Bernie Madoff managed to slip through the SEC's fingers, Cramer said Monday, but Duff & Phelps would have nabbed the Ponzi schemer. And in this post-Madoff world of investor paranoia and mistrust, this financial-valuation firm’s services are growing in demand. That’s why the Mad Money host recommended the stock.
“Bankruptcies and reorganizations,” Cramer said, “make for multiyear earnings gains.”
Investors hardly trust hedge funds and private-equity firms to value their own assets or deals these days, so third parties are called in to handle the task. This lends the hedgies and PEs an alibi against future reproach, lest the authorities come knocking to scrutinize the numbers. As the trend continues, Cramer said, “there’s really no way to stop” it, meaning more business is on the way for Duff & Phelps .
D&P’s main revenue generator is providing these valuation and advisory services. The company helps with financial reporting and engineering, transaction opinions, and tax, portfolio and general business valuation. Again, this offers a stamp of legitimacy on deals that hedge funds and PE firms might not be able to claim themselves. But Duff & Phelps also runs a boutique investment banking division, which Cramer said is burgeoning thanks to the recent run-up in M&A activity.
This stock is too cheap given the company’s reputation. In 2008, 12 of the 25 largest global hedge funds and 13 of the 25 largest global private-equity firms hired D&P. Duff & Phelps also provided valuation reports to the Congressional Oversight Panel on TARP, and it was retained as a financial advisor to the Lehman Brothers bankruptcy examiner. Still, DUF trades at just 14 times 2010 earnings despite an expected growth rate of 25% for next year. Cramer considers cheap any stock trading at one time its growth rate, and DUF fetches about half that.
But that’s because, at least in part, of a recent secondary offering. Some insiders who owned the company before it went public sold shares, and the long-awaited offering had been weighing on DUF for a while. With the deal now out of the way, Cramer said, the stock is “ready to run.”
Looking for a way to play the coming wave of mergers and the government’s increased focus on fair-value accounting? Buy Duff & Phelps up to $16.50, which is $1 above last week’s offering price.
“This company is the antidote to corporate swagger,” Cramer said, “the swine-flu shot against corporate swines.”
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