KKR & Co. LP (KKR)

KKR & Co (KKR-N) or Blackstone (BX-N)? He prefers an asset manager that is focused on public market equities. Asset classes are always being revalued. At certain times, certain asset classes do better than others. We have just gone through 10 years where regulation, compliance and rules around being a public company went through the roof, and it became very, very expensive. During that time, managing investing in private companies became very attractive, as they didn’t have the same problems. However, many private companies trade at higher valuations than public market companies, and yet public market companies are liquid every day and can be bought or sold. We have entered a period of many years where public market equities and developed markets, are likely to outperform. Asset managers in that area are under-owned and under-loved, and things are changing for the better. Multiples are expanding. Prefers Morgan Stanley (MS-N).

Primarily private equity, in the alternative finance category. They’ve had some very strong realizations, which were up about $8.6 billion last quarter, up 28% from the previous quarter. Better equity market equals more realizations. Very, very cheap, cheapest of the alternative group. They have really underperformed, unlike the overall finance group, partly because of their partnership structure, so maybe at some point it could convert to a C Corp. Basically trading at BV or slightly below. Dividend yield of 3.65%. (Analysts’ price target is $19.95.)

As a private equity conglomerate with hedge funds, etc., there is a lot of leverage in this business. If borrowing rates go up, that could impact profitability. Also, volatility may not help their business. Trading at a very reasonable valuation and offers a good payout. This is sensitive to interest rates.

Mid-last year she had concerns on the credit side and their access to capital. They are doing a great job. The management team is frustrated with the share price. If we are at the beginning of a significant rise in rates, you still get a higher yield owning equities right now, so she thinks they have the ability to do well. They are in great shape and one of the cheapest stocks in the financial sector.

Good company. He would think anything in private equity or capital markets for the next couple of years are going to be very fruitful. He likes this here.

This has a 6% dividend yield because it is trading at the lower end of its range. She likes the company and the management, but they are in the business of making private equity investments, which are based on people giving KKR money to invest. KKR takes the money and borrows against it, and then makes the investment. They are very, very heavily laden with debt. It can be a very dangerous environment when rates start to rise. It could also be very difficult to raise money if we go into a period of somewhat muted growth. Private equity funds have had their golden moment. They have been able to make acquisitions at practically no cost because it is so cheap for them to borrow. If you buy this for the long run and just want to hold it, why not.

Likes what management did in their last quarter call. They listed the pushbacks and addressed every one of them. She looks at this from a longer-term perspective, which is exactly when they are creating value. There is still a lot of demand for private equity, so they are seeing tremendous fund flows. They have a steady stream of earnings from management fees. Thinks there is quite a bit of upside to this. Dividend yield of 4.3%. (See Top Picks.)

This would be an unbelievable value stock. Unfortunately, it suffers from some of the problems we have, but worse, with financials, i.e. if we are in this trading range for the market, how do they harvest and bring out their best ideas as a private equity firm. The exit strategy is to IPO these into the market. Inexpensive, so it certainly ticks the value button, but he doesn’t see a catalyst for the upside. If there was a rally in the market that was sustainable, then he would be all over this, but more short term oriented. There is no assurance on the yield.

A big factor for them is how private equity is doing as a group. Valuations in private equity investments have gone up a lot over the last number of years. A lot of money left the publicly traded stock market to invest in private companies that were subject to day-to-day movements. Because that asset class did so well, the multiples of earnings that investors were paying expanded and expanded. He would liken the private equity world to what happened in the late 90s in the public market. The multiples are really, really high, so it is hard for them to get their exits by taking these companies public. He is less interested in private equity, and this is the time to be focused on public market equities, which have been out of favour for 12-14 years. Thinks it is likely that money is going to slowly rotate back to public market equities over the next number of years.

Just cut their dividend. This is not the time to buy Private Equity. Wait until it gets completely washed out with bankruptcies in the oil patch, when they go in and Hoover up for $.30 on the $1 and get phenomenal deals, and then build a portfolio. It is tough to invest in these things at this point in the cycle, because we haven’t had the washout.

They have changed the distribution in the last little while. Before they were paying out a lot of the capital gains on the balance sheet as well as the performance bonus. Have now decided to keep that in-house as they weren’t seeing the market paying up for that. With the dislocation in credit markets and equities, and the fear coming out of that, it is really going to impact this company. There is a lot of pain in the equity Price. But this is really the time of volatility where they get good prices, and really plant the seeds to grow the business on earnings going forward. From that standpoint there is a very good baseline yield. They are long-term assets they are collecting fees on. Likes the business and the alignment of ownership and the people that are making these bets in investments on behalf of investors, so she thinks there is a much higher share price coming.

Had previously owned this. A really good company, and really cheap. You should be fine to hang in here. Doesn’t think there is going to be a distribution cut. When there is a recovery in the stock market, this one is going to soar like an eagle. Dividend yield of 10%.

Are you investing in the business or trading in the stock prices? The important thing when being in the stock market is that you are investing in a group of businesses with an expectation of sharing in the profits in the form of a dividend. If the dividend is rising every year, then you are going to participate. If the dividend rises, then the share price will ultimately follow. This one is in the private equity area. M&A was great last year and pushed the stock up, but who knows what is going to happen in 2016.

Primarily the weakness is because the stock market has been pretty volatile. This has some exposure to energy companies. As well there have been some concerns over the high-yield space given the rising rates. Very cheap and very attractive. Trades in the $15 range, and $10 of that is Book. If you don’t need the money, he would be doubling down on this. Has a very healthy yield.

They harvest well, but a lot of it is priced into the market. He would stand aside. This is the wrong part of the cycle for them.