Cheap Stocks Wall Street Hates: Janus Capital Group

Source: Janus Capital

For the most part, Wall Street analysts tend to be fairly upbeat on most stocks. So when professional investors scorn a beaten-down stock, it's tempting to conclude that there must really be something to it. Yet despite the fact that Janus Capital Group (JNS) finds itself in the crosshairs of underperform and outright sell ratings, the company's impressive job of poaching Bill Gross from PIMCO could bode well for its prospects in the long run.

Janus Capital has been stuck in the doldrums for more than a decade, never having truly recovered from the tech bust in the early 2000s and still suffering from the fallout from the financial crisis. Even as companies like BlackRock (BLK 0.69%) have made major moves to grab up more in assets under management, Janus has labored under the weight of its long history. Let's take a closer look at Janus Capital to see why Wall Street's finest still see potential for the company.

Stats on Janus Capital

Source: Yahoo! Finance

Why doesn't Janus get any respect?
Janus came to prominence in the 1990s, as it produced impressive returns for its fund shareholders due to its concentration in tech stocks during their big run-up over the course of that decade. With almost perfect timing, former parent Kansas City Southern (KSU) spun off the money management company in 2000, just as tech stocks were hitting their peak and Janus shares fetched a premium price.

In the years since, Janus has struggled to rediscover its past success. The stock rebounded from its 2002 lows, eventually almost tripling by late 2007. But once again, the market's turbulence hit Janus hard during the financial crisis, sending the fund manager to the brink before bouncing off the market bottom. Since early 2010, though, Janus has continued to struggle and made little or no progress on the share-price front. Rumors that rivals like MassMutual or Franklin Resources (BEN -0.40%) might buy Janus out have proven unfounded, leading to periodic spikes and plunges in share price on takeover speculation.

Source: Janus Capital

The biggest problem for Janus, though, has been a drop in the popularity of actively managed mutual funds broadly. Exchange-traded funds have vaulted BlackRock and other ETF specialists into the forefront, while even some top-performing mutual funds have had trouble keeping up with the ETF craze. With actively managed ETFs still only a minor part of the market, Janus has had a huge challenge trying to keep investors around when cheap ETFs have produced solid returns of their own lately. That's likely a big part of why Wall Street analysts aren't more optimistic about Janus' prospects.

What Bill Gross means for Janus
Going forward, the big question now facing Janus is how well it will do at integrating bond legend Bill Gross into the company. For Janus, embracing Gross will involve a major shift in its reputation, as going from a specialist in high-growth areas of the stock market to having a substantial bond-investing operation will likely lead to a whole new set of clients joining Janus' ranks. At the same time, Gross has made numerous comments over the past several years that at least imply that he believes the 30-year bull market in bonds could be coming to a close, and that could mean that he was already looking at trying to build his expertise in other areas of the financial markets as well.

In addition, Janus is working to expand its ETF presence, having just bought VelocityShares for $30 million. The ETF company is best known for its volatility-based exchange-traded products, and with the stock market having been on edge recently, Janus' acquisition is clearly timely. Yet even though VelocityShares has found an interesting niche in the exchange-traded world, Janus will still have to work hard to make the most of the acquisition.

Janus has a long way to go before it will get into Wall Street's good graces. But if you think that Bill Gross is a game-changer for Janus, then you still have time to get Janus stock at relatively cheap levels -- at least for now.