OK. I know I’ve been on a bit of a thematic rant about investing ahead of tax reform. I’ve also touched on the current administration’s national infrastructure spending aspirations.

I think it’s worth staying on the tax reform path. However, it’s also time to look at the infrastructure theme again. I’ve found a way to follow both developments with one stock, AND get paid quite well in the process.

Investment giant Blackstone Group (NYSE: BX) has always been one of my go-to stocks for growth and income. Historically, both have been outstanding.

The stock has moved a stunning 54.5% in the last 12 months. Throw in the dividend and investors collected a blockbuster 65%. 

#-ad_banner-#After a run that strong, and what some pundits view as a toppy broader market, conventional wisdom might tell one to avoid owning this stock. I disagree.  

With a consolidated market cap of $41.3 billion, Blackstone stands out as one of the world’s premiere investment managers focusing on what’s known as the alternative space (i.e. NOT purely stocks and bonds). The firm operates four business segments: private equity, real estate, hedge fund solutions, and credit. Helmed by founder Steve Schwartzman, the company is poised to continue its long winning streak. A confluence of events will fuel Blackstone’s engine.

The first will be the nation’s regulatory environment. The new administration and a Republican-dominated Congress promise an easing of policies put in place by the Dodd-Frank Act, the legal reaction following the 2008 Financial Crisis. While Blackstone actually can operate a little less encumbered than traditional banks and brokers, an easier atmosphere is always a plus.

The second influence will be forthcoming Federal tax reform. A rollback in corporate and individual rates should spur capital investment among individuals and businesses. Buying chunks of closely held businesses, investing in real estate, and other non-traditional assets should increase when there’s more money around. The firm will also benefit from an improved corporate tax structure when selling assets.

The third event will be the long-awaited U.S. infrastructure improvement boom. During last year’s Presidential election, both sides touted their willingness to open the government checkbook to improve the nation’s aging roads, bridges, railroads, power grid, water systems, and anything else that’s big, publicly administered and built out of concrete and rebar. Republicans, traditionally, tend to gravitate toward public/private partnerships. Blackstone’s deep access to capital and expertise investing in non-traditional assets put them at the forefront of the boom.

The fourth and last event is demographics. Again, blame it on the baby boomers. As boomer business owners decide to punch out and retire, Blackstone’s private equity arm will be heavily involved in those business sale transactions. And, as retired boomers demand increasingly sophisticated investment diversification, Blackstone’s products will fill that need as well. 

Blackstone sails into this perfect storm with a rock-solid operating history. EBITDA margins are a mind boggling 81%. Return on equity is a solid 23.4%. Five-year average annual revenue growth is running at a stellar 30.4% rate while earnings per share have expanded at a 37.5% clip for the same period.

Risks To Consider: The biggest risk this idea faces is, of course, the failure of the administration to enact legislation. Trump’s legislative success has been anemic at best. He desperately needs a win. However, if significant tax reform and infrastructure spending doesn’t materialize, Blackstone will continue to execute well. There just won’t be as much wind at the company’s back as anticipated. The demographic trend, though, will continue for quite a while and the company will, indeed, benefit from that.

Also, as interest rates “normalize” (translation: go up), margins could be squeezed as the cost of capital rises. But most observers agree that the rate lift will be ever so gradual. Schwartzman got into the business in the late 70s. He’s seen volatile rate environments. Management knows how to handle the wheel.

Action To Take: It appears the pump is primed for Blackstone. While the stock has outperformed, climbing to a recent $34.68, shares currently trade with a forward P/E of 12.8, a 34% discount to the average forward P/E of the S&P 500 index. If tax reform and infrastructure spending evolve positively, BX shares should trade ahead of that progression. With that momentum, the stock price could move to $42 (an expansion of the P/E to 16) over the next 12 to 18 months. The result would be a total return of around 28%.

Editor’s Note: A few months ago, a group of millionaires and billionaires gathered in a private conference room 26 miles from Mar-a-Lago to discuss their “Trump Era” investments. And believe it or not, a common theme was to invest in American businesses. Seven companies in particular stood out… Full story here.