IGM FINANCIAL INC. $42 - Toronto symbol IGM

IGM FINANCIAL INC. $42 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.5 million; Market cap: $11 billion; Price-to-sales ratio: 4.2; SI Rating: Above Average) is Canada’s largest independent mutual-fund company. It manages $108.5 billion of assets. Power Financial (Toronto symbol PWF) owns 56.4% of IGM. The sharp drop in stock prices has hurt IGM’s profits. In the three months ended March 31, 2009, its earnings fell 36.8%, to $133.5 million from $211.2 million a year earlier. Earnings per share fell 35.4%, to $0.51 from $0.79, on fewer shares outstanding. Revenue fell 21.7%, to $559.1 million from $714.2 million. The company continues to do a good job of hanging onto its clients. In the first quarter, the redemption rate at its main Investors Group division was 7.7%, among the lowest in the industry, and down from 7.9% in the last quarter of 2008. IGM is in a strong position to benefit from the recent market rise. It now trades at 18.6 times the $2.26 a share it will likely earn this year. That’s a reasonable p/e in light of its loyal clientele and high market share. The $2.05 dividend yields 4.9%. IGM Financial is a buy.

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One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

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