The Stock Market’s Resilience Amid Concerns
The stock market continues to climb a wall of worries, concerns, and negative expectations. There are plenty of concerns to go around:
- Some folks are worried about the economy slowing down.
- Others are concerned about the economy heating up and reigniting inflation.
- We have two wars, one in the Middle East and, of course, the ongoing conflict in Ukraine that could easily ignite into much larger conflicts.
- We face an election where any sense of economic sanity from any candidate for higher office has flown out the window, never to be seen again.
- Corporate valuations are at the upper end of historical ranges, and many companies appear to be priced for perfection.
I could go on, but you see the same talking heads and instant experts in the media and on the Internet as I do.
If you embrace all the noise and madness, you will quickly drive yourself insane. Focusing on the maybes could cause you to lose a lot of sleep, which could happen as the world presents itself each day. Avoiding speculative worries and maintaining a calm and composed mindset is important.
As Twin Momentum Investors, we prefer to deal with what is in front of us and what happens instead of obsessing over what might happen. The market has been trending up since early 2023, except for a one-week blip in October 2023.
When the market is in a powerful long-term uptrend, we want to own high-momentum stocks regardless of what the muttering morons of mediocrity and talking heads have to say. We want to own companies that are exhibiting signs of financial excellence. We want the companies we own to be growing at above-average rates and to have the potential to keep doing so. We want company shares to be under continual buying pressure from large institutions that are anxious to participate.
KKR: A Dominant Player in Alternative Investments
One company perfectly positioned in the current market environment is one of the dominant players in the alternative investments industry: KKR (KKR). KKR has been around since 1976 and is the stuff of legends. Books and movies have been made about the company’s deals and adventures over the last 50 years.
The firm has grown beyond leverage buyouts (although they still do plenty of those). KKR also invests money for itself and its clients in infrastructure projects around the world, real estate, and private credit. It is the last one that will help continue to drive earnings as institutions and individuals alike search for higher sources of income as rates decline.
The private credit industry has grown rapidly over the past decade, with estimates suggesting that it is now a $1.5 trillion asset class globally. According to industry reports, the sector has grown at an annual compound growth rate of roughly 10% to 12% in recent years. This pace is expected to continue or even accelerate as demand for non-bank lending rises due to regulatory restrictions on traditional banks and increased interest in alternative investments from institutional investors.
KKR’s opportunity to grow earnings through the private credit business is enormous, particularly as the market for private credit has been expanding rapidly. With traditional banks pulling back from certain types of lending due to regulatory constraints and economic uncertainties, institutional investors like KKR have stepped in to fill the gap. This creates a favorable environment for private credit providers to deploy capital into middle-market companies, leveraged buyouts, and other debt structures with higher yields.
Analysts expect KKR to grow earnings by a blistering 20% annually over the next five years.
In addition to private credit, the commercial real estate market opportunities are also enormous. KKR’s real estate business is run by long-time dealmaker Ralph Rosenberg, whose mantra is “Fear is your friend.” The firm has been moving quickly to take advantage of what it sees as mispricing in multifamily and office real estate. The firm is also a large owner of industrial and warehouse properties that will be major beneficiaries of the continued rise of e-commerce and the reshoring of American industry.
The incentive fees KKR stands to receive when they sell the real estate they are buying at bargain basement prices today should be enormous.
KKR has consistently earned high returns for its investors. Lower interest rates will attract the attention of large endowments and pensions seeking answers to their funding problems, and the alternative strategies offered by KKR will be a popular choice.
Institutions are enamored of the growth potential, and their buying pressure should continue to push the stock higher as long as an uptrend is in place.
You can buy shares of KKR up to $143.