The Blackstone Group: A Top Stock Pick (NYSE:BX) (2024)

Blackstone Group Crushes Q4 Earnings

The Blackstone Group (NYSE:BX) crushed its Q4 earnings and continues its tear in the markets as one of my favorite alternative investments. This global real estate powerhouse is not only an excellent investment for a portfolio. If you didn't take advantage in 2021 when it was trading at its 52-week low of $63.71, you missed out big. But there's still an opportunity to get in on the action. Not only is BX a strong buy given its overall fundamentals, but its Valuation is also a topic for debate. Is it over- or undervalued?

Blackstone Valuation

With a market capitalization of nearly $160B and $731B in AUM, The Blackstone Group continues to thrive as one of the world's largest alternative investment management companies. Blackstone Group is currently trading at $135.71/share, and despite its D Valuation, I believe there is significant upside potential.

With stellar growth and increasing AUM, this diversified global investment company continues to set plans in motion. BX has seen a one-year share price increase of +94% and 5-year +333%. With a recent announcement to buy $11 billion in Asian companies, coupled with its track record, there's a reason BX's valuation comes at a premium; you're getting a high-quality organization in one of the world's largest alternative asset managers. As Fellow Seeking Alpha author Brad Thomas writes:

We think BX is trading modestly below fair value. A reasonable one-year price target is $145, a 30% upside from today's $114.50. And FactSet's consensus is for over $148. Keep in mind BX traded above $145 in November.

With valuations and news like we see from BX, let's jump straight into how Blackstone Group can help fight against inflation.

Top 2 Ways Blackstone Group Helps Investors Beat Inflation

1. Alternative Investments

The focus of Blackstone is alternative investments, private real estate, private equity, and private debt. Real estate continues to boom, and as one of the largest real estate operators in the world, BX is a clear inflation hedge because its risk profile is similar to public securities, although generating better returns. If you look at forward-looking capital market assumptions, you're projected to get negligible respective growth in the public markets. When you look at J.P. Morgan's forward-looking capital market assumptions, a balanced portfolio of 60% stocks to 40% bonds over the next five years expects to return approximately 4.3%. How are you supposed to beat inflation of 7% with a portfolio that yields 4.3%? You can't! Therefore, you have to incorporate alternative investments to boost your return and diversify.

Given the reduced correlations to public markets, incorporating alternative investments into your portfolio typically leads to an enhanced risk/reward profile, whereby you receive more return for the risk you're taking, had your portfolio held no alternative investments. Blackstone, emphasizing alternative investments, benefits significantly relative to asset managers that solely focus on traditional markets.

As evidenced below, adding a 10% allocation to only private equity increases the expected return on a pure 60/40 portfolio by 30% (4.3% to 5.6%), while actually decreasing the portfolio's overall expected volatility (Vol) by 2% (9.5-9.7%). In turn, this significantly boosts the portfolio's risk-adjusted return by 34%, as measured by the Sharpe ratio; the alternative juice is worth the squeeze.

Blackstone focuses on non-public investments that tend to be either uncorrelated or have a significantly reduced correlation to public markets while delivering superior returns, often with less volatility. If you're constructing a portfolio, the ultimate goal is to maximize return by reducing risk. The most optimal way is to incorporate alternative investments.

Blackstone has seen tremendous growth and profitability. EPS of $1.71 beats by $0.31, and revenue of $4.46B beats by $1.34B in Q4. It's no surprise that growth and profitability grades are a solid A. Year-over-year revenue growth of 258.32% is well above the sector median. Cash from operations of $5.11B paints a great picture to substantiate the 9 FY1 up revisions within the last 90 days. With diversified interests and $1.4B in Q4 profits that continue to mount, this alternative investment manager benefits primarily from three segments under its alternative umbrella. Let's dive into them.

