As a company, Blackstone Group (BX, Financial) is often in the news. It made headlines about a month ago when General Electric Company (GE, Financial) announced the sale of a part of GE Capital’s real estate assets to Blackstone in a deal worth $14 billion. The private equity giant already owns significant amount of real estate, from skyscrapers in New York and Chicago to malls and hotels in Europe and Asia, and is also among the single largest private owners of residential homes in the domestic U.S. market. The Blackstone stock is currently trading above $42, near its all-time high. At what point should a savvy investor make an entry into this lucrative stock?
Recent performance
In the quarter gone by, the alternative asset management company saw its earnings double while competitors like The Carlyle Group LP (CG, Financial) and KKR & Co. LP (KKR, Financial) saw their earnings fall. It shows the relative strength of the company within the industry it operates in. In the last few months, the company has also started to utilise its capital extensively outside the domestic market, especially since most currencies have already weakened significantly against the U.S. dollar and therefore, as opposed to many other multinational companies, Blackstone is making good of the stronger dollar.
Real estate focus
For a company that traditionally made money from fee income from its asset management business and profits from private equity deals, 43% of Blackstone’s 2014 economic net income came from real estate. About 30% of the assets that the company oversees are now related to real estate and given the prevailing low interest rates world-wide, this is quite logical. Apart from the recent deal with GE, the company also announced purchase of warehouses in the United Kingdom last week in a deal valued at just over $600 million. The company’s Logicor portfolio is buying 16 warehouses from an entity affiliated to rival Oaktree Capital Group LLC (OAK, Financial), bringing Blackstone’s European logistics and industrial facilities to about 80 million square feet.
Great management in place
The man at the helm of affairs, founder and CEO Stephen Schwarzman, has proven to be a great leader for his company. The company has made investments in the right place at the right time, and has managed to avoid over-exuberance in potentially volatile markets. His real estate bets have already been discussed to show his good investment sense. You can tell he knows when to be cautious when you hear his rationale for avoiding the booming Chinese stock market. According to him, the Chinese currency, being non-convertible, stays in the country and the high savings go in to domestic deposits and financial institutions, real estate or the stock market. Deposit rates are not high at the moment and real estate has been slowing down, which leaves only the stock market as the default investment for many Chinese. “So, there's a lot of money there, and when it starts to go in one area, it really goes into a boom.”
Conclusion
For a stock that has risen consistently since soon after the financial crisis, and is trading now close to its all-time high, its performance does not leave much to be questions. What needs to be known is a point to purchase the stock. It is impossible to predict when the stock will see a major pullback or a significant dip, but since this is an attractive long-term play, we advise investors to BUY this stock on any day that it loses over 1% of its value.
