June/July, and utilized support in the region to rally back above several key moving averages.

Following a period of consolidation in the 16-18 region, just above its 50-day trendline, MS finally broke out and eclipsed former resistance near 20. The recent earnings report was icing on the cake, sending MS to fresh annual-high territory above 22.

With some consolidation inevitable following last week�s spike, we recommend buying on dips to achieve the best entry. A loose stop near 19 would be prudent.



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