The average retail investor, looking for profits in today’s confusing market environment, can usually choose one of two basic strategies. The former is the stock market’s traditional route, that of stock appreciation, while the latter is the safer, more defensive route, via dividend payers. But what if an investor doesn’t need to choose between these paths?
According to JMP Securities, such a dual strategy may be available to investors at this time in the form of alternative asset management companies. These are typically small to mid-cap companies, providing financing and access to capital services to small and medium-sized enterprises, a sector that has historically driven innovation and job creation. in the American economy. As JMP’s Brain McKenna writes in a recent industry note, “The alternative asset management industry has been (if not) one of the fastest growing segments within financial services, driven by a confluence of powerful age-old tailwinds…”
McKenna also dives into the inner workings of several alternative asset managers. We used the TipRanks platform to get the details of two of its picks. From JMP’s perspective, these two stocks could generate a combination of sizable capital gains and dividend income, making them a potential double-fist payday for investors. Let’s take a closer look.
Blue Owl Capital (OWL)
We’ll start with Blue Owl Capital, a leading provider of private market capital solutions. The company offers its services through three direct lender subsidiaries, Owl Rock, Oak Tree and Dyal Capital. Working through these lenders, Blue Owl has over $102 billion in assets under management and oversees its operations through 9 offices in North America, Europe and Asia.
Blue Owl formed last year, through a SPAC deal completed in May. The agreement, which had been approved by the companies involved in March, provided for the combination of Owl Rock and Dyal Capital with Altimar Acquisition Corporation. Blue Owl’s ticker began public trading on May 20, 2021, and the company had $52.5 million in assets under management as of that date.
In the first quarter of this year, Blue Owl saw strong increases in business. The company’s total assets under management, referenced above at $102 billion, represent a 76% year-over-year gain, while its retail fundraising is up 172% year-over-year. year-over-year to $2.2 billion. These strong aggregate capital gains underpin Blue Owl’s strengths.
Additionally, having a lot of capital allows Blue Owl to easily pay its dividend. The company reported a common stock payout of 10 cents for 1Q22, a payout that cancels out at 40 cents and yields a 3.2% return. Blue Owl has only been paying its dividend for four quarters – but it has increased the payment twice in that time.
Initiating OWL coverage for JMP, analyst Brian McKenna likes what he sees in the company’s continued growth prospects. He writes, “In the industry today, there aren’t many companies that tick all of these boxes: a) high-growth, ERF-centric model; b) the vast majority of AUM is perpetual (permanent); and c) a capital-light model that returns a large portion of profits to shareholders in the form of dividends. That said, Blue Owl is an alternative manager that ticks all of these boxes, and we believe its business (and stock) is positioned to outperform over the longer term given this momentum.
A company with such a bullish outlook on returns should get a solid benchmark, and McKenna gives the stock an outperform (i.e., buy) rating. Its price target of $18 implies a one-year upside potential of around 45%.
JMP isn’t the only investment firm to give OWL stocks a good rating. The stock enjoys unanimous consensus on Strong Buy, based on 5 recent positive analyst reviews. The shares are priced at $12.37 and their average price target of $16.75 indicates upside potential of 35% over the coming year. (See OWL stock forecast on TipRanks)
Carlyle Group (CG)
The next is Carlyle Group, a financial services company active in the multinational private equity and asset management sectors. Carlyle has 26 offices around the world, through which it manages some $325 billion in total assets. The Company’s segments include Global Private Equity, Global Credit and Global Investment Solutions.
Global Investment Solutions is the smallest of the segments, accounting for $65 billion of total assets under management. Global credit, with $91 billion, is next, and the global private equity segment, which manages some $169 billion in assets, accounts for the largest share of the company’s business.
Carlyle shares are down 30% this year, making its losses much larger than the broader markets. These losses came even as the company’s earnings remain strong. At $1.58 billion, Carlyle’s 1Q22 revenue generated more than a company-record $183 million in fee-related revenue – FRE, a key industry metric. The company’s FRE increased by 42% year over year. On a negative note, the first quarter revenue line was down 34% from the prior year quarter.
Even though revenues were down, the company still has a growing FRE and a balance sheet of $22 billion in total assets. This gave management confidence to increase the dividend by 25 cents to 32.5 cents per common share. With an annualized rate of $1.30, this dividend yields 3.4%.
Among the bulls is JMP’s McKenna who views the risk/reward ratio here as compelling with substantial upside potential.
“Covering the space for almost a decade, we have observed that when the market places very little or no value on performance-related earnings, it is usually an attractive risk/reward opportunity, and we believe that is the case for Carlyle today….We understand that it is always difficult to accurately predict when achievements will return…we are confident that performance related benefits will come back into vogue over time at as markets/volatility stabilize, and we believe Carlyle will stand out on that front with $4B+ in net accrued interest,” McKenna said.
All of this prompted McKenna to initiate a hedge on CG with an outperform (i.e. buy rating) and $12 price target. This target reflects his confidence in CG’s ability to grow by around 60% over the next year.
Overall, CG is getting a Moderate Buy from Wall Street analyst consensus. This is based on 11 ratings, including 8 buys and 3 takes. The shares are trading at $37.77 and the mid-price target of $62.09 suggests the stock is up around 64% from current levels. (See CG stock forecast on TipRanks)
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Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.