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A Fortress in Alternative Assets
07/13/2015 7:00 am EST
Our latest featured recommendation is a leading global alternative asset manager with $69.9 billion in assets under management, explains J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.
Fortress Investment Group (FIG) is headquartered in New York City and has affiliates with offices in major cities around the world.
The firm raises, invests, and manages private equity funds and hedge funds. Fortress intends to grow its existing businesses, especially its equity and fixed-income operations.
Alternative investments include various types of options often used to reduce risk. The company creates innovative products to meet the increasing demand by sophisticated investors for superior risk-adjusted investment returns.
Revenues climbed 18% and EPS advanced 7% during the past 12 months ended March 31, 2015.
Fortress’ revenues received a boost from stock market returns, the sale of portfolio positions, and the creation of new mutual funds.
Fortress’ private equity fund valuations appreciated 4.8% in the first quarter, well ahead of the 0.4% gain achieved by the S&P 500 index.
Total revenues will likely rise 5% and EPS will advance 25% to $1.30 during the next 12 months.
After reporting disappointing sales and earnings results for the first quarter, management is optimistic about the second half of 2015, based on strong investor demand for most of the company’s products and services.
At just 7.2 times current EPS, and with a very low PEG ratio of 0.33, FIG is clearly undervalued.
Fortress has adopted a new policy of paying most of its distributable earnings to shareholders. Based on expectations that the company will pay at least $0.62 in 2015 after paying $0.46 in the first half of 2015, the current dividend yield is 8.3%.
I expect FIG to increase to my minimum sell price target of $11.17 within two years. Buy at the current price.
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