Top Picks 2017: Oaktree Capital Group
01/05/2017 6:00 am EST
Our Top Pick for 2017 for conservative or income-oriented investors is an investment management firm that focuses on alternative strategies, explains George Putnam, editor of The Turnaround Letter.
Oaktree Capital Group (OAK) is known for its contrarian approach with many of its products concentrating on distressed assets and turnaround situations.
The company is very well managed, and its disciplined risk control has proven itself over the years.
Fee-related products provide a steady base of income, yet what produces its real long-term value are the profits it generates from illiquid and complicated investments in distressed bonds, real estate and other alternative assets.
Unfortunately, these profits can be quite lumpy, depending on when these investments are liquidated.
Another source of value: Oaktree holds a 20% stake in DoubleLine Capital, the highly successful bond manager with over $100 billion in assets (Oaktree bought their stake years ago at a bargain price).
OAK shares fell more than 20% in 2016 as investors grew impatient because some of the firm’s funds are still in the in the investing stage rather than the liquidating stage.
However, as the corporate debt binge that we’ve experienced since 2009 comes to an end, Oaktree will benefit from a growing number of restructurings and bankruptcies that are its specialty, boding well for Oaktree’s future profits.
While waiting to participate in the substantial value that the firm can realize over time, investors are nicely compensated with the stock’s 6.9% dividend yield.
Prospective investors should be aware that the company is a publicly traded partnership, and so dividends can fluctuate with cash flows, and the stock is subject to different tax treatment than in a typical corporation.