Wall Street Leaning on Private Equity Stocks for a Productive 2018
In the previous year, the US stock market has heavily relied to the huge performance of technology stocks. The tech sector served as the main catalyst of Wall Street’s notable surge in 2017, which saw the three major indices smashing record highs after record highs.
Sad part is, they are all a thing of the past now and Wall Street has ridden the waves of President Donald Trump highly-anticipated tax cut, only it was enough to bail the stock market out of the correction phase seen in the onset of the current year.
With tech shares taking the back seat, perhaps, it is time for a new protagonist to steal the limelight as the equities market look to bounce back from a disappointing first quarter.
Changing the Tides
Maybe it is time for investors to get over with the technology stocks. The likes of Apple, Amazon, Microsoft, and Facebook may have remained a big force in the stock market but the tides of volatility are heading towards their directions.
Of course, one would normally go for bigger stocks for alternatives. Goldman Sachs, the giant investment firm for instance, is a no brainer choice for investors to own a share. The bank currently holds an approximate $100 billion market capitalization.
On top of that, the firm has a stable track record in the past years, with an $8 billion net profit tallied last year coming from a revenue of $32 billion. What is more glaring is that its return on equity posted more than 10% or its highest RoE level since the 2009 financial crisis.
But the 10% RoE remains to be far from the 30% returns a common investment bank offer and clearly below the 20% offered by the private equity shares – the stocks that is believed to be scorching hot in 2018.
The likes of Carlyle, Blackstone, Apollo, Ares, Oaktree,and KKR form a formidable group of worthy investments traders must take a look at.
In 2017, these stocks registered an aggregate income of more than $9 billion from a revenue of over $19 billion. Its return of equity spiked to over 20%. A pretty impressive figure compared to Goldman Sachs’ 10% from $32 billion income.
Investors would be more confident in putting their money to these private equity stocks for many reasons one being debt free as these companies use net cash basis for its operation while their assets are steady for the next decade.
An interesting development might loom as these private equity firms are studying the possibility of transitioning to ordinary corporate firms in Wall Street brought by the impact of tax reform, which slashed corporate tax up to 35%.
If that happens, investors might benefit from the conversion as dividends will be solely set by these PE firms. On their own side, they can have extra power to distribute their capital to new allocations like going for direct investments.
Wall Street can be waging a different war this year but if investors start to pay more attention to private equity stocks, the stock market might end up winning.