SHORT STORY: WILL BLACKSTONE STAY RED?

Yes that Blackstone Group (BX) is red. Yes that Blackstone Group, the New York-based buyout shop, run by the little giant CEO Stephen Schwarzman. Twenty-two percent in the red from it’s IPO price of $31. Well maybe less now, it’s up 5% today with this crazy market up over 100 points for the second day in the row. Now where do it goes from here? Do you bottom fish? Let’s look into this:

The Good (sorta):

It is the best run private equity fund in the world. So good that China thinks it’s a darn good idea to invest in it. Or perhaps China just wants to learn the buyout trade to take over America! Ok enough of this conspiracy thinking because China is our friend, right? Anyhow there were a rash of upgrades but most of them were from the same banks that had a hand in the IPO. Fishy aye. Citibank analyst said that it’s assets total 88 billion while controlling over 16 billion of disposal cash makes this a compelling by. Citibank had a hand in the IPO of course. But yet we have to keep in mind that Blackstone does make stellar returns and it’s much more flexible than a holding company like the great Berkshire Hathaway (BRKA) and less bank than Goldman Sachs (GS) or Bear Stearns (BSC); perhaps giving it the advantage of both.

The Bad:

It’s down here for a reason. With more private equity or LBO shops becoming profit, the market for them is becoming thin. So if you want to buy a LBO stock, you’ll have more options with Fortress (FIG) out there but Kolberg Kravis Roberts & Co. and Carlyle Group rumored to go public as well. Also there is this financial sector breakdown that is happening because of mortgage breakdowns causing tighter corporate rates for LBOs and corporate borrowing.

The best thing may be to wait it out but Blackstone in the long term does seems compelling perhaps closer to $20 or so (that’s an arbitrary price – not chart to go from). You can’t argue that they aren’t smart. Purchase of Equity Office Properties (EOP) and flipping the majority of properties then keeping the best before the real estate breakdown. Linking up with China to become the only private equity to have truly direct access to China.

So what price do you think it’s a buy (if a buy at all)?