T. Rowe Price: All About Retirement

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.

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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.