With shares of The Blackstone Group (NYSE:BX) trading at around $19.15, is BX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Blackstone often finds itself in the middle of controversy. The most recent example is potential collusion. However, we will stay away from that issue here and look at the business and industry trends instead, looking at both bull and bear cases.
Bull case: Two of the simplest and most bullish actions have been enormous call options in the options market, with analysts consistently revising estimates upward. We also shouldn’t forget the 8.70 percent yield! Blackstone’s impressive track record through the years has allowed the company to attract and retain some very large investors. The best part about the way this business operates is that Blackstone wins no matter what. If investments in credit, equity, and real estate do well, then Blackstone receives a nice cut and a fee. If any of these investments does poorly, then Blackstone still receives a fee.
Blackstone made some aggressive bets on real estate after the bubble burst, spending $17.6 billion in real estate since 2009. Therefore, this is the best pure play on real estate you will find. Blackstone has bought distressed homes, fixed them up, then rented, leased, or sold those homes. And Blackstone is still heavily involved in housing. Since mortgage rates have remained at record lows, the market has been performing well. Blackstone also believes there is significant upside in mortgage-related securities. Other positives for Blackstone include solid margins and a forward P/E of 7.17.
Bear case: Large insider selling is what stands out most. Otherwise, déjà vu pretty much sums it up. If you remember the housing bubble, as well as the stock market bubble, then you know exactly what this means. This economy hasn’t recovered on its own. Where would the economy be without Ben Bernanke having its back? Where would the economy be without record low interest rates and quantitative easing? If the economy had grown naturally on its own – after responsible deleveraging – then there would be no doubt that this is a real recovery. But that’s not the case. We basically took an alcoholic, gave him a beer and a pat on the back and told him to have a really good time tonight, even though he was in the emergency room last night as a result of his excessive drinking. This can go on and on for many “nights” in a row, but it will eventually kill the alcoholic. This individual needs to go through withdrawal prior to truly being healed. Blackstone needs the credit, equity, and real estate markets to perform well in order for it to perform well.
Let’s take a look at some numbers prior to forming an opinion on the stock…