Is BlackRock Stock A Buy?

BlackRock, Inc. (NYSE:BLK) is the world’s largest investment manager, with over $7.8 trillion in assets under management at the end of 2020.  The company has a large portfolio of mutual funds, exchange-traded funds (ETFs), and other investment tools.

Major financial firms and affluent investors use its financial products and services, which invites the obvious question: is BlackRock stock a Buy?

The company’s stated goal is to make money for its clients. It does so with a variety of investment and risk-management platforms. It’s more than just a financial play – it’s mostly a technology play.

This “FinTech” company offers a strategic investment for anyone who wants to benefit from a wide range without full exposure.

That’s because the company’s portfolios outperformed the standard so much that they are the standard for many. It’s a component of both the S&P 100 and S&P 500 (SPY), and it’s a major shareholder in a lot of big companies.

Can Blackrock continue its growth trajectory or will it leave investors with their pockets empty?

BlackRock Roots Are In Risk Management Solutions

Blackrock was founded in 1988 to provide risk management asset services to institutional investors. By the time it went public, it managed $165 billion in assets. It grew through a series of mergers and acquisitions, picking up assets from a variety of financial companies.

Its largest division is its iShares family of publicly traded ETFs. Its BlackRock Solutions division offers risk management and analytics to institutional investors. Blackrock’s ESG division focuses on investments in environmentally and socially responsible businesses, keeping the business green.

The company also owns common stock in a lot of large corporations, including Apple (AAPL), Microsoft (MSFT), and JPMorgan Chase (JPM). It often runs head-to-head with Vanguard and Berkshire Hathaway as the largest institutional investor.

Blackrock is one of the most trusted names in the financial industry, but does that translate to investor profits?

Is BlackRock Stock A Buy?

Blackrock had a market capitalization of $110 billion at the start of the year. By applying a discounted cash flow analysis to the company’s financial statements and projecting growth out in time we arrived at a fair market value of approximately 5% higher, translating to a BLK price per share of $753.

The company pays an annual dividend yield of 2.05 percent, which comes out to $14.52 per share. It raised its quarterly dividend from $3.30 to $3.63 per share in 2020. It has a solid payment history that didn’t stop during the pandemic.

Blackrock share price outperformed the S&P 500 every year over the past decade. It grew nearly 20 percent in 2020 alone, and its annualized return of 13 percent is more than double the industry average.

It’s the market leader in ETFs, with over $2.1 trillion in ETF assets alone through the year. This gives it about 40 percent of the market versus 25 percent held by Vanguard, its closest competitor.

The firm holds over $619 billion in liquidity across a variety of global currencies. Its cash on hand was $6.51 billion in September 2020, which was over a 40 percent year-over-year increase.

BlackRock CFO Gary Shedlin reiterates to shareholders on earnings calls that the company is committed to reinvesting earnings to provide value to shareholders over the long-term. Whether that’s in the form of dividends or share purchases, it’s a high priority for executive management.

BlackRock Stock: The Fly In The Ointment

A fly in the ointment for investors choosing Blackrock shares is it could have limited growth during a market recession. Although it has a wide range of investments, the firm also has exposure to a wide range of risks.

It also has a similar problem to Warren Buffet’s Berkshire Hathaway (BRK.B). It’s such a whale of an investor that it can control the market simply by making large buy or sell orders.

Still, Blackrock specializes in risk management. It has a great chance to overcome its own risks, because it helps other companies mitigate their own.

When the Federal Reserve needed help buying government bonds, it turned to Blackrock, which is now more important to the financial system than Goldman Sachs (GS) or BNY Mellon (BK).

Whatever risks it faces in the future, Blackrock may be the new face of “too big to fail.” It’s a vital part of the financial infrastructure and would receive a government bailout if it got into too much trouble.

BlackRock Has A Target On Its Back

Although it’s the largest asset management company, Blackrock has fierce rivalries in its sector.

Its competition includes State Street (STT), Vanguard, Edward Jones, and T. Rowe Price (TROW). Each of these firms have corporate strategies to upend it from the throne and steal away some of its wealthy clientele and assets.

They will have trouble doing so though – Blackrock has the confidence of the government and many investors. It created about a 2,000-percent return over the past 20 years, and has proven it knows what it’s doing.

The company has notable stakes in companies like Nvidia (NVDA), Zoom (ZM), and Berkshire Hathaway (BRK.A). It also has a symbiotic relationship where it invests in companies that invest in it. This should help carry the stock to greater returns over the next 20 years too.

That doesn’t mean it won’t be outperformed by a competitor or feel the effects of a global recession or depression. No company is immune to market conditions, and it can’t afford to rest on its laurels.

Is BlackRock Stock A Buy? The Bottom Line

Blackrock is one of the most admired and important financial companies in the United States. It’s an investment and asset management bank, but it’s also a technology company with valuable market analytics and risk management platforms.

The firm outperformed the S&P 500 and its industry every year over the past decade, generating 2x the returns. If it continues this streak, it will remain an attractive investment option.

But past performance doesn’t guarantee success, and the company is now so large it moves markets all by itself. Still, the company got where it’s at by effectively navigating risk for its institutional clients. It’s deeply embedded in the financial system and should remain too big to fail for the foreseeable future.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.