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Adding $500 to These 2 Stocks Would Be a Genius Move Right Now - The Motley Fool

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Market sell-offs are often a great time to add to existing positions. You already know the stock well and can now buy even more shares of a high-conviction investment at a better value.

Blackstone (BX 3.43%) and Prologis (PLD 3.37%) have taken big hits during the current bear market, though they're doing well. Because of that, a smart move right now would be to add about $500 to your investment if you already own shares (or consider adding them to your portfolio). That small investment could pay big dividends in the future as these companies continue growing their earnings, and their stock prices recover.

Significant income and upside potential

Shares of Blackstone have fallen around 40% since the start of 2022. That's despite a fantastic year by the leading global alternative asset manager.

The company has grown its assets under management (AUM) by 30% over the past year to more than $950 billion. That has driven robust growth in fee-related earnings, which have rocketed 50% over the past year to more than $3.3 billion. Meanwhile, total distributable earnings -- fee-related earnings and net performance revenues -- have risen 36% to nearly $5.3 billion.

Blackstone's AUM, fee-related earnings, and distributable earnings should continue growing. Investors are increasingly allocating more of their portfolios to alternative investments and should continue. Preqin expects the global market for alternative investments will grow at a roughly 12% annual rate, nearly doubling over the next five years to $18.3 trillion. As the world's leader in alternatives, Blackstone should capture an outsized share of this growth, especially given its superior brand reputation.

That should enable the company to continue growing its sizable dividend. Blackstone has paid out $4.94 per share over the past year, giving it a 6.5% dividend yield at its recent share price. Add that dividend income to the company's growth potential and Blackstone could produce market-crushing total returns in the coming years as its stock recovers from its swoon in 2022.

Significant built-in growth potential

Prologis' stock has lost more than a third of its value from its peak early last year. That steep decline came even though the leading industrial REIT continues to benefit from the nearly insatiable demand for warehouse space.

Occupancy across the company's portfolio remained near an all-time high at 97.7% in the third quarter. With limited vacancies across its markets, rental rates skyrocketed 59.7% in the period as existing leases expired and it signed new ones at market rates. These factors helped drive record growth in same-store net operating income (SSNOI) at 9.3%.

Prologis is only capturing a portion of the recent surge in rental rates due to the long-term nature of its leases. Thus, the company expects SSNOI to grow at an 8% to 10% annual rate for the next several years. That's assuming no further rent growth, which seems unlikely due to the continued strong demand for warehouse space amid tight supplies.

In addition, Prologis recently acquired its closest rival, Duke Realty, in a $26 billion deal. It expects the purchase to be immediately accretive to its earnings per share while driving incremental income growth in the coming years as it captures merger synergies. The company also has an extensive development pipeline to drive additional growth as that new warehouse capacity comes online.

These growth catalysts should enable Prologis to continue increasing its 2.8%-yielding dividend. The company has grown its payout at a 12% annual rate over the last five years -- double the pace of the S&P 500 and other REITs. That combination of income and growth positions Prologis to produce strong total returns in the coming years, especially off its lower valuation.

High probability of earning high returns

Shares of Blackstone and Prologis have been under lots of pressure over the past year, even though their businesses are thriving. Because of that, both companies should be able to continue growing their earnings and dividends at healthy rates, which should enable them to produce strong total returns, especially as their share prices recover. That highly probable upside potential makes them look like wise stocks to add to right now.

 

Matthew DiLallo has positions in Blackstone and Prologis. The Motley Fool has positions in and recommends Blackstone and Prologis. The Motley Fool has a disclosure policy.

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