We don’t trade often, however we’ve just placed three (3) new trades in our Blue Harbinger portfolios. We’ve also updated our Portfolio Tracker Tool to reflect a new “Buy Under” category called “Top Buys.” Both of these updates are based on current market conditions, and both are designed to help you manage your own investments. This report reviews the updates, including the trades and the current “Top Buys” within our existing portfolio holdings.
New Trades:
To get right to the point, here are the new Trades:
Trade #1: Income Equity Portfolio:
Sell Tekla World Healthcare (THW)
Buy AGNC Investment Corp (AGNC)
Tekla World Healthcare is a big dividend Closed End Fund (“CEF”), and it’s had a great run over the last year, particularly as compared to the overall market. This fund holds a diversified basket of global healthcare stocks, and healthcare stocks have been a bit of a “flight to quality” trade as the rest of the market has sold off. Further, it’s z-score as particularly high as investors have flocked into this trade. We’re sad to get rid of the 10.8% distribution yield, but we’re replacing it with something more attractive, AGNC Investment Corp (AGNC).
AGNC is a mortgage REIT that owns mostly safe Agency mortgaged backed securities (Agency MBS), and it’s share have sold off very hard as panic has gripped the bond market. We recently wrote about this in more detail here, and we are happy to pick up these shares for their significant price appreciation potential, but also for the big 12.5% dividend yield.
Trade #2: Income Equity Portfolio:
Sell Vermilion Energy (VET)
Buy Annaly Capital (NLY)
Vermilion is an energy company, and it was one of our higher risk positions. And unfortunately, as energy prices (i.e. Oil) has plummeted, so too has VET’s business. It has cut the dividend, and it will be significantly challenged going forward. We prefer to keep our energy sector exposure by owning safer big dividend names like PSX and WMB. No one gets it right all of the time. We’re happy to move this cash to a better opportunity.
Annaly Capital is another mortgage REIT that we recently wrote about in great detail (here), and we’ve added it to the portfolio because the opportunity is so very compelling, in our view. This one offers a big dividend and significant share price appreciation potential ahead.
Trade #3: Pure Growth Stock Ideas:
Sell Netflix (NFLX)
Buy Roku (ROKU)
Netflix has been a top performer as the shares have soared higher and benefited from recent COVID-19 stay-at-home orders. We think this is a great business, but the valuation is extremely high relative to its growth opportunities, and we wanted to make room for a better business in the same space, Roku (ROKU).
Roku is an operation system for smart TVs and it has enormous growth potential considering it benefits from the growth potential streaming services (Roku, Disney, Amazon) without competing against them. Plus it is not as richly valued as Netflix relative to its growth potential. Further, the shares are just starting to get momentum on their side. This one has a ton of upside. You can read a recent high quality Roku report here.
New “Top Buys” Category:
We’ve added a new category to our Portfolio Tracker Tool called “Top Buys.” This category was added because recent market turmoil has moved so many stocks into the “Strong Buy” category, and we wanted to make it easier for readers to focus on the very best current opportunities. And for your consideration, here are the highlights of our current “Top Buys” category:
Alternative Fixed Income Portfolio/Sleeve, Top Buys:
PIMCO Dynamic Credit Income (PCI), Yield: 11.8% (paid monthly): Simply put, short sighted fear has driven the price of this bond fund way too low. PCI offers a big yield and plenty of upside. You can read our previous write-up here.
NuStar Energy Preferred Shares (NS-C), Yield: 14.4%: The energy sector is in disarray with low oil prices, but not all energy companies and securities are created equally. These preferred shares have two things going for them. One, they are preferred shares, therefore ahead of common in the capital structure and less risky. And two, NuStar’s midstream businesses is a lot safer in near and mid-term than volatile energy producers. We are currently working on a full report on the shares that we hope to share with you soon. But in the meantime, NS-C is presenting a very attractive buying opportunity, in our view.
