Were recent strategic acquisitions a bull case for the company?

We recently created a list The 10 best Robinhood stocks under $20. In this article, we will take a look at where Blue Owl Capital Inc. (NYSE:OWL) compares to other Robinhood stocks.

The market reacted positively after the Federal Reserve meeting on June 11-12. The record in the broader market was closed. At a June 12 news conference, Fed Chairman Jerome Powell emphasized the Fed’s focus on its dual mandate of achieving maximum employment and stable prices. While the labor market remains strong, with continued job growth and low unemployment, inflation has declined significantly from its peak but remains above the 2% target, currently at 2.7%, and the Federal Open Market Committee (FOMC) believes that is still high.

Key events

The Fed chairman reported that GDP growth slowed from 3.4% in the fourth quarter of 2023 to 1.3% in the first quarter of 2024. However, underlying demand, as indicated by private domestic final purchases, increased by 2.8%. Consumer spending has declined but remains solid, and investment in equipment and intangible assets has also improved. Moreover, the labor market is balanced – in April and May, job growth averaged 218,000 per month, and the unemployment rate was 4%. Inflation measured by PCE prices increased by 2.7% in May, with core PCE increasing by 2.8% and CPI increasing by 3.3%, and core CPI was 3.4%. Ultimately, the FOMC decided to keep the federal funds rate unchanged at 5.25% to 5.5% and continue to reduce its securities portfolio in order to control inflation.

Powell emphasized a cautious approach to policy adjustments. The President said that while some progress had been made towards the inflation target, more data was needed to ensure a sustained decline in inflation towards 2%. The Fed will continue to evaluate economic data and adjust policy as necessary to support its dual mandate. He reiterated his commitment to restoring price stability to ensure long-term economic health. The Fed chairman noted that the median projection of the federal funds rate by FOMC participants is 5.1% by the end of 2024 if “the economy continues to grow as expected.” Nevertheless, Jerome Powell stressed that the forecasts are not a guarantee and will depend on data in the coming months.

CME’s FedWatch tool shows that 35.8% of the market expects interest rates to remain unchanged in September, 59.2% expect a 25 basis point (bp) cut, and 5% believe in a 50 bp rate cut. These numbers have increased significantly in favor of interest rate cuts since we wrote about them on May 31 in our Top Growth Stocks article.

The story continues

After a long wait, the Fed has finally hinted at potential interest rate cuts in September, which creates plenty of opportunity in the market. Let’s look at some now.

Our methodology

For this article, we used the app to identify over 100 stocks with a market capitalization of $2 billion that were trading below $20 as of June 12. We narrowed our list to stocks with positive hedge fund sentiment, analyst ratings and a bullish outlook and selected the 10 stocks with the most institutional investor presence.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the best stocks of the best hedge funds. As part of our quarterly newsletter strategy, we select 14 small- and large-cap stocks every quarter, and since May 2014, we have returned 275%, outperforming our benchmark by 150 percentage points (see more details here).

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Blue Owl Capital Inc. (NYSE:OWL)

Number of hedge fund holders: 40

Share price as of June 12: $17.64

Blue Owl Capital Inc. (NYSE:OWL) is a New York-based asset management company that provides fixed capital base solutions, direct lending products, liquid lending and strategic GP capital products, among others. In the first quarter, Blue Owl Capital Inc. (NYSE:OWL) was owned by 40 hedge funds and had a stake of $443.136 million. The company’s largest investor is Kinetic Partners Management, whose position as of March 31 is $69,600 million.

Blue Owl Capital Inc. (NYSE:OWL) is one of Robinhood’s best stocks under $20 as its assets under management (AUM) and revenue have continued to grow since it went public. In the first quarter of 2024, the company’s AUM increased 21% year-over-year to $174.3 billion, and its revenue increased over 31% to $513.34 million. Over the past three years, the company’s revenue has recorded a compound annual growth rate of 81.76%.

Blue Owl Capital Inc. (NYSE:OWL) has also shown strong fundraising capabilities recently. The company managed to raise $5.2 billion for its latest triple net leasing fund, which in 2023 was the largest US-focused real estate fund. Gross flows to continuously distributed products were $2.1 billion in the first quarter in the wealth channel, up 16% from the prior-year period. Moreover, the company has closed $1.4 billion of institutional capital in its direct lending business, and GP’s new mid-cap strategic capital strategy raised more than $0.5 billion in the first quarter.

Blue Owl’s recent strategic acquisitions also make an argument for the company. The company acquired Kuvare Insurance Services for $750 million on April 3, 2024, adding $20 billion in AUM for Blue Owl Capital. The acquisition enables the company to leverage the $20 trillion global life insurance and annuity market by providing end-to-end insurance asset management solutions. On June 7, the company made another acquisition to strengthen its real estate lending capabilities. It acquired Prima Capital Advisers, adding another $10 billion to Blue Owl’s AUM.

Although the Blue Owl Capital Inc. Index (NYSE:OWL) seems very high (145x compared to the industry average of 20x), the company is expected to significantly increase its earnings over the next few years. The company’s earnings are expected to increase by 575% in 2024 compared to the previous year and by another 26% in 2025.

Blue Owl Capital Inc. (NYSE:OWL) has a consensus rating of Buy among 12 analysts, and the $21.45 average price target represents an upside of 21.6% from its current level as of June 12.

Overall, OWL ranks 9th on our list of the best Robinhood stocks to buy. You can visit The 10 best Robinhood stocks under $20 to see other Robinhood stocks that are on hedge funds’ radar. While we recognize OWL’s potential as an investment, our belief is based on the belief that AI stocks have a better chance of delivering higher returns in less time. If you’re looking for AI stocks that show more promise than OWL but trade at less than 5x earnings, check out our report on cheapest AI stocks.

Read further: The analyst sees a new “opportunity” for NVIDIA worth $25 billion AND Jim Cramer recommends these 10 stocks for June.

Disclosure: None. This article was originally published on Insider Monkey.