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Apollo: Contrarian LBOs
03/16/2015 8:00 am EST
The latest addition to our portfolio is an asset management company; it is known for a contrarian, value-oriented approach and specializes in leveraged buyout transactions and distressed securities, asserts Mark Skousen, editor of High Income Alert.
Apollo Global Management (APO) is based in New York City and has offices from Los Angeles to Frankfurt to Hong Kong.
It is a leading private equity firm founded 24 years ago by Drexel Burnham executive Leon Black. Apollo uses a contrarian, value-oriented approach and specializes in leveraged buyout transactions and distressed securities.
Among the notable businesses currently owned by Apollo through its various funds are Caesars, Claire’s, Norwegian Cruise Line, Coldwell Banker, Century 21, Hardee’s, Carl’s Jr. Restaurants, and CORE Media Group.
Apollo currently manages more than $160 billion across various investment vehicles. And as the values of those assets rise, so do management fees, performance bonuses, profit and operating margins, and net income. Yet the stock is both inexpensive and high yielding.
The consensus—which I believe is too low—is that Apollo will earn $2.02 a share this year. (I think the real number will be closer to $2.40.) That means the stock is selling for about nine times prospective earnings.
And those earnings should rise to more than $3 a share next year. That means the dividend—already mouthwatering at 14.8%—is likely to grow in the months ahead.
There is always risk when you buy an asset management company. (After all, if the market tanks, the value of those assets declines.)
But by using our customary trailing stop, we have limited downside risk with unlimited upside potential.
So pick up Apollo Global Management at market and place a protective stop at $19.
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