This could be an outstanding buy for more aggressive growth and income investors. KKR & Co. L.P. (NYSE: KKR) is a leading global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit and hedge funds. It aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people and driving growth and value creation at the asset level. KKR invests its own capital alongside its partners’ capital and brings opportunities to others through its capital markets business.
Jefferies makes the case that about 70% of the company’s stock value is accounted for in book value, in which the firm expects to see solid growth in over the next three to five years. Over the past five years, KKR has tripled the number of strategies it offers and more than doubled capabilities within the capital markets segment. While the distribution is being cut, Jefferies feels that the capital that is retained will lead to higher growth rates in the future.
KKR investors currently receive a 10.03% dividend, which dropped to a fixed quarterly distribution of 16 cents per unit for 2016. That translates to a still solid 4.43% at current prices. Jefferies initiates the stock with a Buy rating and a $20 target price. The consensus price objective is $23.27. The stock closed most recently at $15.23.
Western Alliance Bancorp
The Jefferies team likes this top small-cap bank. Western Alliance Bancorp. (NYSE: WAL) is one of the fastest-growing bank holding companies in the United States. Its primary subsidiary, Western Alliance Bank, is the go-to bank for business. It succeeds with local teams of experienced bankers who deliver superior, personalized services and a full spectrum of deposit, lending, treasury management and online banking products and services under the Alliance Bank of Arizona, Bank of Nevada, Bridge Bank, First Independent Bank and Torrey Pines Bank banners.
Jefferies says that despite slower-than-expected loan growth, the bridge loan business remains good and the company’s access to the Silicon Valley economy, which is booming, is a big positive. Despite a so-so third-quarter report, company management is comfortable with current guidance, and the net interest margin is expected to rise regardless of any action taken by the Federal Reserve.
The $41 Jefferies price target compares to a $38.67 consensus target. The shares closed on Tuesday $36.73.
These stocks could be great portfolio additions for 2016. They have outstanding upside potential and somewhat limited downside at this juncture. That is appealing for investors who have suffered a difficult 2015.