"The cautious seldom err." - Confucius
It is difficult to be much of an optimist in a market where you cannot go five minutes watching Bloomberg or CNBC without hearing the phrase "fiscal cliff." Despite positive comments from leaders of both parties on Friday, I do not see this issue being resolved without several false starts that have the potential to sharply impact the market. I am being cautious by avoiding stocks that investors will likely be selling through the rest of the year in order to book the lower capital gains tax rates of 2012. I am also staying away from stocks that look stretched from a valuation perspective or are dependent on solid worldwide growth in 2013 which I view as a low probability event.
I am looking to buy equities with low valuations, rising earnings estimates bright 2013 outlooks. A nice dividend yield is icing on the cake. Recently, I have found two money managers that meet these criteria. They have the extra benefit of they are likely to be less impacted from the additional regulations of Dodd-Frank that should pose significant challenges for other financial institutions like major banks.
Fortress Investment Group (FIG) is a publicly owned investment manager that provides its services to pooled investment vehicles, pensions, corporations, and other public and private entities.
Four reasons FIG offers solid value at just over $4 a share:
- Earnings are expected to jump from $0.44 a share this year to 60 cents a share in fiscal 2013. The stock is going for a forward P/E of under 7, a discount to its five year average (10.3).
- Oppenheimer recently upgraded the stock to Outperform from Market Perform and has a $7.50 price target on FIG. The mean analyst price target of the six analysts that cover the stock is $6 a share.
- Unlike most equities in this earnings season, consensus earnings estimates have risen nicely for both fiscal 2012 and fiscal 2013 over the past three months on Fortress.
- The stock works for best dividend and growth investors. FIG yields 4.8% and has a five year projected PEG of under 1 (0.63).
The Blackstone Group (BX) provides alternative asset management and financial advisory services worldwide. It operates in five segments: Private Equity, Real Estate, Hedge Fund Solutions, Credit Businesses, and Financial Advisory.
Four reasons Blackstone is a solid buy at under $14 a share:
- Analysts also believe BX has upside. The median price target by the 12 analysts that cover the stock is $18.25 a share.
- It also has had its consensus earnings estimates for fiscal 2012 and fiscal 2013 rise over the last month. BX yields 2.9% as well.
- Earnings are ramping up significantly. The company earned $1.25 a share in FY2011 but is on track for over $1.60 a share in earnings for fiscal 2012. Analysts project over $2 EPS in fiscal 2013.
- Blackstone is an undervalued growth and value play. It sells for less than 7x forward earnings and has a five year projected PEG significantly under 1 (0.43).