Ameriprise’s Spin-Off Success

MARK THOMAS CHIEF INVESTMENT STRATEGIST VALUE STOCK TIPSCOMPANY: Ameriprise Financial TICKER: AMP (NYSE) PRICE: $49.04 (as of 4 p.m. Friday) 52-WEEK RANGE: $32.00-$50.08 MARKET CAPITALIZATION: $12.29 billionMark Thomas is the chief investment strategist at Value Stock Tips, an e-mail newsletter alert service that delivers stock tips to subscribers on a daily basis. Ameriprise Financial is a provider of financial planning, asset management, and insurance services to individuals and businesses. Mr. Thomas spoke to David Dalley of The New York Sun about why he believes the stock price could increase by more than 25% over the next 12 months.What does AMP do?AMP is the former brokerage unit of American Express. They spun off in October 2005 so they could have a pure play credit card business and a pure play brokerage unit. While Ameriprise does not engage in investment banking or mergers and acquisitions, they do have 12,000 financial advisers who offer personalized financial planning to more than 2 million customers. Ameriprise has over $428 billion in assets under management.Why do you like it?I’m always interested in spin-offs because a lot of the time they don’t get valued correctly. They’re new and often not as well understood by the market. I have been doing really well this year with financial stocks that are tied to the strength in the stock market, trading, investment banking, and especially mergers and acquisitions. I have scored big gains on Lazard (LAZ), Jefferies (JEF), and even AG Edwards (AGE).Now that the more obvious stocks in the sector have moved higher it is getting tougher to find reasonably priced ones, but there are still some opportunities that offer good reward-to-risk ratios. AMP is a new issue not well known yet by Wall Street, and, most importantly, its current valuation offers more upside than downside.How strong are the fundamentals?On an earnings basis, Ameriprise trades at 15-times earnings estimates of $3.20 for 2006. That is in line with others in the sector, but with the earnings gains the financials are reporting currently, I think they merit an 18 to 20 multiple. Ameriprise has also announced a large 7% stock buyback and a 1% dividend yield.What do you think the stock is worth?I think the stock’s valuation could expand to 1.8-times revenue and 18-times earnings. That would be a 25% gain from these levels or as high as $63 over the next 9-12 months. That is a potential upside of $14. At the same time, I think the stock has $7 in downside, so it has a 2-to-1 favorable reward-to-risk ratio. I would stop my loss if the stock fell below $42.

Ameriprise’s Spin-Off Success

Ameriprise’s Spin-Off Success

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