Markets

T. Rowe Price: All About Retirement

Retirement savings is a big and growing business, putting this famous fund firm in a powerful position.

For mutual fund companies, retirement savings are where it's at. Employers are rapidly doing away with -- or never starting -- traditional pensions, turning to 401(k) and other defined-contribution retirement plans. That means the company and the employee make regular investments, with your retirement benefits contingent on how those investments perform. Analysts at Wachovia Securities estimate that by 2010, the top 200 defined-contribution plans will hold $1.3 trillion, up 40% from today. One company poised to take advantage: T. Rowe Price (symbol TROW), says Wachovia's Douglas Sipkin, who started covering the stock on Friday.

Managing money for individual investors is T. Rowe Price's main business. The Baltimore firm, which goes back to 1937, is named for its founder, Thomas Rowe Price, who is reputed to have invented the no-load fund. The Price firm offers more than 80 stock, bond and money-market funds, many of them popular offerings inside 401(k)s. In fact, Sipkin notes that Price is the largest publicly-traded asset manager within defined-contribution plans. The average Price fund receives a four-star rating from Morningstar, and Price markets itself and its funds as being focused on the long-term, an attractive quality for investors looking out toward retirement.

In 2002, Price launched a series of targeted-retirement funds, which divide your money across many funds and cater to people who aren't interested or aren't capable of actively managing retirement savings. They've been a big hit, with the assets up to $10.4 billion at the end of March. Sipkin says that although they represent less than 4% of Price's total assets under management, these particular funds accounted for 17% of Price's cash inflow in the first quarter of 2006.

Overall, Price boasts a whopping $293 billion in assets under management. Its sheer size gives it a notable competitive advantage. Sipkin also likes that T. Rowe Price has one of the strongest balance sheets in its industry, partly because, unlike several competitors, it hasn't paid big prices for acquisitions.

Recently $37, the stock sells for 20 times the average 2006 analyst earnings estimate of $1.85 per share, according to Thomson First Call. That price-earnings ratio is reasonable when you compare it with other investment-management company stocks and to Price's growth record and potential. Sipkin thinks the stock should trade at $43 or $44 before much longer.

Most Popular

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
October 15, 2020
Election 2020: States With Tax Questions on the Ballot
Politics

Election 2020: States With Tax Questions on the Ballot

On November 3, voters in 17 states will weigh in on a variety of proposed changes impacting taxes on everything from property to pot.
October 15, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

There's little doubt that, if elected, Joe Biden will try to raise taxes for some people. Will you be one of them?
October 16, 2020

Recommended

Stock Market Today 10/20/20: Glimmer of Stimulus Hope Gives Stocks a Small Lift
stocks

Stock Market Today 10/20/20: Glimmer of Stimulus Hope Gives Stocks a Small Lift

Tuesday's rigid stimulus deadline seemingly blurred as House Democrats and the White House made progress toward a middle ground.
October 20, 2020
Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears
stocks

Stock Market Today 10/19/20: Investors Lose Their Nerve as Relief Deadline Nears

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 19, 2020
Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump
stocks

Stock Market Today 10/16/20: Cheerful Consumer Data Gives Stocks a Small Bump

Retail sales in September improved by more than expected and a consumer sentiment reading improved, providing the market with a tiny lift Friday.
October 16, 2020
Stock Market Today 10/15/20: Stocks Slip Again on Dour Jobs Data
stocks

Stock Market Today 10/15/20: Stocks Slip Again on Dour Jobs Data

Worse-than-expected weekly unemployment claims, as well as continued gridlock on COVID stimulus, stymied stocks Thursday.
October 15, 2020