Barbarians at the Gate is the engaging book written by investigative journalists Bryan Burrough and John Helyar published in 1989 and later made into the entertaining film by the same name in 1993. Both sit on my shelves.
It is the story of the leveraged buyout (LBO) of RJR Nabisco that was eventually acquired by Kohlberg Kravis Roberts & Co. (KKR), which was founded and led by Henry Kravis and his cousin, George Roberts (along with their partner, Jerome Kohlberg).
It is a well-done tale of the LBO approach that was all the rage in the 1980s as heavy debts were raised in the low-credit grade (junk) bond market to finance the takeover of companies. And in turn, post-LBO, the companies would be reworked, used to generate lots of cash for the buyers and eventually be sold or broken up for further gains.
I’m starting off with this as the introduction to the big gains getting booked by investors and traders in private equity companies and their stocks. And in a moment, I’ll be presenting the private equity stock to buy right now so you, too, can invest like a barbarian.
KKR Blueprint for Profits
KKR is now a public company that allows anyone to invest in what now is called private equity. It and its peers, Apollo Global Management, Inc. (APO) and another that I’ll present, have been great successes over the past years in the stock market, combining gains with dividends for bigger total returns.
Private equity companies buy out large and small companies alike, clean them up, maximize cash that they can harvest from their operations and sell them off either in piecemeal or whole for gains as quickly as possible.
This formula has worked and worked well for the principals of the companies and their shareholders, as Kravis and Roberts have become extremely wealthy, much more so than their peers in traditional investment banks such as JPMorgan Chase & Co. (JPM) and personally for its head, Jamie Dimon.
For the trailing five years, KKR has returned 416.82%, and this is aped by its peers, including Apollo, with its total return for the same period of 371.06%.
KKR is now gaining more attention, as this week, Kravis and Roberts are stepping back and turning over the reigns to Scott Nuttall and Joe Bae. KKR remains a very interesting and profitable company.
But I have another one for you to buy...
A Foundation of Stone
Blackstone Inc. (BX) is another public company that is both a private equity company as well as a fund manager and real estate investment company. It is now part of our Burst Alerts Pro product run by Josh Martinez here at Traders Agency.
It is larger by assets under management (AUM) than KKR at $649 billion. And it has ample revenue that’s running at $6.5 billion and rising over the past year by 7.68%.
It continues to be highly active, doing deals seemingly weekly in its varied portfolios. Deals include music rights, major properties in growth markets and today there’s a deal in the works for GlaxoSmithKline plc (GSK)’s consumer businesses.
Blackstone has been running rings around KKR over the past five years, with a total return of 527.46%
And Josh has a near term target price for the stock at $125.10 from its current level of $115.24 for a potential shorter-term gain of 8.56%.
Take your cue from the barbarians of private equity… Blackstone is the current trade to make right now.
As always, I want to hear from you as an Insider here at Traders Agency. This includes your thoughts on our work here and what we should be covering and how to improve our services to you.
I can be reached directly at neilgeorge@tradersagency.com.
All my best,
Neil George
Executive Editor, Traders Agency
P.S. Company insiders (management) own millions of dollars of Blackstone stock, with 28 buys over the past year amounting to $4.2 million of their own money. To learn how insider buys can be a vital means of identifying the best stocks to buy, check out a very special Insider Edge presentation with Ross Givens right here.
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