Editor's note: When everyone was running for the exits in real estate, he said to BUY. And it was one of the best calls he has ever made.
This weekend in our Masters Series, we're taking a look at two of True Wealth editor Steve Sjuggerud's greatest recommendations. These companies might not be "buys" when you read this... and the specific advice these essays contain is dated... But there is great value in studying the thinking behind these super-successful ideas.
In today's edition – excerpted from the December 2012 issue of True Wealth – we'll look at Steve's recommendation of huge property investor Blackstone Group.
Blackstone, he said, was the "best way to get invested in residential real estate THROUGH the stock market – with significant upside potential." Today, his subscribers are sitting on a 166% gain in less than two years... and they're collecting a 16% yield on their purchase price (as Steve expected). It's one of the best recommendations in S&A history.
Finally... A GREAT Way to Play Housing Through the Stock Market
By Steve Sjuggerud, editor, True Wealth
By Steve Sjuggerud, editor, True Wealth
"Steve, those real estate deals seem great! Can I invest in your real estate deals with you?"
I spoke about some real estate deals I've done this year at our Stansberry Alliance conference last month – and some readers wanted to join me.
For example, I told the story of a property that was under contract for $14.4 million in 2008 – that we bought for less than $1 million!
And the deals keep happening... Two weeks ago, I bought a beach condo here in Florida for $124,000. These units sold for $400,000-plus in 2006. I plan to fix it up, rent it for a little while, and then sell it.
While I can't have readers join me in deals (the lawyers won't allow it!)... I have found an even better way for you to capitalize on U.S. housing. Your upside potential is literally hundreds of percent over the next two years, as I will show.
This month's recommendation is pursuing the exact same strategy I am using. It is buying below replacement cost (typically from banks), fixing up, and selling. But it's doing it on a massive scale. And the stock is incredibly cheap.
The sellers in both of my real estate deals above were desperate banks. They'd foreclosed on the property owners years ago. The banks were "stuck" with these properties and were desperate to unload them.
Good deals ARE still out there. The thing is, I'm sure the banks would rather not do each of these deals one at a time with someone like me. I'm sure they would rather have a huge investor come along and buy ALL their foreclosed properties... just to be DONE with them.
Well, a huge investor has finally come along... and it's this month's recommendation...
This company is one of the most successful "investors" of all time. I am not kidding... On a conference call a couple weeks ago, the founder said: "Over our 27-year history, we've generated net annualized returns on realized investments of 23% in private equity and 28% in our global real estate business, which dwarfs performance of virtually any other investment class."
That is unbelievable. And right now, this huge investor is "betting the house" on housing.
Even better, the stock is ridiculously cheap, as I'll show... And our upside potential is dramatic.
For a long time, I've been looking for an easy way for you to invest in residential real estate. But we finally have a way – and it's as easy as buying a stock! Let me explain...
Buy It. Fix It. Sell It.
The company we're buying this month has a simple motto for its real estate purchases: Buy it. Fix it. Sell it.
It SOLD $60 billion of real estate assets in 2005-2007 – ahead of the crisis. And now it's going in again...
On the same conference call, the founder said:
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This month's recommendation has bought roughly $1.5 billion worth of houses this year. That's 10,000 homes, which averages about 1,000 a month. The average price is somewhere around $140,000-$150,000 per house.
The company is implementing its "buy it, fix it, sell it" strategy. In addition to buying and selling homes, it's finding creative ways to play the rebound in housing.
For example, the company is renting out the properties it owns after they've been fixed up. According to the founder, "We're taking foreclosed homes, and we're renting to people. It is only taking 26 days from when we put a house on the market until somebody goes into it."
It really is piling into the housing trade in every way possible…
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This company has committed $17.6 billion to real estate since 2009... making it the biggest investor in the world in this market.
Just yesterday, my good friend Jeff Winn of International Assets (www.iaac.com) told me his story with this big investor. (He had no idea I was recommending the stock.)
Jeff lives in Orlando. He said, "Steve, I was trying to buy a rental place a couple weeks ago but [this month's recommendation] bought it out from under me. From what I've heard, that has happened a lot down here. I know they've relocated guys here solely to build their portfolio of houses."
