Everyone says they want to “buy low” until we get into a situation like this year where the S&P 500 (SPY) is down 23% and the Nasdaq (QQQ) is down 33%. People seem paralyzed by fear, yet there are plenty of increasingly attractive opportunities to “buy low.” In this report, we share four such attractive opportunities: two with massive dividend yields, and all four have dramatic price appreciation potential.
1. Hercules Capital (HTGC), Yield: 10.1%
Hercules is unique because unlike most big-dividend opportunities, its business is focused on growth investments. Specifically, Hercules is an internally-managed business development company that focuses on providing financing to high-growth venture opportunities, including technology, life sciences and SaaS companies, to name a few. These are the exact types of companies that have sold off the hardest this year (because they are often very negatively impacted by rising interest rates). However in the case of Hercules, it is in a strong financial position (including an investment grade balance sheet) to help its portfolio companies weather the downturn and ultimately benefit dramatically from the eventual market rebound. We don’t know when the market rebound will arrive, but we are confident it will arrive eventually, and collecting the big XX% dividend yield from Hercules makes the wait much more palatable. We recently wrote up a very detailed report on Hercules (including also its very attractive big-yield baby bonds), and you can access it here.
2. Google (GOOGL)
The stock market sell off this year has been dramatic, and for many growth stocks it has been deserved. However in the case of Google, the steep sell off this year is unwarranted, and the shares now represent an extremely attractive long-term investment opportunity. There are many things to like about Google, including its tremendous ongoing long-term growth opportunities, its massive cash flows, its seemingly insurmountable ecosystem-driven competitive advantages, and its ongoing double-digit growth rate (truly impressive for a company of its size). To be specific, its Google Services segment (basically the advertising segment) is extremely profitable and growing (thanks to search, YouTube, Android and others), its Google Cloud segment is growing even faster (and will continue to benefit from the cloud migration and digital revolution for many years to come), and its Other Bets segment is not yet profitable, but has many logs on the fire (such as autonomous vehicles through Waymo and various other artificial intelligence opportunities) that have the potential to become extremely profitable many years down the road. We recently wrote up a detailed report on Google, and you can view that report here.
*Honorable Mention: AGNC (AGNC), Yield: 17.6%
AGNC Investment Corp (AGNC) is a mortgage REIT that has sold off extremely hard this year as its book value has been hit hard by rising interest rates (as rates go up, the price of its mortgage security holdings go down) and increasing Agency MBS spreads. The company recently pre-announced a quarterly book value decline to reassure investors that things are not as bad as they seem. Nonetheless, the shares still trade significantly below book value, and the dividend yield is very high. We recently wrote up a very detailed report on AGNC (following the recent pre-announcement of book value) and that report is available here.
3. Fortinet (FTNT)
As the digital revolution and ongoing migration of data to the cloud continues, one area that only grows and increases in importance is cybersecurity. And an outstanding way to play this secular trend is through Fortinet. Fortinet is a cybersecurity business that gains competitive advantages through its broad, integrated and automated platform approach (as opposed to the more traditional, one solution at a time, cybersecurity approach). Fortinet ranks highly in the industry, it is growing rapidly and it has a very large (and expanding) total addressable market opportunity. Further, unlike many of the high-growth stocks that deserved to sell off hard (as the low interest rate bubble burst), Fortinet is already profitable, free cash flow positive, has very strong margins, and a low cost of debt (thereby making them less susceptible to the capital market challenges that others will face). Fortinet trades at an attractive valuation multiple as the shares have inappropriately sold off this year. You can read our recent detailed full report on Fortinet here.
4. Small Cap CEFs, Yield: 10.2% and 14.2%
Small cap stocks have significantly underperformed the market throughout the latest market cycle, and history has shown that is usually an extremely lucrative time to buy them. And one particularly attractive way to play this opportunity is through two specific closed-end funds (“CEFs”) that offer double digit yields and trade at unusually large discounts to their net asset values. We recently wrote about these funds is great detail for our members, and we even more recently added shares to our Income Equity Portfolio. The members-only reports are available here and here.
The Bottom Line
It’s easy to say you are waiting for a market sell off before you make any new investments. But when a market sell off actually arrives (like this year) it can be really hard to pull the trigger, especially considering all the macroeconomic risks including rising rates, sky-high inflation and a looming recession. However, that is the nature of being a contrarian investor—knowing how to identify good long-term investment opportunities, and then being brave enough to pull the trigger when the sell off arrives. The four stocks we have reviewed in this report all represent tremendous long-term investment opportunities trading at attractively discounted prices.
Investing is the only business I know where people run away when things go on sale.