Dear Mr. Berko:
I have $14,000 to invest from a January sale of 300 shares of Yahoo at $49, which my broker told me to sell at $50. I need income, as well as growth, and my broker recommended that I buy 300 shares of The Blackstone Group. I'd like to know what you think.
-GA, Rochester, Minn.
Dear GA:
I think you have a very wise stockbroker.
Harry Blackstone's initial public offering was in 1885. Known as "The Great Blackstone"-a rival to Harry Houdini-and one of America's greatest illusionists, he permanently exited the stage in 1965. Enter The Blackstone Group in 1985. In 2007, Blackstone completed its IPO at $31, managed by five of Wall Street's biggest names. Though there is no relation between The Great Blackstone and The Blackstone Group (BX-$41.02), there is a similarity in their magic, though BX's isn't illusionary.
Blackstone is the world's largest global alternative asset manager, with $300 billion under management. BX paid a $3.12 distribution last year. According to Value Line, Deutsche Bank and Barclays, BX expects to earn $4 this year and could increase its distribution to $3.76. This provides current shareholders a potential 9 percent dividend return. The BX folks manage corporate private equity funds, real estate opportunity funds, funds of hedge funds, magazine funds, senior debt funds, proprietary hedge funds and closed-end mutual funds. BX's financial services folks are sought for their advice on numerous corporate mergers and acquisitions, and BX's folks are keenly involved in corporate restructuring and reorganizations. Meanwhile, two of BX's most prolific divisions, private equity and real estate, have been distributing record profits to shareholders. Last year, BX sold its United Biscuits acquisition for $2.8 billion and reduced its interests in Hilton Worldwide and La Quinta Holdings for a multibillion-dollar gain. Various expected secondary sales this year, plus expected sales in 2016, should handsomely benefit earnings and shareholder distributions during the next two years. BX also has been committing billions of dollars to sectors of the European economy, the oil sector and Asian real estate markets. Certainly, you're familiar with 19th-century British nobleman Baron Rothschild's adage: "The time to buy is when there's blood in the streets."
I'm very impressed with BX's GSO Capital Partners, a newly formed corporate energy fund that neatly and quickly raised a significant amount of money late last year. The GSO fund will purchase the public debt obligations of selected collapsing energy companies. In this instance, GSO will buy the existing debt rather than participate as a lender. And this could be enormously profitable. For instance, if GSO purchases an oil bond yielding 13 percent that matures in 10 years (and there are many) and if oil prices recover in three years (many expect this to happen sooner), GSO will earn a 27 percent rate of return in that short time frame. GSO may also purchase common shares in selected oil companies if their bonds are trading at distressed levels. This permits GSO to broaden its equity stake via restructuring of a company's debt and benefit from a recovery in its valuation. Last year, GSO raised $4.5 billion in new capital, and it recently committed $500 million to fund the drilling program of Linn Energy, an oil and natural gas exploration company. Now that's bold.
BX produced record fee revenues last year and record net profits. And in the opinion of Deutsche Bank, Value Line and Morningstar, BX should produce record revenues and profits in 2015, as well as in 2016. Thus, Credit Suisse, Market Edge, Argus Financial Services, Standard & Poor's and Reuters have "buy" ratings on the stock. The consensus on the Street is that BX has a low price projection of $41 and a high projection of $46 in the next dozen months. There are fewer than 600 million shares outstanding, and I'm impressed with the institutional ownership of these shares. I believe that both long- and short-term investors can find something to like here. A purchase at its current price would be timely, as the BX shares offer a solid total return potential over the coming five years. I'd hop on the stock faster than a frog on a June bug.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Thu, Apr 30, 2015
