My oldest son was born in 1999. America was still experiencing what many believed was an endless nirvana of economic prosperity, so it’s no surprise that I sometimes jokingly referred to him as my “bull market baby.”

With a generous gift from friends of the family of $250, I did what many first-time Dads did at the time: I got my newborn son into the stock market. Specifically, I took $230 and bought eight shares of Alliance Bernstein Holdings, LP (NYSE: AB), which then was known as Alliance Capital. (I think I bought diapers with the remaining $20.)

As a professional financial advisor, I was familiar with Alliance’s line of business — mutual funds and money management — and I followed the MLP (master limited partnership) units closely. The price-to-earnings (P/E) ratio always bounced in the mid-teens and the yield seemed to hover around 7% or 8%. The share price was around $28. Eight years later, I sold the stock for $85.85 a share. The original $230 turned into $686.80, with a 24% annual return exclusive of dividends. The S&P 500 returned about 19% for the same time period. Throw in dividends, and the annual performance for owning Alliance Bernstein was well north of 30%.

I don’t mean to brag, but I kind of hit that one on the screws.

So I’ve seen first-hand how Alliance Bernstein can work for investors, and I think it can happen again.

The firm grew — even in a choppy market…
Originally, Alliance Bernstein was known as Alliance Capital, as I noted above, and as a money manager. The company made its reputation as a growth and international shop. In 2000, it acquired Sanford C. Bernstein and Co., a fabled value manager. Currently, the combined firm manages nearly $480 billion spread across mutual funds and institutional accounts. Alliance Bernstein was also one of the first firms to jump into the state-sponsored 529 plan business (Also known as a “Qualified Tuition Plan,” the 529 Plan is named after section 529 of the IRS code that created a tax-deferred account designed to encourage education savings). The company’s College Bound fund series is widely used by financial advisors today.

Alliance Bernstein’s assets under management actually increased 1% in February, from $475.2 billion to $477 billion. That’s impressive for a month that saw pullbacks in equity AND fixed-income markets, mainly the municipal bond market. While 1% doesn’t sound all that exciting, keep it in context. When you’re dealing with nearly half a trillion dollars earning 42 basis points in management fees, a net gain of $1.8 billion in one month is some serious money. That will impact the earnings in a big way.

In 2010, Alliance Bernstein posted EPS (earnings per share) of $1.43 for the year. This year’s forecast calls for $1.85. That’s 29% growth. Alliance Bernstein is certainly capable of pulling it off but, naturally, there are headwinds.

Will markets cooperate? If they do, then that’s great. Markets go up. Assets go up. More fees come in. However, this isn’t the 1990s by any stretch of the imagination. Sluggish economic growth, political instability, the specter of another recession and volatility will continue to reign supreme.

So, with less than ideal conditions, Alliance Bernstein will have to make money the old fashioned way: they’ll earn it — through smart management, of course. Dynamic Asset Allocation — a money-management strategy that employs active rebalancing across multiple asset classes — a strategy well suited for turbulent times, is the firm’s fastest-growing product. Sanford Bernstein’s value style and research is widely used on an institutional level, as well. This will help Alliance Bernstein combat fund outflows. During the financial crisis of 2008, assets under management plummeted from a peak of $654 billion to a low point of $458 billion. Recovery has been slow, but Alliance Bernstein is getting there.

Action to Take –> Alliance Bernstein units currently trade around $21.40 per unit with a trailing P/E of 16.3 and a dividend yield of 6.1%. A 12-month price target of $26 per unit seems logical, based on a 46% expansion of the P/E. The 6%-plus distribution would bring the potential total return to a little better than 27%.

P.S. — We found an obscure mining company that tossed back 19% in dividends last year (plus another 34% in capital gains). If you think that’s impressive, wait until you see this video…