Cramer: This Financial Is a Buy
Investment banks have been "hobbled" by financial regulatory reform, Cramer said Monday.
Goldman Sachs is an investment bank on the sell-side, meaning it sells merchandise, Cramer said. Firms like Goldman had typically acted as agents for buyers, but then began trading for their own accounts, too. It started to buy companies and take businesses private, which is called buy-side activity. Following the financial meltdown, Congress deemed this kind of activity to be dangerous and outlawed it, he said. When lawmakers stopped Goldman and other sell-side players, asset management companies were left with a lot of new business.
In this new environment, Cramer likes Kohlberg Kravis Roberts & Co. , a private equity firm that specializes in acquisitions, leveraged buyouts, management buyouts and mezzanine investments in large cap companies. Cramer prefers KKR to rival The Blackstone Group because it's a "pure play" on private equity. Eighty-five percent of KKR's earnings comes from private equity. KKR currently owns 62 companies with $200 billion in aggregate annual revenue. It has 900,000 employees in 15 industries and 18 countries. In the last fundraising cycle, it raised $28 billion and still has $11 billion that hasn't been spent.
In its latest earnings release, KKR delivered $1.02 in earnings per share, which is a 39 cent beat. Executives were positive about the future and committed to paying out almost all of its net eanrings to unit-holders in the form of a big distribution. It currently yields 6.7 percent based on its 29 cent fourth-quarter payout, but that could change being as the distribution is determined by how well the company did each quarter. Cramer thinks the company will continue to perform well in this environment, so the payout could go even higher.
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