JPMorgan Chase & Co. (JPM) CEO Jamie Dimon famously spooked credit markets last October when he warned of “cockroaches” lurking in the shadowy world of private lending. Thus began a race to the bottom within the financial sector that many thought would bring down the whole system. But it didn’t. I like Ares Management Corp. (ARES) here, says Adam Johnson, editor of Bullseye Brief.
Private credit is one-tenth the size of public credit (1/30th when you add municipal and government debt). Now, savvy vulture investors like Boaz Weinstein of Saba Capital and partners at Blackstone are buying distressed loans on the cheap. As often happens on Wall Street, the pendulum swung too far. Now it’s swinging back.
Ares operates a $650 billion AUM asset management business focused primarily on global debt markets. Founded in 1997 by several executives from Apollo, the Los Angeles based firm has become one of the private credit industry’s largest managers…and its shares have fallen nearly 50%.
But Ares has posted consistently strong results. It has also seen assets under management accelerate to new highs, even as competitors have faced redemptions. That’s quite an endorsement.
Ares’ first quarter results reported May 1 proved credit quality remains high and growth continues to beat estimates. Given the company’s strong fundamentals, I believe the stock’s pullback represents an excellent buying opportunity. Pending rate cuts, emerging stabilization in the sector, and rising dividend payouts provide additional catalysts for stock appreciation.
I like owning ARES near $110, an area which has proven supportive three times since 2023. My target of $185 reflects an average of four approaches which all yield their own targets: Price to Earnings; Price to Book; Discounted Cash Flow Analysis; Return to All-time High. Two of the 18 sell-side analysts covering ARES have targets of $190. They mark the Street high, $5 above my target.
Recommended Action: Buy ARES.
