There’s a certain mystique and sexiness surrounding private equity and the companies that invest in it. For many retail investors, it represents a secretive world of hedge funds, high net worth individuals and other players that they have no access to; one that provides outlandish returns over the long-term to investors and the private equity stocks that run the various funds.
And they’re partly right on both accounts.
Private equity has exhibited attractive performance on both a risk-adjusted and an absolute basis. According to the Private Equity Growth Capital Council, the average return of private equity funds for the year ending Sept. 30, was 6.4%. The S&P 500 only dropped 0.6% during that time. Over the last ten years, private equity managed to return an 11.8% annualized return — nearly double the S&P 500. So the returns are certainly there.
And guess what? You as a retail investor do have access to some of the private equity players in both stocks of investment managers as well as business development companies. While it’s not quite the same, investment in these sorts of companies does provide similar high returns.
With that in mind, here are three private equity stocks to buy today.
Private Equity Stocks to Buy Today: Blackstone Group LP (BX)
When it comes to private equity players, you can’t get more successful than Blackstone Group LP (NYSE:BX).
With assets under management ($361 billion) bigger than the GDP of some countries, BX has its hands in everything from private equity buyouts and hedge funds to vast real estate operations and credit management services.
That’s because BX generates its revenues via various fees and payments made by its investors. It gets those payments regardless of whether the underlying fund does well. It then gets bonuses when they do perform well.
This size and scope has made it a profit machine over the years. Even more so since the end of the recession.
And it should keep the good times going. With several exit events planned for the next few years, Blackstone is estimated to grow its earnings by an average of 24.8% annually over the next five years. That’s crazy big even by standards for private equity stocks and has CEO Stephen Schwarzman calling for BX stock to be at $85 per share.
Even if it doesn’t get there, investors are treated to a big-time dividend yield of 5.64%. That yield will fluctuate based on the amount of fee income and exit events that Blackstone has. But with such great earnings potential, it should only go up from here.
In the end, BX is one of the best private equity stocks for income seekers.
Private Equity Stocks to Buy Today: Hercules Capital Inc (HTGC)
Investors are obsessed with “unicorns” these days. And we aren’t talking about the mythical beast. We’re talking about early-stage technology or healthcare firms ready to disrupt their respective industries. But finding the next big thing is sometimes pretty hard to do. Luckily there are a few private equity stocks that have specialized in finding these unicorns.
Hercules Capital Inc (NASDAQ:HTGC) is one of the best.
HTGC is a business development company that invests and provides capital/debt solutions to tech and healthcare-related start-ups. In total, it has provided capital for 360 different firms and the vast bulk of them have been hits. Facebook Inc (NASDAQ:FB), Trulia and Evernote are just some of the firms HTGC has spotted over its history.
The real win for HTGC is that it often will take an equity stake in the firms it lends money to. The combination of debt and equity provides current income as well as capital appreciation potential from various exit events. For investors, you get one of the best private equity stocks betting on technology from the start-up phase.
You’re also able to clip a big-time dividend. Since its own IPO, the private equity stock has paid out a total of $12.47 in dividends. Not bad for a stock that went public at $13. Today, investors can snag HTGC at roughly its IPO price and a 8.5% dividend yield.
Private Equity Stocks to Buy Today: KKR & Co. L.P. (KKR)
For those investors looking for a bargain among the private equity stocks, the original “barbarians at the gate,” KKR & Co. L.P. (NYSE:KKR) could be a good deal.
KKR started the year off on rocky footing. The firm expanded heavily in private equity deals in the energy sector. Two of those deals — utility Energy Future and driller Samson Resources — ended up going bust in a big way. Those bankruptcies hurt KKR stock in a big way over the course of the year.
However, KKR seems to have gotten its mojo back. The firm has gone on a healthcare and tech buying binge and has increasingly gone the activist route. It pushed for a sale of EMC to Dell after acquiring a stake and has plowed more than a $1 billion into so-called “toehold” stakes in public firms designed to push for eventual sales or divestitures.
KKR has more than $9 billion in funds dedicated for such activist measures. Meanwhile, KKR has had some serious exit events such as the $5 billion sale of its Capsugel healthcare business.
And yet, KKR stock is trading for basically what it was at the beginning of 2016 — when all the energy problems finally came to a head. This gives investors a chance to snag one of the best all-time private equity stocks just as its turnaround really begins.
KKR yields a respectable 3.8%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.