MSCI Inc. (MSCI) shows how the coronavirus depression benefits rich people and drives income inequality.
MSCI Inc. (formerly Morgan Stanley Capital International and MSCI Barra) provides financial services and analytics for hedge funds, banks, wealth managers, asset owners, pension funds, and institutional investors. MSCI (MSCI) is most famous for the indexes it compiles.
MSCI profits from growing income inequality and booming equities markets because it provides services for wealth management. I think MSCI’s high stock price shows wealth management is a growing business in America.
Should you invest in Wealth Management?
Hence, ordinary investors could make money by investing in companies; such as MSCI, that offer wealth management services. Wealth managers could make more money because rich people have more money to spend.
Stock prices show Mr. Market believes this thesis. Mr. Market paid $266.05 for MSCI (MSCI) on 2 January 2020 and $414.50 for the stock on 1 December 2020 2020. Thus, MSCI’s share value grew by $148.45 in the first 11 months of 2020.
Consequently, MSCI proves wealth management is a growth investment, but does it make money? Strangely, MSCI makes a little money.
MSCI Makes Little Money
MSCI Inc. (MSCI) made a quarterly gross profit of $354.63 million on revenues of $425.33 million on 30 September 2020. In addition, MSCI reported a quarterly operating income of $277.62 million on the same day.
Moreover, MSCI reported a quarterly operating cash flow of $199.79 million on 30 September 2020. Tellingly, MSCI reported an ending cash flow of -$82.12 million on 30 September 2020.
However, MSCI can generate enormous amounts of cash. For example, MSCI reported an ending cash flow of $1.067 billion on 31 March 2020. That ending cash flow fell to $318.12 million on 30 June 2020.
Finally, MSCI had $1.303 billion in cash and short-term investments on 30 September 2020. The cash and short-term investments fell from $1.385 billion 30 June 2020 and rose from $1.067 billion on 31 March 2020.
MSCI had $4.112 billion in Total Assets on 30 September 2020. Interestingly, MSCI’s Total Assets fell from $4.187 billion on 30 June 2020 and rose from $4.912 billion on 31 March 2020.
Mr. Market Overvalues MSCI
Thus, I think MSCI (MSCI) does not make enough money or have enough assets to justify the $414.15 share price. I believe Mr. Market overprices MSCI.
I also believe MSCI’s growth rate does not justify the share price. To explain, Stockrow estimates MSCI’s revenues grew by 7.88% in the quarter ending on 30 September 2020. Conversely, MSCI’s revenue growth rate fell from 12.22% in the quarter ending on 31 March 2020 and 6.24% in the quarter that ended on 30 June 2020.
Conversely, MSCI will pay a magnificent quarterly dividend of 78₵ on 30 November 2020. That quarterly dividend grew from 68₵ on 29 May 2020. Overall, MSCI shares offered a forward annualized dividend of $3.12 and a forward dividend yield of 0.77% on 29 November 2020.
Strangely, I do not think the dividend justifies MSCI’s share price. I consider MSCI too expensive to be an investment for the average person. However, I think growing income inequality makes wealth management an excellent investment.
American Income Inequality Grows
Wealth management is a growth industry because the rich have more money than ever before.
The Federal Reserve estimates the wealthiest 1% of Americans had $34.98 trillion in assets in Second Quarter 2020. Moreover, the amount of money held by the wealthiest 1% of Americans grew from $17.11 trillion in 2nd Quarter 2005.
Hence, the wealth of America’s richest 1% more than doubled in 15 years. Dramatically, that doubling occurred during an era that included one of the worst financial crises since the Great Depression, the Great Meltdown of 2007-2008. Notably, the assets of the richest 1% of Americans grew to $17.34 trillion in 4th Quarter 2009
America’s Rich get Richer
Similarly, the wealthiest 10% of Americans had $46.09 trillion in assets in 2nd Quarter 2020, the Federal Reserve estimates. The assets held by the wealthiest 10% of Americans grew from $22.48 trillion in 2nd Quarter 2005.
In comparison, the 50% of Americans with the least wealth had combined assets of $7.06 trillion in 2nd Quarter 2020. That number rose slightly from $4.8 trillion in 2nd Quarter 2005.
Overall, all Americans had $127.58 trillion in assets in 2nd Quarter 2020. That number grew from $69.03 trillion in 2nd Quarter 2005. Thus, all classes of Americans could require more wealth management from firms such as MCSI.
If history repeats itself after the Coronavirus Depression, America’s wealthy will get richer. Thus, wealth managers such as MCSI could make more money because their customers will have more wealth.
I think growing income inequality will lead to more calls for confiscatory taxation and wealth redistribution. Such policies could drive more people with money to seek wealth managers who can protect their assets from taxation.
Wealth Managers to Invest In
Thus, the rich have more money to invest. Hence, wealth managers will make more money because that wealth has to go somewhere.
Consequently, wealth managers could be an excellent investment. However, I do not think MSCI (MSCI) is a wonderful investment.
There are some managers I consider an excellent investment, such as Goldman Sachs (GS). Mr. Market was paying $232.08 for shares of investment banking legend Goldman Sachs (NYSE: GS) on 27 November 2020.
Goldman Sachs’ shares paid a $1.25 quarterly dividend on 1 December 2020. Overall, Goldman Sachs shares offered a forward annualized dividend of $5 and a forward dividend yield of 2.11% on 27 November 2020. Notably, Goldman reported a quarterly gross profit of $9.87 billion and quarterly operating income of $4.549 billion on 30 September 2020.
Goldman Sachs offers many wealth services, it pays a great dividend, and it is cheaper than MSCI. In conclusion, wealth management is an excellent investment these days. However, MSCI (MSCI) is not an excellent investment in Wealth Management.
Originally published at https://marketmadhouse.com on December 1, 2020.