The stock market has not been the only victim of the Fed’s aggressive interest rate hikes this year. Real estate has also taken a beating since most properties are acquired using borrowed money, observes Jim Pearce, editor of Investing Daily's Personal Finance.
As a result, alternative asset manager Blackstone (BX) — my Top Pick for aggressive investors for 2023 — has seen its share price lose a third of its value this year.
Simply because a stock is down that much is not a good reason to buy it. But in this case, the pessimism surrounding Blackstone’s real estate and private equity portfolios appear overblown and sets the stage for a strong rally in 2023.
Currently valued at less than 16 times forward earnings, BX is trading at a substantial discount to the S&P 500 Index despite its high forward annual dividend yield of 6% and solid operating results.
On October 20, Blackstone released its fiscal 2022 Q3 results that included a doubling of distributable earnings from its real estate segment compared to the prior year. Its two other primary sources of revenue, private equity and hedge fund solutions, posted declines in distributable earnings. On a GAAP (generally accepted accounting principles) basis, total distributable earning increased more than 30% on a year-over-year basis.
Nevertheless, Wall Street is feeling queasy about Blackstone’s prospects in the year to come. In short, higher interest rates not only suppress real estate values but also make it difficult to find buyers for its private equity holdings since those transactions are usually financed with debt.
Meanwhile, 12 of the 14 investment banking firms that cover BX have it rated as a buy with an average one-year price target near $100. That is 20% above its current share price, suggesting that its recent fade may be due to a large institutional shareholder dumping the stock.
During two days in early December, a total of 29 million shares of BX changed hands which equates to more than double its average daily trading volume.
According to my Personal Finance Pro stock screener, BX is severely oversold and could rebound strongly once the current selling spree subsides. That may not happen until the end of the new year, but once it is over BX could rebound quickly in 2023.