BlackRock, Blackstone Worth the Price in 2014

NEW YORK (TheStreet) -- Few investment sectors capture my imagination like the one that includes BlackRock (BLK) and The Blackstone Group (BX). These two powerhouses are all about managing assets, investing those assets profitably, and getting paid well for those services.

BlackRock has over $8 trillion (trillion, with a "t") under management or advisement which makes it bigger than any sovereign wealth fund, private-equity firm, bank or insurance company on the planet.

According to The Economist, if you take all the world's private-equity and hedge funds and combined their assets they'd be about the same size as the total assets (primarily in the form of equities) controlled by BlackRock. Makes sense when one realizes that it's the biggest shareholder of 15 of the world's 30 largest companies, including Apple (AAPL), Exxon Mobil (XOM) and General Electric (GE).

Since it acquired a nice chunk of Barclays (BCS) investment products division, BlackRock has become a tour-de-force in exchange-traded funds and other passive investment products. The Economist pointed out that these products now account for about 64% of BLK's assets under management.

What's more, BlackRock's colossal Aladdin risk-management data center has some form of influence over 170 pension funds, insurance companies, banks, endowments and the like. BlackRock also (for a fee or entry price) lets money managers who oversee an additional $11 trillion use this mindboggling risk management platform.

So the good news for BlackRock and its shareholders is that, according to the firm, a meaningful percentage of "companies, organizations, and global governments come to BlackRock for unbiased advice on complex capital market exposures, help developing investment strategies and comprehensive investment management technology, all anchored by [their] core expertise in understanding and managing risk [Aladdin-style]."

The scary news for all investors is that if about 7% of the world's $225 trillion of financial instruments is impacted by folks who manage multiple risks using the same risk management information system, what if Aladdin doesn't end up being accurate on one of more of the big risks criteria. Would this be a recipe for yet another worldwide financial fiasco?


So far, investors don't seem too concerned about the situation, and shares of BlackRock are just $9 below its 52-week high of $323. This global apex of investing will step into the earnings confessional on Thursday, January 16th, and the analysts community estimates that on average BLK will report earnings-per-share (EPS) of about $4.35 for the most recent quarter compared to $3.96 in the year-ago same quarter.

When it comes to sales growth and revenue, the average estimate from analysts is a quarterly increase of over 6% to nearly $2.7 billion. That would translate to an annual revenue increase of over 8% to about $10.10 billion. If you're an investor or a potential one you'll want to know that BLK said it will release its fourth quarter and full year 2013 earnings before the market opens on January 16.

Below is a visually-powerful way of seeing how the share price has performed over the past 5 years, or, since the last major stock market bottom.

BLK Chart

BLK data by YCharts


From a shareholders perspective, the other similarly named, publicly owned investment management company, The Blackstone Group, has had an amazing 5-year run as the chart below clearly illustrates.

BX Chart

BX data by YCharts

Shares of Blackstone have more than doubled since the beginning of 2013. In a nutshell, that's because it managed to capitalize on bargain-basement investment opportunities and then capture its profits in a timely manner.

On Dec. 11, 2013, Blackstone pulled in close to $1 billion by reducing its exposure to SeaWorld Entertainment (SEAS) and selling some of its other holdings. On the same day, another investment, Hilton Worldwide Holdings (HLT), went public after a six-year absence. This means Blackstone will likely be cashing in on its savvy investment in the operator of hotels with the famous Hilton brand name.

CEO Stephen Schwarzman has publicly acknowledged that BX has taken full opportunity from the Fed's low interest rate policies. Those monetary policies have helped goose stock prices to record levels in the past 12 months.

The firm also bought and sold residential and commercial real estate with favorable outcomes during the last few years, and along with its investments in corporate debt offerings, helped it to return close to $10 billion to investors in 2013.

Blackstone pays nearly a 3% dividend and has a good track record for being able to sustain and even raise that level. Standard & Poor's Ratings Services raised its issuer credit ratings for Blackstone to A+. Blackstone remains the highest-rated alternative asset manager.

It will report 4th quarter results sometime between January 27 and January 31 (to be announced). Analysts are looking for evidence of around an 8.5% EPS increase and a nearly 13% increase in sales growth and revenue. That would bring the annual revenue growth to almost 20% at $6.3 billion.

Look for 2014 to be yet another good year for both BlackRock and Blackstone. For those of us who aren't yet invested, let's hope for a mini-bear market or some kind of meaningful correction soon to give us a more tempting entry price.

I'll be looking at an in-the-money mini-option contract possibility for BLK since its shares are so pricey, or I might start buying 10 shares at a time so I can collect the dividend. BX would be attractive at under $30, and I want to own some of its shares. Either way I'll use a trailing stop loss for my risk management.

At the time of publication the author had positions in AAPL but not any of the other companies mentioned in this article.



This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial writer and editor, he specializes in unique investment strategies, growth with income stocks, overlooked investment themes, tax-advantaged themes, risk management, technologies to capture gains and reduce losses, real estate related opportunities,effective wealth preservation techniques, and the use of ETFs for diversification and asset allocation. He also follows and frequently writes about technology, health sciences, energy and resource companies. Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

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