Real Estate Powerhouse

Real estate continues to boom. "Real estate remains an excellent hedge against inflation since income streams can reset more regularly than coupons from traditional bonds. And, real estate returns remain attractive: major sectors' average cap rate is currently 5.1%, representing a spread of about 350-bps to the 10-year, much wider than the historical average," said Joe Zidle, Blackstone Chief Investment Strategist. With one of the most extensive global real estate portfolios, BX is capitalizing in this industry. Rising rents and appreciating real estate are providing excellent tailwinds. The Blackstone Group has a keen eye for great real estate investments as evidenced in a number of transactions, including the tripling of its investment in my favorite hotel, The Cosmopolitan Casino in Las Vegas. BX sold the property for $5.7B in 2021, adding to its record cash haul as the firm's Q4 earnings posted a $1.4B profit in private-equity real estate.

Private Equity

Private equity is investment funding away from the public markets via private financing that allows investors to make money by investing directly in companies or buyouts of companies. The largest companies primarily drive public market returns, so exposure to private companies also offers solid diversification and unique opportunities. The Wilshire 5000 consisted of 7500 stocks but now is roughly 3600 securities. There are approximately 80,000 private companies - presenting a vast pool of investment opportunities to Blackstone to capitalize on, both through equity and debt investments.

Firms like BX charge a management and performance fee from investors for managing private equity investments, an alternative form of private financing. A recent example of one of BX's latest private equity deals, which just so happens to also be in real estate, is the acquisition of Bourne Leisure Holdings, a British travel and leisure company. Blackstone plans to invest in staycation sites given global reopening since the pandemic and the boom in tourism. Investors can arrange to take a stake in this deal, as Blackstone searches to acquire varying parks and locations that appeal to travelers.

Private Credit Or Debt Origination

One of the largest originators of debt and another inflation hedge is BX's ability for debt origination. Many of the loans are either short in nature or floating rate, so as the Fed raises rates, BX should not experience the same negative impact as interest rates rise because their loans are either ultra-short in duration which mitigates interest-rate sensitivity and allows them to originate new loans at higher rates, or the rates adjust with the interest rate environment, often offsetting the price depreciation experienced with traditional loans and paying out a higher level of income - it's a win-win.

2. Dividends - BX Is A Dividend-Paying Stock

Dividends are a great way to trump inflation. But let's face it, dividend stocks aren't sexy, although a company like Blackstone is. BX, among other companies with good dividend safety and yields, makes you money; making money is sexy! The below dividend scorecard provides a great visual of BX's solid dividend grades.

Blackstone Group's current dividend yield is a B rating and stands at 4.30%. The key to dividends is income production and capital preservation. When it comes to investing, everyone wants to make money, but at the very least, maintain their investment. With BX, investors are experiencing the assurance of the dividend while experiencing significant growth; that's what we call "having our cake and eating it too."

BX has a strong Dividend Safety rating which indicates a company's ability to continue paying a current dividend. Based upon this B rating, stocks that possess an A+ through B- ratings for Dividend Safety Grade would have averted 98% of dividend cuts since 2010. Following its stellar Q4 Earnings announcement, Blackstone declared a $1.45/share dividend, a 33% increase from its prior $1.09 dividend payout, and dividend growth tends to correlate with superior long-term performance, substantiating why Blackstone is a strong pick and hedge against inflation.

Consider Stocks That Beat Inflation

Blackstone is a fantastic stock with great fundamentals and tremendous growth and momentum. One of the largest alternative asset managers, BX encompasses everything you need to diversify a portfolio and beat inflation: real estate, private equity, private debt, and dividend-paying.

The markets are riddled with fear and the risks involved in holding and buying securities without the type of track record that BX possesses are a risk in and of itself. Keep fundamentals and long-term investing at the forefront of your strategies as the optimal ways to beat inflation. Pick stocks like Blackstone with a great track record and underlying metrics and on an upward trend. And in the words of Seeking Alpha author Bashar Issa, Blackstone is a fortress against Fed hikes.

Freelance Finance Writer | World Traveler | Fit Mom |Leslie is a writer that's developed content for several online and offline mediums. Specializing in ghostwritten content creation for investment professionals, Leslie has a passion for finance and investments and the ever-evolving technology shaping the way we do business.