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Gunderson's Play of the Day: Be a Land Baron

Stocks in this article: BX

The building sector continues to be one of the leaders in the market. It has been at, or near, the top for almost a year. I love trends in the market. Trends can be profitable. That is, until they break.

Data from Best Stocks Now App

Small and mid-cap equities are still highly ranked asset classes at the current time, and Blackstone fits into that mid-cap range.

Data from Best Stocks Now App

Headquartered in New York City, where you can now get a supersized Mountain Dew once again, the company has a market value of $23 billion. (The chart below shows the market cap excluding fully diluted units.)

Data from Best Stocks Now App

My first walk-through is the performance of the stock over the years.

Data from Best Stocks Now App

As you can see, the stock has outperformed the market by a wide margin over one, three and five years. It should be noted that the stock was down 67% in 2008 when the market was down 38.5%. However, when I compare the performance of Blackstone against the 3,200 stocks that I follow, it scores a performance grade of "A."

My second test is valuation. Performance and momentum is one thing, but valuation is a critical piece of the puzzle:

Data from Best Stocks Now App

The stock is currently trading at just 7.5 times next year's earnings estimates. It is expected to grow those earnings by 13.6% per year over the next five years. That means it's trading at a discount to its growth rate.

Blackstone currently has a PEG ratio of 0.55 and a juicy dividend yield of 8.6%.

Furthermore, when I apply a multiple that I deem to be appropriate to its five-year EPS estimate, I establish a five-year price target that is still is a great deal higher than the current price. The stock passes my valuation test.

The third part is a visual test. I never buy a stock without first checking a one-year chart:

I never buy stocks that are in downtrends. I don't really like sideways trends either. Something needs to happen first. Is it going to break to the downside or the upside? I don't like to buy extended trends either. My favorite chart pattern is a fresh breakout.

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