Income Equity Top Buys:
REITs: We’re lumping A LOT of REITs into one category because there are so many attractive ones. In addition to the two mortgage REITs we just bought (AGNC and NLY, as described above), property REIT across the board are extremely attractive right now. Of course, we take the view that absolute social distancing will not last forever (and you may disagree), but we think property REITs across many categories are very attractive. We recently wrote about some top ideas here.
Business Development Companies (“BDCs) have gotten hit extremely hard with the COVID-19 shutdown considering most of the make loans to small businesses, and small businesses will suffer greatly consideing they genrally have less cash and liquidity on hand to whether the shutdown. Nonethess, we believe the sell off has been too hard, and many REITs will make an impressive comeback due to government support and in ingenuity and drive of US business owners. We like Main Street Captial (MAIN) and Ares Capital (ARCC) in particular.
Midstream Energy: We believe companies like Williams (WMB) and Phillips 66 (PSX) will whether then current oil price free fall better than other energy stocks. Specifically, mid stream businesses have long-term contracts in place, and their pipelines will continue to be used despite low energy prices. We recently shared a details writeup on WMB here, and we have a write-up on NuStar (mentioned earlier) coming soon.
Growth Stock Ideas:
Disney (DIS): Simply put, this is a great franchise, trading at a low price. The COVID shutdown is terrible in the near-term for theme parks, but Disney Plus, sports (ESPN), ABC network, and the value of Disney character/movies will all return and help drive these shares higher.
Facebook (FB) is a money printing machine, it’s on sale, and we just wrote about it in great detail here.
Paylocity (PCTY) is a small cap, cloud based, payroll processing and HR company, and the shares are on sale. The business has tremendous continuing growth potential, and we recently wrote about it in great detail here.
Updated “Buy Under” Prices:
We’ve updated a hanfful of our “Buy Under” prices in the portfolio tracker tool, and you can quickly identify them by color (we highlighted the ones we lowered in red, and the ones we increased in green). We also left the original “Buy Under” prices in the spreadsheet for you to reference. The driving force for the changes has been market conditions. Specifically, here are the details:
Energy Stocks: For the most part, carbon energy producers are not profitable at current low (~$20) oil prices, and the entire sector is in trouble. We’ve lowered our “Buy Under” prices for energy stocks almost across the board (except for some of the mid-stream businesses).
Floating Rate (JFR): we lowered the “buy under” price on this one because as interest rates have fallen, so too has the income power of JFR’s floating rate securities.
REITs and COVID-19: We believe many property REITs are “Top Buys,” (including Simon Property Group), but we’ve lowered SPG’s buy under price considering we expect an acceleration of bankruptcies and rent concessions as a result of COVID. Again, this one comes down to your view of the post-COVID-19 world—we believe social distancing simply cannot continue indefinitely.
Industrial Stocks: We are in a recession. Industrial businesses (even the good ones) will suffer until the economy gets better.
Banks: Banks like USB rely on net interest margins to make a big portion of their earnings, and with interest rates down, net interest margins (and net income) will suffer.
Facebook (FB) and Shopify (SHOP): We actually raised the “buy under” prices of these two businesses as they continue to grow, and will thrive in an increasingly digital post-coronavirus world. If you are looking to sprinkly a little “Income via Growth” stocks into your portfolio—this is a good way to do it.
The Bottom Line
This market will eventually go much higher, and the current market wide sell off is providing lots of attractive buying opportunities. High yield investments have been hit particularly hard, and we believe this has created a lot of particularly attractive buying opportunities, such as those highlighted in this article. The three trades we’ve made are designed to take advantage of a few of these attractive market opportunities, while remaining focused on our disciplined long-term investment approach—which is a strategy that has proven to be successful throughout history, and it will this time too. It’s okay to be opportunistic in our current market environment, but for goodness sake—don’t lose sight of your personal long-term investment goals. The world has changed, but it’s not ending. This too shall pass, and the market will eventually go higher. Much higher.