Franklin Resources: Considerable upside remains

Posted Jul 20th 2009 5:45PM by Joseph Lazzaro
Filed under: Stocks to Buy

Experienced investors know that sometimes you have to make an exception. Generally not a fan of stand-alone money managers as equity plays, I've made an exception and issued a Buy recommendation for Franklin Resources (NYSE: BEN). Here's why:

Franklin's assets under management increased about 15% in Q2. Further, management fee rates, under pressure for several reasons, show signs of firming in 2009.

What's more, BEN's relatively strong balance sheet, declining debt liabilities, and discount to peers are too much to pass up. The First Call FY2009/FY2010 EPS estimates for BEN are $2.76 to $4.10.

Technically, Franklin's chart is strong. One could argue that a better entry point would have been $15-20 earlier, but discretion (and today's volatile markets) warranted waiting to see if BEN held uptrend support above $60: it did. Moreover, assuming a U.S. recovery, plenty of upside remains.

Stock Analysis: Franklin Resources is a moderate-risk stock. Consider buying a 50% position in BEN now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your BEN position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $42.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: BEN, Franklin Resources