As we've pointed out to Money Morning members, knowing the best stocks to buy now can give you a huge advantage when markets sell off and stocks are basically on sale.
That's why we've been watching out for the sectors of the market that will have a bright future regardless of the recent market gyrations.
Although it seems somewhat counter intuitive one such space would be the asset management sector. Asset managers and brokers may see some short-term weakness in a falling market but the long-term outlook is strong.
You see, over the past few decades there has been a transfer of retirement risks from corporations to individuals. This has left individual investors responsible for investing assets to fund their needs.
It has also created a huge market for asset managers.
Social and demographic trends are very positive for asset management firms. Assets have flown into investment products in the past several years, and the amount of assets under management at the end of May surpassed the previous high levels of 2007.
One huge reason for the flow of money: Baby boomers are hitting retirement.
Over the next decade, boomers will be retirement and looking for help to manage their new financial environments. Also, many boomers will be eligible for catch up contributions to their retirement plans, which should add to the pool of available assets.
Plus, as the economy slowly continues to recover and the unemployment rate recedes, the pool of assets looking for investment advice and management will continue to grow for an extended period of time.
This is not merely a U.S. phenomenon but a global trend towards personal responsibility for asset accumulation.
Market volatility may cause some price swings in the shares and wise investors will use them to accumulate the stocks in anticipation of very high long-term returns.
Here are two stocks to buy now that will rise as these firms take on more assets under management in the next few years.
Two Asset Manager Stocks to Buy Now
One company that will be a major beneficiary of these trends is Calamos Asset Management Inc. (Nasdaq: CLMS). The firm manages equity and fixed income funds and has more than $29 billion in assets under management.
Although Calamos has a wide range of fund offerings, it has an expertise in convertible bonds. The founder, John Calamos, is an acknowledged expert in the hybrid securities. The company started as a boutique specializing in convertibles.
Since launching its first mutual fund in 1987 the firm has expanded into equity and fixed income funds as well as alternative investment products.
The company has been profitable for nine of the past ten years with only the difficult year of 2008 showing a loss.
Calamos consistently generates enormous amounts of free cash flow and has been generous about using it to reward shareholders. The stock yields 4.85% at the current price and the payout has been increased for three years in a row. Management also just announced a 3 million share buyback plan scheduled to be completed over the next two years.
The stock is attractively priced at just 1.05 times book value and 14 times earnings. As investors increasingly turn toward investment products to help fund their retirement and other long-term goals, Calamos should continue to be profitable and the stock should do very well over the long run.
Cowen Group Inc. (Nasdaq: COWN) is another company well positioned to benefit from the social trends favoring asset managers. In addition to a thriving alternative investment business the company provides investment research and brokerage service to institutional and high net worth investors.
The company also has an investment banking business that should benefit from a resurgence of mergers and acquisitions after several years of low activity levels due to the weak economy and tight credit markets.
Ramius, the investment management division, has more than $9 billion under management in hedge funds, activist funds, real estate and trading programs. The broker dealer has remade itself into a major contender in equity and high yield bond offerings and maintains a solid reputation for high quality investment research.
The stock is cheap with the shares trading at less than 70% of book value. Most of the assets of the firm are invested in their proprietary investment and trading programs and since 1999 these assets have returned on average more than 16% a year. The company should be profitable in 2013 and could easily double earnings in 2014.
The company should be able to grow earnings at a double-digit pace for the next five years at least and lift the stock price substantially higher.