Real estate – property – is only about 25% of this big investor's business today. But I expect that will move toward 33% in the next couple years. Private equity (how Mitt Romney made his fortune) makes up another big chunk of its business – and it's in real estate as well.
By owning this company, you own a private-equity business... and you own the largest investor in single-family homes in America.
The Biggest Player in Single-Family Homes Is Ridiculously Cheap!
The name of this huge investor is Blackstone Group (NYSE: BX).
Blackstone started out in the 1980s as a private-equity group (like Romney's Bain Capital). But it has evolved into one of the planet's biggest "alternative" asset managers. ("Alternative assets" means it's not investing in your typical stocks, bonds, and mutual funds.) Basically, people pay Blackstone to manage their money for them.
Importantly, by buying Blackstone shares, we are NOT investing directly in the company's real estate portfolio. Blackstone invests on behalf of investors and gets a big percentage of the profits if it's right. So if Blackstone's bets pay off, it collects huge "performance" fees. But even if its bets don't work out, they still collect fees. The business wins no matter what. And we win as shareholders.
When you size up Blackstone's assets under management, they fit neatly into a four-piece pie. Each one accounts for roughly 25% of the company's total assets under management. The categories are: Private Equity, Real Estate, Hedge Funds, and High-Yield-Credit Funds. The biggest profits come from real estate and private equity.
Now let's get into the numbers...
We're at the end of 2012. It's time to start looking ahead at the earnings estimates for Blackstone.
By 2014, analysts estimate earnings will be $2.85 per share. Yet the stock price, as I write, is about $13.50 a share. That means the stock is trading at a forward price-to-earnings ratio of LESS THAN FIVE. That is ridiculous!
With earnings like that, analysts estimate the 2014 dividend will be around $1.38 a share. A $1.38 payout (based on today's stock price of $13.50 a share) would be a 10%-plus dividend!
Of course, it's not 2014, so we are not there yet. But by buying Blackstone now, you are setting yourself up for a great, 10% dividend on today's investment in less than two years.
This should mean a solid capital gain as well... an easy double.
If the stock earns $3 per share in 2014 and trades for 12 times earnings (as I believe it could), the share price would be around $36. Also, if the company pays out a dividend of just $1.38, the dividend yield would be 3.8%.
I think the stock could go higher than $36 a share...
You see, in 2014, we will still be in our zero-percent world, thanks to the Federal Reserve. The stock price could jump to $46 – which would still be a 3% dividend yield (based on a $1.38-per-share annual dividend).
A move to $46 a share would result in a 240%-plus capital gain from today's price. And we'll still be in position to collect a 10% – and potentially growing – dividend based on our purchase price.
These numbers seem crazy. But this company is crazy-cheap today. Triple-digit gains are more-than-possible here.
Of course, those kinds of returns don't come without risk. It's important to keep in mind that Blackstone shares are volatile – significantly more volatile than the overall stock market. Blackstone uses leverage. That means it will soar in good times and tank in bad times. We are, of course, looking for good times. But you need to be aware of the risks. We will use a wider-than-usual trailing stop here to account for this.
Going forward, as more and more investors understand that Blackstone has placed so many of its chips on real estate (even through its other categories), I expect its share price will act more like a leveraged bet on U.S. real estate... And that's exactly why I want us to be invested.
Buy Blackstone Group (NYSE: BX) today. Use a 33% trailing stop. Sell half once you're up 100%.
Blackstone is the best way to get invested in residential real estate through the stock market – with significant upside potential.
It has a track record as one of the greatest investors ever. It has put a huge pile of chips on real estate – buying more single-family homes than anyone. And the stock is incredibly cheap – trading at a price-to-earnings ratio of less than five (based on consensus 2014 estimates). It also pays a dividend that should increase to 10% (based on today's stock price) by 2014.
Good investing,
Steve
Editor's note: Steve says there's another investment strategy that will more than double your money in the coming years. This strategy is beyond the reach of any government or corporation. Many of the world's wealthiest families have used it to grow their fortunes for generations. Steve says this investment is a form of money prized for its safety, anonymity, and profit potential. It's like gold, only better – with the potential for much higher returns. Get the details here.