Buy This Fund Manager for 50% Upside Potential
In the 1990s, not owning a Janus mutual fund in any of your investment accounts was tantamount to having to carry a Waltons lunch box at an all boys school in fourth grade. Believe me, I know what the word “ostracized” means and I really don't want to talk about it anymore. Anyway, Janus was one of the hottest of the hot growth fund managers during the tech-bubble era. Its flagship Janus Fund and high octane growth Janus Twenty fund took in billions and billions of dollars.
If you wanted aggressive growth back then, Janus was the go-to shop. Then, like an angry DJ pulling the record player arm off of the L.P., the music stopped…
Janus Capital Group Inc. (NYSE: JNS) was born in the late 1960s as Stillwell Financial, a subsidiary of Kansas City Southern Industries (NYSE: KSU), the parent company of the Kansas City Southern Railroad. l don't know about you, but when I think “railroads,” mutual funds always come to mind. But such was the fancy of 1960s and 1970s industrial conglomerates. (Remember Gulf and Western?) Anyway, the firm, so named for its flagship Janus Fund, switched to its current moniker permanently in 2003.
A 400% dividend hike and a tradition of superior growth management
One of my favorite sayings that can be applied to investing comes from hockey legend Wayne Gretzky: “I skate to where the puck is going to be!” Everyone who fancies themselves as an investment picker should have that tattooed on the palm of their hand and look at it at least 10 times daily. Back in the day, it seemed that Janus was always in scoring position.
The company turned in stellar numbers in the 1990s and produced rock-star fund managers, most notably Tom Marsico, who went on to fame and fortune at the helm of his own firm, Marsico Capital Management.
However, when the bubble burst, Janus experienced plenty of the associated heartache that included investor flight and participation in a Securities and Exchange Commission investigation into market timing for favored clients in 2003. The punishment came down in the form of Janus shelling out a cool $262 million in fines. Ouch.
But after the downturn of 2000-2002, large-cap growth (Janus' core competency) was out of style. Oil, gold, emerging markets, real estate, bonds and other asset sleeves have outperformed for nearly a decade. Still, all the while Janus has still been able to produce superior results: 42% of Janus' funds have either a four- or five-star ranking from Morningstar.
But all that may be changing. In the past few months, the broader equity markets have seen a significant shift from commodity-related stocks and international names to domestic (U.S. equity) industrials, transports, consumer staples, even utilities. The larger theme here, though, is that things are tilting toward U.S. large-cap equities, which is definitely in Janus' wheelhouse.
Is it Janus' time to rise?
At the end of March, Janus had about $173.5 billion under management compared with $165 million in 2010. In 2010, revenue recovered to $834.5 million, better than its 2008 level of $826.7 million and way better than the anemic 2009 revenue number of $684 million. This year is on track to improve on that number. First-quarter revenue came in at $265.4 million and is projected by analysts to total $922 million for the whole year, good for an increase of nearly 10.5% from last year. With its recent first-quarter report, the company also delivered a nice annual dividend boost from $0.04 to $0.20. This would put the current yield at around 2.1%. I'd say a 400% dividend hike is a good sign.
When tech stocks cratered, so did Janus. About 11 years ago, Janus was a $50-plus stock. The popping of the tech bubble and the economic slowdown attributed to 9/11 brought shares down to around $10 (see chart below). There was some nice movement back up to $30 during the highest period of the 2005-housing boom. However, thanks to the financial crisis of 2008, shares are back to their post-9/11 level.