Here we go again.
Let's be clear: We're already in the middle of a deep recession. The market's Thursday sell-off, fueled by concerns about reopening the economy and a resurgence of COVID-19 infections, simply brings stocks more in line with an unpleasant economic reality.
The resurgence of fear and uncertainty will push investors to the sidelines again. This will create new opportunities for "smart money" - investors who know how to play the long- and short-term impacts to maximize our gains.
Today we're going to look at a little-understood industry positioned to reap massive gains because of the Coronavirus Recession...
This Sector Will Thrive After COVID-19
Until Thursday, the stock market had been skyrocketing. But that upward surge hid the steep decline in many businesses in struggling sectors like media and entertainment, and real estate.
Private equity (PE) firms have been rushing in to buy businesses on the cheap with the intention of restructuring and supporting these companies until the economy improves. They can be sold then for multiples of the prices PE firms have paid for them.
Private equity funds formed during difficult years like 2002 and 2008 enjoy much higher long-term returns than those PE firms that formed during boom times.
That's no coincidence.
Now, while it's true that most of us lack the liquidity required to directly invest with the giants of private equity, anyone can make a lot of money by aligning their capital with private equity.
What's more, there are several publicly traded private equity firms where we can buy shares.
These firms will earn a percentage of the profits earned by the funds as well as management fees every year the fund exists.
So we'll take part in those gains by owning the stock. The higher returns will generate higher fees, which will help drive the stock price of these firms a lot higher over the next several years...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Play the Trend
One of the most aggressive firms since the pandemic hit the U.S. economy has been Apollo Global Management Inc. (NYSE: APO).
The company has been on a buying spree since February, targeting some of the hardest-hit industries like travel and energy. It bought back massive amounts of the debt of current portfolio companies and increased the stock buyback plan by $500 million.
Time-Sensitive: Right now, Tom is taking a handful of our readers under his wing and showing them exactly how to use this strategy for INSTANT CASH. (How much? In this video, Tom collected $14,288.)
Apollo said on its last conference call that the private equity funds it manages were going to adopt a debt-for-control approach while the U.S. economy was in disarray.
Apollo is making loans to companies having a difficult time. If they get paid back, that's very positive.
Distressed lending naturally offers much higher interest rates than most loans; they're risky, after all. If they do not get paid back, they will take control of the company, and operate the business until the economy recovers. Then they will sell those companies for enormous profits, part of which belongs to us as owners of the stock.
Apollo's dividend policy is structured, so we get our share of the cash quarterly. Apollo pays out substantially all of its distributable earnings after taxes and related payables above amounts determined by the executive committee of its board of directors. There is a minimum dividend of $0.40 a share to make sure we are always getting paid.
I suggest you reinvest that dividend every quarter to keep increasing your ownership of this private equity powerhouse.
Apollo has a huge advantage when it comes to credit and distressed investing. The three co-founders Leon Black, Josh Harris, and Marc Rowan worked as investment bankers at Drexel Burnham when Michael Milken was in the process of inventing the modern-day high yield bond market. They have used that knowledge along with a commitment to a value-oriented style of appraising and buying businesses that helped then grow Apollo into a $316 billion alternative investment leader.
The Long of It
Buy Apollo Global Management and get ready for a flood of cash to pour in as businesses bought at low valuations in the current recession are eventually sold for massive profits.
Buy the stock at $48 or less with the intent of holding for at least five years. In addition, consider using dollar-cost averaging in order to build your position and expand your upside potential.
You will be collecting cash from the company every quarter based on Apollo's profits; it's an easy stock to hold for a long time.
The Risk and Reward
With the markets frothy, despite the plunge on Thursday, one of the key concerns in the market is the potential that we see another race to cash once again. The prospect of bank implosions and bankruptcies at the corporate level remains a real threat. PE firms could face broader market exposure and threats due to any downturn. However, the use of dollar-cost averaging will help boost your position and mitigate short-term uncertainty. Don't bet against PE in the long term.
The Short of It
The stock market had been climbing steadily since April. Thursday's pullback could be a one-day aberration, or the start of a wider sell-off. Either way, let's position ourselves to benefit.
Look to sell the APO July $45 put for $1.50 or more. Thursday's sharp decline could produce an opportunity to lock in the opportunity to purchase 100 shares on the cheap. We'd generate a 3.3% gain in the short term, but look to buy back the put option if shares move back to $50.
However, if shares continue to slide and the stock is put to us, this is great news. We are able to lock in a stock we want to buy at the price we're willing to pay.
We want to own the stock anyway. If it is not put to us, sell the short-term put again and keep collecting premiums for aggressing to buy a great stock at a lower price.
The Risk and Reward
This trade is a cash-secured put. This means that you will need the capital to purchase 100 shares of APO stock with every put contract that you sell. The risk is that the stock falls under $45 and slides under the $43.50 level. That is your breakeven price based on the combination of the entry price and the put value.
If the stock falls to $43 in July, you would still need to purchase the stock at $45.00. With that in mind, we are taking calculated risks to target a price entry point of our choosing.
And in the meantime, don't forget to check out my colleague Tom Gentile's instant-cash opportunity...
You see, Tom just dropped a brand-new way to see INSTANT CASH to the tune of $14,288 in his account, courtesy of Microsoft.
The catch? To start, he didn't buy or short Microsoft. He simply exploited a unique opportunity that exists in the markets right now. See it for yourself right here...
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.