Blackstone: Bet on Private Equity

06/25/2014 7:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

I’ve been a big fan of private equity ever since the major players went public right after the 2008 financial crisis, explains Mark Skousen, editor of Hedge Fund Trader Alert.

Here is an opportunity for the small investor to play the insider’s game of buyouts, buy-ins, and initial public offerings (IPOs) in debt financing, real estate, emerging markets, and consumer products. Plus, they pay out a lot of dividends every quarter.

Blackstone Group LP (BX) is the fast-growing, $19-billion finance company based in New York. It specializes in buyouts, IPOs, real estate funds, fixed income, emerging markets, and alternative investment markets.

BX is the world’s largest real estate investor and recently has led a wave of investors into Indian commercial property, which is now starting to recover with the election of pro-business Prime Minister Narendra Modi.

Blackstone also ventured into Africa ten years ago. Africa now is the fastest-growing continent in the world, with a focus on energy development.

Blackstone is growing, with earnings jumping 58% to $1.3 billion last year and revenues rising 23% to $6.8 billion. It has an 18.7% profit margin and a return on equity (ROE) of 23.9%.

Private-equity firms like Blackstone have significant growth opportunities ahead, especially in real estate and debt investing. Blackstone also is relatively undervalued.

The stock sells for only nine times forward earnings and sports a price/earnings to growth (PEG) ratio of only 0.47 (anything less than one is considered excellent). Its quarterly dividend varies but the current dividend yield is around 4%.

Let’s buy Blackstone at market today and set a protective stop of $27 a share here. For those willing to take greater risks, consider buying the September $35 calls.

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