Waddell Could Benefit From Shift Back To Stocks


Big money shapes the stock market , but the sources can vary.

Ed Yardeni, president of Yardeni Research, pointed out in a blog post in December that "corporate treasurers have been driving the bull market in stocks." Yardeni noted that buybacks for the S&P 500 "totaled $406 billion over the past four quarters through Q2."

Recent reports now say that retail money is flowing back into equity funds . If it continues, then the new flow could add to a bullish scenario.

Waddell & Reed Financial ( WDR ) stands to gain from such a development, but the investment management company is cautious.

CEO Henry Herrmann acknowledged in a late-January conference call that January was showing a sharp increase in the flow to equities. "It is still too early to tell how sustainable the improvement is," Herrmann said.

During the same call, CFO Daniel Connealy said that the average investor is still impacted by the global financial crisis and "a large percentage of everybody in this industry shareholder base is in the baby boomer generation. That's a group that would, just from demographics, have been mindful about preservation of capital during this last four- to five-year period."

Boomers, however, are known for not acting their age. So, it's unlikely they will be happy with fixed-income returns for long. A return to equities seems inevitable.

Waddell & Reed's earnings jumped 33% in each of the past two quarters. Revenue rose 5% and 11% in the same periods. After-tax margin was 17.8% and 17.3% -- the highest in at least four years.

The three-year Earnings Stability Factor is 8 on a scale of 0 (calm) to 99 (wild).

In December, the company raised its quarterly dividend to 28 cents a share from 25 cents. The annualized yield is 2.7%. The company also paid a $1-a-share special dividend in December.

The conference call offered one more tidbit. Connealy said, "Is it ... a big rush from fixed income to equities quickly? No, it's probably more measured and thoughtful, but I suspect that that's what we're at -- the beginning."

Given that a retail investment rush often occurs near market tops, measured could be good news.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: WDR

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