The Berlin Wall was the symbol of the “Iron Curtain,” separating the free from the oppressed.
But do you ever think about the “Iron Curtain” between individual investors and more privileged investors?
On one side there are individual investors who are receiving second-hand, conventional, and uninspiring advice – driven by marketing and public information.
On the other side of the wall there are investors – such as family offices and hedge funds – who demand private, timely, on-the-ground investment intelligence. They expect a global perspective coupled with local acumen.
One way to get exposure to private equity is through a publicly traded private equity company. And, they don’t get much better in terms of talent and performance than The Blackstone Group L.P. (BX), which offers both size and diversification.
Blackstone’s business is mainly asset management and private equity. Its private equity business is where investors tie up their capital for as long as 10 years for a chance at outsized returns. Blackstone earns steady management fees and, when markets cooperate, enormous performance fees.
With private equity out of favor right now, Blackstone stock has pulled back 26.4%, offering a great entry point for value investors. More importantly, it offers a 9.4% current dividend yield and $80 billion in undrawn capital that can be put to work with stakes in companies that offer great value in our uncertain markets.
Right now, Blackstone is trading at $25 a share – or about 14 times expected 2016 earnings. A smart move would be to begin building a position in Blackstone now, which will do well as the private equity cycle turns.
Put Intelligence to Work
Another way to tear down the wall is to look for, and then act on, market intelligence.
Seeing that China as well other hybrid automakers are scouring the globe for lithium, a key ingredient in lithium batteries, I identified the best lithium proxy investment: the Sociedad Quimica y Minera De Chile (SQM).
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Each year, Sociedad produces more than $2.5 billion worth of specialty plant nutrients, iodine, lithium, potassium chloride and potassium sulfate, industrial chemicals, and other commodity fertilizers. The company has long been a darling of global investors looking for plays on the “Singapore of Latin America,” as well as the need for more productive farmland.
Sociedad is also one of the world’s largest suppliers of lithium, producing about 35% of the world’s lithium, which makes up 5% to 10% of the company’s top line revenue.
With the global slowdown, SQM stock has been off 32% over the last year, but is up 15% in the last month, as lithium prices have skyrocketed with buying pressure from China and other countries and companies, all of which are trying to secure supply for their growing hybrid auto-manufacturing.
The big bonus looking ahead is SQM’s core business, as food and food productivity become an increasingly important matter for much of the world.
Farmers have a daunting task ahead of them. Over the next 50 years, they must produce more food than they have in the past 10,000 years.
The combination of a growing global population, a rising middle class that is hungry for more protein, fruit, and vegetables – combined with less productive land – have many wondering how we’re going to feed everyone.
In short, a growing global population equals higher demand for fertilizer products that could boost yields.
With the likely decrease in potash prices, some farmers using this premium product will likely switch for a year to the low-priced spread, and SQM will feel some pain. But the company is also the world’s No. 1 producer of specialty chemicals.
Sociedad has a strong balance sheet with more than $1.2 billion in cash reserves, and a dividend yield of 3.8%. Farmers need its products to continue to boost productivity, with some believing that fertilizers account for more than 40% of increased agricultural yields over the last decade.
Rather than follow the masses, why not go “over-the-wall” and invest with timely, on-the-ground investment intelligence?