Best Stocks to Buy Under Trump: Ares Capital Corporation (ARCC)
While the trade in traditional banks is a popular one, one part of the financial sector that is not getting a lot of attention right now is the opportunity in business development companies — like Ares Capital Corporation (NASDAQ:ARCC).
BDCs are popular options for investors chasing yield, because these publicly traded stocks operate much like investment funds. When you buy in, you are buying their portfolio of equity and debt investments. And since a company like Ares Capital typically loans to smaller corporations at a juicy rate of return, the combination of higher rates and looser regulations to boost access to credit are both important factors.
To top it off, if you believe in the “reflation” trade under Donald Trump and that small U.S. businesses will have it good, then those loans are sure to be paid back on time and investors should see fewer defaults — making Ares a win across the board.
Since ARCC has a close relationship with private equity giant Ares Management LP (NYSE:ARES), that means ready-made access to financing in some big-ticket deals. And while there is always risk in these loans, numbers from 2016 showed improvement in non-performing loans even before President Trump was elected.
An additional plus is that Ares Capital is savvy about buying up smaller and sometimes even bigger rivals, consolidating power while debt is relatively cheap in an effort to maximize its control of the market.
Shares probably won’t move much, judging by the rangebound nature of this stock since 2010 after a snap-back from the Great Recession bottom. But remember, the steady cash flow generated by a portfolio of higher-interest loans fuels a yield of about 9% right now. Who needs share appreciation from ARCC when you can get huge dividend checks each quarter?