Private-equity firms are having a tough year. At least, that is what the headlines are saying. The ClearChannel (CCU - commentary - Cramer's Take) deal is tied up in court. Transaction volumes are down big, falling 68% so far this year. The size of the deals are down as well, with the average deal being done for only about $210 million compared to the megadeals we saw in years past. Major banks have balance sheets plagued by leveraged-buyout loans they cannot syndicate. Several banks have dumped private-equity loans at large losses just to get them off their balance sheet in recent months. Credit for deals has pretty much dried up, and it is difficult for the firms to obtain the type of leverage that enabled them to earn out size returns in the past few years.
The few publicly traded private-equity firms have seem their stocks pummeled, as the outlook is perceived as gloomy. Investors hate the group and think the prospects are fairly bleak going forward. One group of investors disagree, however, and are putting their money where their mouths -- and beliefs abut the direction of the stocks prices -- lie. Corporate insiders are buying at several of these private-equity and financing firms.
Blackstone
Shares of Blackstone (BX - commentary - Cramer's Take) are up from their lows, but still well short of the highs reached following their initial public offering last year. They have had several high-profile deals fall apart this year, most recently the $6.76 billion buyout of Alliance Data Systems (ADS - commentary - Cramer's Take).
While I do not pay a lot of attention to the absolute level of analyst forecasts, there is a lot of research that shows that the direction of forecasts has predictive value. In the past 90 days, analyst forecasts for Blackstone's quarter and full year have plummeted. Director William Parrot would tend to disagree with the gloomy forecast, as he has been buying shares since November. Institutional shareholders appear more bullish than the forecasts as well, raising their holdings by three million shares in the latest quarter.
At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.
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