Investing in Investing
With its stock price at more than $400 per share, many would consider BlackRock (NYSE: BLK) stock to be expensive. Remember, though, that a $2-per-share stock can be overvalued and likely to fall, while a $1,000 stock can be undervalued and likely to grow.
BlackRock, with a market value recently topping $67 billion, is a major money manager, and the rise of exchange-traded funds (ETFs) is largely responsible for its success. As the company behind the popular iShares line of ETFs, BlackRock has reaped huge rewards from investors’ move toward passive investing solutions. The relatively modest management fees that BlackRock collects from its funds are enough to generate a lot of revenue, and the suitability of ETFs as long-term investments has most of those revenues recurring year after year.
BlackRock doesn’t necessarily look like the perfect value stock, with its price-to-earnings (P/E) ratio near 20. But the ETF revolution shows few signs of stopping. Total global ETF assets under management recently topped the $3 trillion mark, and iShares continues to draw a substantial share of assets coming into the market. BlackRock’s primary risk is that a bear market will dampen investor confidence. That’s likely to happen at some point, as it has in the past, but battered markets have always recovered and gone on to reach new highs. In the meantime, patient investors can collect a dividend that recently yielded 2.4 percent.