Top Picks 2017: Blackstone Group
01/26/2017 6:00 am EST
It’s clear to me that the financial sector will benefit from further rate hikes by the Fed in the form of increased lending activity, stock buybacks and rising dividends based on stronger revenue and earnings, explains income expert Bryan Perry, editor of Cash Machine.
Private equity (PE) firms manage investment capital in order to acquire equity ownership of companies through a variety of strategies, including venture capital and leveraged buyouts.
Private equity firms operate with long-term investment horizons, typically five to seven years. After obtaining equity interest in a company, a private equity firm looks to profit from either selling the company or launching an IPO.
Private equity stocks were crushed in 2008-2010. Since late 2015, these difficult conditions have improved and PE firms may now be in their best position to capitalize on the attractive investments they’ve acquired during the tough times when valuations were deeply discounted.
As partnerships, quarterly distributions ebb and flow with quarterly profits. In an environment where an increase in deal flow, IPOs and merger activity affords higher fees and more lucrative exits of private portfolio holdings, higher profits result in higher payouts.
We are entering an investing landscape that should provide several catalysts for private equity firms that in turn should reward shareholders with rising income and rising stock prices.
Of the ten PE companies that I follow, Blackstone Group LP (BX) is by far and away the largest publicly traded private equity partnership with a $35 billion market cap, but also the best positioned to benefit from all the catalysts noted within.
Earnings are set to rise by 44% in 2017 from $1.96 to $2.83 per share which will only boost the already hefty 5.5% distribution yield.
That kind of jump in forecasted earnings is a difference maker and one that income investors seeking to outgun the Fed, the inflation genie, the taxman and the broad market indexes ought to take to heart.
As the New Year begins, a fresh look at private equity stocks should be on every investors list of resolutions to consider. They offer an income strategy that greatly reduces risks from higher interest rates, rising inflation and a stronger dollar.