American Express Company (AXP), Goldman Sachs Group, Inc. (GS): Risk Versus Reward, 3 Diversified Financials

A fast-growing offshore fund manager

Sliding down the size and prestige scale, we come upon more compelling investment options. Invesco Ltd. (NYSE:IVZ) is a Bermuda-based investment manager and mutual fund operator. It has an 80 year history, but its most recent incarnation dates just to 2007, and of late each quarter has been setting a record. Invesco’s European business, at least in England, is growing rapidly, as are the company’s Asian and Canadian units. In its first quarter the company earned an adjusted $314 million, or $0.52 per share, a jump of 16% over 2012’s first quarter, and 11% above analysts’ expectations. The profit surge arrived not just from cost control, but from revenue growth of 5% on strong investment inflows. That helped support operating margin growth of 290 basis points over the year earlier quarter. Its net profit margin is hovering around 20%, versus the mid-teens where it had been for the past few years.

Adding to the appeal of this company is that it recently raised its dividend by 30% to a yield of 2.7%, and the company is actively buying back stock. Analysts see profit growth averaging in the mid to upper teens the next several years, driving the five year PEG down to an even 1.0. I do not have the space to discuss this equity more fully, but from what I can see, it should have wide appeal as both a short and a long-term investment.

Conclusion

Diversified financial companies offer relative safety, but often at the cost of unappealing profit growth. American Express Company (NYSE:AXP) has an excellent risk reward profile, as does Invesco Ltd. (NYSE:IVZ). But Goldman Sachs Group, Inc. (NYSE:GS) is entrenched in a period of limited growth opportunities.

Bill Edson has no position in any stocks mentioned. The Motley Fool recommends American Express and Goldman Sachs. Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Risk Versus Reward: 3 Diversified Financials originally appeared on Fool.com and is written by Bill Edson.

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