With the exception of a skilled/lucky few, most US-focused investment managers struggle to beat the return of the S&P 500, especially after their fees are deducted. However, I think it’s perfectly possible for the nimble Fool. In fact, there’s one FTSE 250 stock I reckon could conceivably outperform the US index by the end of 2024.
Quality stock
Investment platform AJ Bell (LSE: AJB) doesn’t exactly get the pulse racing like some of the big tech stocks across the pond. Nvidia, this is not.
However, this is a quality company operating in a space that, while competitive, has a lot of room left to grow as an ageing population is pushed to get its finances in order.
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A quick scan at the £1.2bn-cap’s fundamentals only serves to support this. High margins? Check. Stellar returns on capital? Check. A brand that inspires confidence? Check. A bulletproof balance sheet? Again, check.
Combine this with today’s (18 April) Q2 trading update and you might see why I’m increasingly bullish on the company’s capacity to outperform the S&P 500.
Increasingly popular
Perhaps the most striking bit of news in Thursday’s statement is that AJ Bell now has more than a half a million clients (503,000). The fact that’s well over double the number it had when it listed back in 2018 shows just how well it’s marketed itself. This is despite multiple headwinds impacting the desire/ability to save in recent years.
Another encouraging sign was the company reporting record assets under administration of a little over £80bn. This represented a 17% rise in the last year.
Personally, I think both numbers will continue rising, especially as AJ Bell is in the process of cutting custody fees and dealing costs. The launch of a new service to help clients consolidate their existing pensions should also prove popular.
Great price
By now, readers might be wondering why I don’t own this stock already. Well, a lot of this comes down to the valuation.
For a long time, AJ Bell stock was always priced relatively high (around 30-40 times forecast earnings). However, this is no longer the case. Prior to this morning, I could pick up the stock for 16 times earnings. That’s certainly a whole lot cheaper than some of the bigger players on the ‘frothy’ S&P 500.
But what seems like a good price now may prove to be an bargain if we get a big bull market as interest rates are cut and more people have money to save/invest.
With net inflows of £1.6bn in the last quater up 33% on the prior year, I get the impression that sentiment’s already turning.
Passive income stream
For balance, it’s important to highlight that rate cuts this year aren’t guaranteed. So the share price could hover for a while, or even dip lower if geopolitical tensions increase.
On the flip side, there’s likely to be a decent passive income stream for holders in the meantime.
Analysts currently have the firm returning 14.2p per share in FY24. That becomes a chunky dividend yield of 4.6% — far higher than I’d get from a FTSE 250 (or S&P 500) tracker.
Is that sufficient compensation for needing to be patient? I think so. If funds were available today, I’d be buying for my Stocks and Shares ISA.
