Finally, we have Ares Capital. Business development companies have become popular for their hefty distributions at a time when traditional fixed-income vehicles are offering a pittance in payouts.
Ares Capital has stakes in more than 150 different companies, offering financing in exchange for senior debt and secured loans. Since conventional fixed-income investments aren’t yielding better than 8%, income-hungry investors are willing to take on risks to get that. The challenge for Ares and other business development companies is to earn enough to keep their distributions coming. Ares Capital investors had better hope that next week’s bottom-line dip isn’t a recurring event.
Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven’t earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.
The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.
The more I think about it, the less worried I become.
The article 5 Reasons to Worry About Next Week originally appeared on Fool.com.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.