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

NEW YORK (TheStreet) -- It seems just about everyone is clamoring to get a piece of the action in real estate these days. KKR (KKR) said Wednesday it's starting its first-ever real estate fund, and the company will spend $500 million, initially, on investments.

Earlier in the week, another private equity firm, Blackstone ( BX), said it's now the largest owner of single-family homes in America.

Individuals trying to get deals on bargain-basement homes are competing with the big boys. And the deals are disappearing fast. In addition, many people still have damaged credit that keeps them out of the rebounding market.

The good news is that you don't have to have a checkbook with $500 million in it or pristine credit to get in on the burgeoning boom.

In the accounts I manage, I have a lot of exposure to real estate. I have written numerous articles over the past year on different ways that even individual investors without a lot of money can play the rebound in housing.

In my article yesterday, I referred to an August 2012 story about Home Depot. That's when I added it to my conservative growth model portfolio. The stock is up about 25% since then.

I wrote another article in October about how the building sector was the hottest of any industry. I singled out housing mutual funds like FSHOX, exchange traded funds like XHB, and some individual stocks that I liked at the time.

I recently wrote a story about an all-star small-cap stock by the name of Lumber Liquidators ( LLl). It continues to hit new highs.

Today, I am going tell you how you can become a land baron no matter what your credit rating is: Consider buying Blackstone stock.

Before we plunk down our money, let's have a walk-through first. You can listen to my analysis hereor keep reading.

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.

I send out several tweets daily on as many of those that I can find @billgunderson.

Blackstone is in a healthy uptrend, it's in the right sector, a top performer over the years, and it passes my valuation test.

When I compare Blackstone against all of the other stocks that I follow, it comes in at No. 246 overall and earns a Gunderson Grade of "A-." (I buy only stocks that are ranked "A-" or better.)

As always, there are no guarantees in the stock market. Even though I am long this stock, it is part of a well-diversified portfolio that is managed every day.

Data from Best Stocks Now App

At the time of publication, the author's clients were long BX, FSHOX, XHB and LL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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