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As a long-term value investor, I often review the FTSE 100 and FTSE 250 indices for undervalued stocks.
Ideally, I’m looking for good businesses whose stocks trade at low multiples of earnings and offer dividend yields that outperform the market. In my last mid-cap index search, I found a cheap FTSE 250 stock hiding in plain sight.
A 240 year old business
My hidden treasure is the investment manager group of men (LSE: EMG) — the world’s largest listed hedge fund firm.
Although the company uses highly sophisticated algorithms to trade securities globally, its origins date back to 1783. In fact, the brokerage firm’s contract to supply rum to the Royal Navy ran from 1784 to 1970.
Over two centuries, Man grew to become a major player in the trade of commodities such as sugar, rum, coffee, and cocoa. This trading experience eventually led the group to become a leading asset manager, using systematic trading strategies in the financial markets.
The group was listed in London in 1994 and in 2000 split into private commodity trader ED&F Man and listed financial firm Man Group.
This London-based company now employs more than 1,400 people worldwide. As of the end of 2022, it was managing assets worth $143.3 billion (down 4% in one year) for a wide range of private and institutional investors.
Man Group shares slide
Earlier this year, shares of this FTSE 250 were on the up. Just over a month ago, it hit a five-year high of 293.8 pence on March 3. Since then, this stock has fallen sharply, as a banking crisis rocked global markets.
In the past week alone, this stock has fallen nearly 13%, making it the second-worst performer in the FTSE 350 Index. Here’s how the stock has performed over eight different periods:
current stock price | 210.6p |
One week | -13.0% |
One month | -26.4% |
Three months | -5.6% |
Six months | -8.0% |
One year | -13.4% |
Two years | +28.0% |
Three years | +67.5% |
Five years | +20.5% |
Looking at this chart, I see two trends. First, Man Group shares have been weak in 2022-23, losing more than a quarter of their value in one month. Second, this stock has produced positive returns for two, three, and five years.
To me, this suggests that shares in this £2.6bn company may fall victim to weaker sales in the near term. But as a long-term investor, my goal is to capture future cash dividends and capital gains. Hence my great recent interest in this moving stock.
I would gladly buy this stock today
Also, I find Man Group’s current fundamentals very attractive. After sharp declines in March, this stock is trading at a record price-earnings ratio of 5.7, for a 17.5% earnings yield.
Plus, its dividend yield of 6% per annum is well ahead of the FTSE 100’s 3.7% annual cash return. Even better, it’s covered 2.9 times by earnings, which is a solid margin of safety. . In addition, the group is buying back another $125 million (£101 million) of its shares.
Obviously, as a leading hedge fund manager, Man Group’s earnings can fluctuate widely, especially in volatile markets. And if the financial markets crash again, the company’s stock could take another beating. In addition, a run of poor fund performance could lead clients to withdraw funds.
Still, this FTSE 250 stock looks too cheap to me. Therefore, I have added it to my shopping list today. If only I had some extra money to buy it right now!
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