There are two holdings that have struggled this year that we think have a lot of potential over the long run. Lazard (NYSE:LAZ) has a franchise in the global financial advisory business and, in our estimation, an underappreciated asset management segment.
Market volatility and economic uncertainty have fueled concerns about a deceleration in mergers and acquisitions activity ("M&A") while also pressuring fund flows.
We believe these near-term headwinds are more than fairly discounted in Lazard's valuation. An uptick in restructuring revenue, mostly from energy and mining, has partially cushioned a near-term slowdown in M&A. In addition, while they're inherently cyclical, most of the important drivers of a vibrant M&A environment remain in place.
For example, there are attractive borrowing costs (even if rates rise off their current historic lows), the need for larger companies to supplement limited organic revenue growth, the improving economic outlook, and C-Suite confidence.
The stock also currently has a 4% dividend yield, and management has a history of shareholder-friendly capital allocation including dividend increases, special dividends, and share repurchases.
From Lauren Romeo's Today's Opportunities in Quality Small-Caps.
