U.S. equity markets are down after the Federal Reserve chief made it clear that its bond buying program will slow down now. Meanwhile, concerns about shrinking manufacturing in China failed to offer any help to markets. This scenario cannot be seen as positive for equity markets but it also does not mean there are no options left. Investors can take a look at private equity firms such as Oaktree Capital Group LLC (NYSE:OAK), Fortress Investment Group LLC (NYSE:FIG), and Prospect Capital Corporation (NASDAQ:PSEC).
Oaktree Capital Posted $107.8 Million Net Profit
Oaktree Capital Group LLC (NYSE:OAK) is a global investment manager specializing in alternative investments. The company had $78.8 billion worth of assets under management as on March 31, 2013. Oaktree thrives by identifying and capitalizing on opportunities for attractive investment returns in less efficient markets through investments in distressed debt and corporate debt. As is evident, drying capital availability in the markets may push some companies into distress which would be a beneficial scenario for Oaktree Capital Group, which also generates revenues by managing assets of large global institutional investors including 75 of the 100 largest U.S. pension plans. During 2012, the company swung back from losses and posted a net profit of $107.8 million and continued the trend in the first quarter of 2013 with net income jumping threefold to $57.6 million. On a forward earnings basis, Oaktree is priced at 10.2 times while still offering a dividend yield of 10.9 percent.
Odey's Brook Absolute Return Fund was up 10.25% for the third quarter, smashing the MSCI World's total return of 2.47% in sterling. In his third-quarter letter to investors, which was reviewed by ValueWalk, James Hanbury said the quarter's macro environment was not ideal for Brook Asset Management. Despite that, they saw positive contributions and alpha Read More
Prospect Capital Dividend Yields
Similarly, Prospect Capital Corporation (NASDAQ:PSEC) offers an excellent dividend yield of 12.6 percent at current market price of $10.5. This financial services company’s main business is to lend and invest in middle market privately held companies. Financially, the company has a strong track record right from 2009 when most other companies were struggling. From a top line of $100.5 million in 2009, Prospect Capital has grown to become a company with annual revenue of $320.9 million in 2012. In the nine months of fiscal 2013, the company has already crossed this milestone with total investment income of $409.8 million and net investment income or profit of $232.8 million. The stock currently trades at an attractive forward price earnings multiple of 8.2. Prospect Capital has a reasonable debt equity ratio of 0.55 and yet its stock trades at a discount to its book value at a time when strong and profitable companies are trading at exorbitant valuations.
Fortress Got a Fort Out There
New York based Fortress Investment Group LLC (NYSE:FIG) is another investment management firm with strong fundamentals. Unlike many of its peers, this private equity company has a low debt equity ratio of 0.16 – something that can be seen as overly simplified. However, this low reliance on debt comes as a handy tool when a company has to navigate through tough times. When capital becomes scarce, companies with high reliance on debt witness margin contraction. On the contrary, Fortress saw its net profit margin expanding nearly 5 percent in the quarter ended March 31, 2013 to 27.5 percent on a sequential basis. For the full year 2012, this figure stood at 22.5 percent. Revenues also saw a 50 percent jump during the period to $191.2 million. Fortress Investment’s stock has gone up more than 60 percent so far this year and still has ‘Buy’ and ‘Overweight’ ratings from analysts. It is not difficult to see why this is so as its forward price earnings ratio of 9.5 screams undervaluation. At the same time, the stock offers a dividend yield of 3.5 percent.
Overall, private equity is not a direct play on drying liquidity. At the same time, it is not difficult to see how private equity players stand to benefit from the move as growth capital becomes scarce. Buying rich dividend stocks is an “all out” approach.