Investors tend to notice fast-growing companies because they have the potential to deliver the strongest long-term performance.
However, some rapidly growing businesses are flying under the radar of many investors because they operate in sectors not known for growth. Three growth stocks expanding at surprising rates are Blackstone Group (BX +2.79%), American Tower (AMT +0.71%), and Alexandria Real Estate Equities (ARE +3.81%). Here's why a few of our contributors believe that makes them look like great buys this October.
NYSE: BX
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A leader in a fast-growing market
Matt DiLallo (Blackstone Group): Alternative investing is a vast and rapidly growing market. Each year, investors allocate more capital to alternatives like hedge funds, real estate, private equity, venture capital, and infrastructure to reduce their exposure to the volatile public stock and bond markets. By 2025, alternative investments under management will rise to more than $17 trillion, growing at a nearly 10% annual clip, according to industry data provider Preqin.
One company capitalizing on the sector's growth is Blackstone. It's growing surprisingly fast for a company of its size. Blackstone's assets under management (AUM) ballooned to $940.8 billion in the second quarter, up an impressive 38% year over year. The company recorded $88 billion of inflows in Q2 alone. That marked its second-highest quarter ever and was equal to its entire AUM at its IPO in 2007.
Those predominantly fee-bearing assets enabled Blackstone to record $1 billion of fee-related earnings in the second quarter, up 45% from the prior year. Meanwhile, total distributed earnings topped $2 billion, up 86% year over year, after adding performance revenues as its funds achieved their investment objectives. Blackstone paid out most of this income to investors dividends, and the stock now yields about 6%.
Blackstone's exceptional brand reputation should enable it to continue capturing a meaningful share of the funds flowing into alternative investments in the coming years. That should allow it to increase its fee-related earnings and performance revenue at healthy rates. Add that upside to its attractive dividend, and Blackstone is one growth stock you'll want to consider adding to your portfolio this October.
NYSE: ARE
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Alexandria Real Estate Equities is poised to keep paying with strong upside potential
Marc Rapport (Alexandria Real Estate Equities): Alexandria Real Estate Equities is not what you would typically think of as a growth stock -- at least not until now. With a share price that's down about 35% this year, along with surging revenue and profitability, there's a good argument to be made for buying it now and holding on.
Alexandria provides lab and supporting office space to a large group of investment-grade biopharma companies and other high-end tenants. Since its 1997 IPO, this real estate investment trust has provided a total return of about 600%, which nearly mirrors that of the S&P 500, but with nearly double the dividend yield.
This REIT is now expanding both its portfolio and increasing its revenue, with plans underway to add about 7.8 million square feet of new space -- much of it already pre-leased -- to its current portfolio of about 74 million square feet in San Diego, Seattle, San Francisco, Boston, New York City, North Carolina's Research Triangle, and Washington, D.C.
Revenue already was up 27.2% year over year through the second quarter when Alexandria nearly doubled its forecast for earnings per share for 2022. It also raised the midpoint on its adjusted funds from operations (FFO) per share by $0.03 to a midpoint of $8.41 as it recovers from a downturn in that key metric in recent quarters.
Analysts have an average target price of $186.60 on Alexandria shares, projecting an upside of about 28% from their current levels. Combined with an income-stock-like record of 11 straight years of dividend increases that puts the yield at about 3.4%, Alexandria looks like a good candidate for capital appreciation and steady passive income alike for years to come.
NYSE: AMT
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American Tower has a fascinating dividend story
Brent Nyitray (American Tower): American Tower is a REIT that builds cellphone towers and leases out space to tenants under long-term leases. The company's biggest tenants are mobile phone companies, cable companies, and governments. American Tower operates nationally, however just over half of its revenue comes from North America. The company also operates data centers, which is a new line of business.
Cellphone towers are a highly concentrated business dominated by three companies. Crown Castle (CCI +0.09%) is its main rival, while SBA Communications (SBAC 1.14%) is in third place. The barriers to entry in this market are pretty steep. The prime locations have already been taken, and the cellphone companies will choose to go with those with the best reliability and capacity.
American Tower's growth has been driven largely by increasing use of mobile data. The adoption of 5G will be a big impetus, and according to one study, we should see 1 billion 5G subscribers by the end of 2022. Mobile data usage is expected to grow at a cumulative average rate of 27% through the end of 2027.
American Tower also has an interesting history on the dividend front. The company has hiked its dividend every single year since 2012. As a REIT, American Tower doesn't have the biggest dividend yield at about 2.7%. However, it has a much better growth profile than the typical retail, office, or apartment REIT. Mobile data usage is a longer-term catalyst that will drive growth (and hopefully further dividend increases) for years going forward.
