Banking, finance, and taxes
UBS Has 3 Financial Services Stocks to Buy If New IRA Rules Pass
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If there is one industry has had its fair share of rules and regulations since the Great Recession and subsequent market debacle of 2008, it is the financial services industry. From bank stress tests to higher capital balances and tighter control on sales and trading, the industry is probably one of the most scrutinized, coming in right after nuclear power.
A new report from UBS handicaps the implication on yet another new set of rules.
The U.S. Department of Labor recently issued a proposal for a new fiduciary standard with respect to retirement accounts. The UBS team feels that, if enacted as stated, the change is critical for affected companies and, beyond changes to the macroeconomic environment, could be one of the most important drivers of some stocks’ near-term stock price performance.
UBS focused on three stocks to buy in advance of the proposal: Ameriprise Financial Inc. (NYSE: AMP), TD Ameritrade Holding Corp. (NYSE: AMTD) and Morgan Stanley (NYSE: MS).
Ameriprise Financial
This top financial services firm, formerly known as American Express Financial Advisors, was spun off from the credit card giant in 2005. The company provides a range of financial products and services in the United States and internationally.
The Advice & Wealth Management segment offers financial planning and advice, as well as brokerage services primarily to retail clients through its advisors. The Asset Management segment provides investment advice and investment products to retail, high net worth and institutional clients through unaffiliated third party financial institutions and an institutional sales force. In recent years Ameriprise has recruited heavily from the top Wall Street firms’ ranks.
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The UBS team pointed out that, during the company’s earnings call, management highlighted the fact that the Ameriprise advisers already act as fiduciaries under current SEC guidelines for its advisory relationships. While they also indicated compliance-related costs could rise ahead due to the Labor Department proposal, they were well prepared for changes.
Ameriprise Financial investors are paid a 1.8% dividend. The UBS price target for the stock is $145. The Thomson/First Call consensus target is $141.80. The stock closed Tuesday at $137.53.TD Ameritrade
TD Ameritrade provides securities brokerage services and related technology-based financial services to retail investors, traders and independent registered investment advisors (RIAs) in the United States. Its products and services include:
- TDAmeritrade.com, a Web platform for self-directed retail investors
- Trade Architect, a Web-based platform that enables active investors and traders identify opportunities and stay informed
- thinkorswim, a desktop platform for trading
- TD Ameritrade Mobile, which allows on-the-go investors and traders to trade and monitor accounts from Web-enabled mobile devices.
The UBS analysts point out that company executives did not appear overly concerned by the recent proposal to implement a fiduciary standard for advisors servicing retirement accounts. Management noted that the rule appears very workable at first glance, with no real negative impact expected to hit the RIA channel, as currently advisors already operate as fiduciaries for clients.
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TD Ameritrade investors are paid a 1.6% dividend. The UBS price target is posted at $40, and the consensus target is $38.13. Shares closed Tuesday at $36.55 apiece.
Morgan Stanley
This white-glove Wall Street firm continues to show tremendous growth, and it is running neck and neck with Goldman Sachs as the bank of choice for high-profile initial public offerings. Trading at a price-to-earnings multiple of 12.43, that seems extremely reasonable given the 2015 expectations for EPS growth of more than 20%. The company also has 539 billion in cash equivalents on its balance sheet, versus $288 billion in total debt.
Morgan Stanley says it will raise its dividend to $0.15 and buy back up to $3.1 billion in stock, after the Federal Reserve signed off on the company’s plan in the first quarter. Morgan Stanley says it will buy back the stock over five quarters, starting this quarter. The company had paid a quarterly dividend of $0.10.
During the company’s recent conference call, management stated that they were prepared for any current changes, and costs could be increased but would be manageable.
Morgan Stanley investors are paid a 1.6% dividend. The UBS price target is $39, and the consensus price objective is posted at $38.86. Shares closed Tuesday’s trading at $37.04.
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While the new proposals are not overly onerous, it is yet another in a huge pile of regulations that Wall Street firms will have to follow and account for costwise.
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