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Wealthpop

3 Trades To Watch Ahead Of Wednesday’s FOMC Announcement

Wealthpop / By

This is a big week in the market with yet another FOMC meeting taking place on Wednesday where Fed Chair Powell could announce a pause to rate hikes… or continue the Fed’s hawkish view and look to raise another half a percentage point. One thing is for sure on that front with the slight up tick in inflation over the past month, rate cuts are still a long way off.
After Friday’s trading session, there is still a pretty strong bearish bias gripping the market and with FOMC coming, there could be some consolidation until the Fed makes its next move. For now, we also maintain our bearish bias as there has yet to be a real bullish catalyst that would suggest any more moves higher.
As for the SPX, we are nearing a previous reject level, so be sure to keep that on your radar as we look to start another week of trading. However, despite all the dark clouds hovering over the market currently, we still have some ETF plays we are going to keep on watch. Just remember that FOMC meetings tend to create some volatility in the markets.
For our long plays on watch this week, we have two we are watching closely as the rest of the market signals more weakness brought about the sluggish performance of the tech sector. First, the XLU is on watch as it approaches support around the 64 area.
Seeing as how utilities is an area of the market that performs better during a bearish trend in the overall market, this is more of an ideal play for longs. Following along the same logic and since OPEC+ nations have signaled a prolonged period of production cuts, thus leading to higher oil prices in the near term, we are also keeping a long play on XOP on watch.
If oil continues to be strong, we are looking at the 150 mark on XOP in order to go long once again. As for short plays, our old favorite TLT is showing us some signs once again that prices may be looking to sink a little further. TLT at around its 52-week low of 92.5 to be specific. A break below of this mark is the signal we are looking for to go short.
Again, this week looks to be a pretty eventful week, but remember, only take A+ setups and do not get suckered into to any false breakouts to the upside as the trend is looking to be lower, or at the very least the market may consolidate until Wednesday when we get more direction from the upcoming Fed announcement. Capital preservation is king…
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Christian Tharp, CMT

3 Trades To Watch Ahead Of Wednesday’s FOMC Announcement Read More »

INO.com by TIFIN

Roku (ROKU) Stock: A Year-Long Analysis and Insights

INO.com / By

The landscape of television has dynamically evolved in recent years, marked by an accelerated launch of various streaming TV options. A vast selection of subscription-based internet TV services are now at consumers’ fingertips, making streaming entertainment a commonplace fixture in American households.
As consumers devote an ever-increasing proportion of their time to streaming media, TV providers rapidly shift their advertising onto these digital platforms.
The leading streaming platform provider, Roku, Inc. (ROKU), witnessed an upsurge in engagement metrics, such as active accounts and streaming hours, over the past few years. This heightened engagement has significantly echoed in the company’s financial performance.
The company has seen a remarkable surge in stock prices, which have doubled since the year’s onset. This uptick has notably surpassed gains in the S&P 500 and outstripped the year-to-date returns recorded by streaming giant Netflix, Inc. (NFLX).
To fully understand the factors underpinning ROKU’s stellar performance in recent months, it’s essential to analyze its progress comprehensively. Understanding the factors that catalyzed this growth will provide us with a more informed perspective for predicting potential future directions for ROKU, both as a company and in terms of its stock-price performance.
Recent History
The COVID-19 pandemic significantly boosted the adoption of digital streaming services. As millions of households worldwide had to spend the majority of their time indoors, there was a surge in first-time subscriptions to streaming platforms in 2020.
In July 2021, ROKU’s shares soared to a remarkable peak near $480, predominantly driven by an escalating demand for video-on-demand platforms, a trend amplified by pandemic-enforced home isolation. However, following this zenith, ROKU has experienced a slowdown in momentum, contributing to the company’s stock price diving to roughly $39 by the close of 2022.
In 2020, ROKU’s users streamed nearly 59 billion hours of content, marking a 55% surge over 2019. This success solidified ROKU’s position as the custodian of streaming content within the U.S. market.
Unlike other streaming service providers, the company witnessed an upsurge in active subscribers. For instance, in the second quarter ended June 30, 2020, active accounts reached 43 million, and streaming hours totaled 14.6 billion.
Despite this success, the company is battling to hold its place in the fiercely competitive digital streaming arena. Although sales skyrocketed early in the pandemic and the company briefly entered profitability, the ongoing hurdles of intensifying competition, a saturated market, audiences gradually emerging from lockdown, and inflation strains its once robust performance.
Current Status
At the end of the first quarter of 2023, ROKU unveiled its new in-house television line and rolled out significant updates across its operating system, enhancing features and expanding channel partnerships.
The TVs come in 11 diverse models ranging from 24-inch to 75-inch screens, spanning two different lineups and reasonably priced from $150 to $1,200. This strategy is expected to have aided TV sales, boosting top-line growth in the second quarter of 2023.
For the fiscal second quarter that ended June 30, 2023, ROKU’s total net revenue soared 10.8% year-over-year to $847.19 million with platform revenue, which is mostly ad sales, gaining 11.1% from the year-ago quarter and reached $743.84 million. Device earnings, hitherto hampered by supply chain and inflation issues, rebounded with an 8.6% year-over-year gain to $103.35 million.
In addition, there has been an uptick in ROKU’s engagement metrics as active accounts and streaming hours reached 73.5 million and 25.1 billion, indicating 16.5% and 21.3% year-over-year increases, respectively. This was driven primarily by the domestic and international success of the ROKU TV licensing program, coinciding with a predicted 40% drop by the end of 2023 in U.S. households availing cable TV packages from what was a decade earlier.
The popularity of ROKU’s proprietary Operating System (OS) further bodes well for the company, claiming the crown as the best-selling TV OS in the U.S. for the quarter, outperforming some major competing systems combined.
It is also worth mentioning that as of June 2023, ROKU boasts an impressive cash and cash equivalents of $1.76 billion, without any debt.
However, there remain areas of concern for the streaming service provider. Average revenue per user (ARPU) declined 7.2% from the prior year quarter. It was steady with the first quarter of 2023, which also declined year-over-year. Advertisers reducing their budgeting amid an inflationary economic environment dealt a harsh blow to the company’s operations.
For the second quarter of 2023, ROKU’s loss from operations stood at $125.96 million, a distressing 14% increase from the year-ago quarter. Its net loss stood at $107.60 million, while the net loss per share reached $0.76. However, it was much better than the past three quarters.
In ROKU’s second-quarter results, brand advertising remained pressured as total U.S. advertising came in flat year over year. Spending on traditional TV fell 9.4% year-over-year, while traditional TV ad scatter sank 17.2% year-over-year.
Considering the promising top-line projections unveiled by the company, ROKU’s share prices rose 31.4% to $89.61 as of July 28, 2023, the highest daily percentile expansion since November 2017, which has more than doubled this year. This expansion resulted in an approximate $3 billion upswell in the company’s market cap.
Recently, ROKU announced a layoff of 10% of its workforce, about 360 people, to cut costs. This action marks the third round of staff reductions within the past year, following its decision to slash 6% of its workforce (roughly 200 employees) in March and another 200 last November.
To trim expenses further, ROKU is planning several organizational changes. It might slow the hiring rate, consolidate office space, reduce its outside services, and conduct “a strategic review of its content portfolio” to save money. Following the announcement of these cost-cutting measures, ROKU’s shares spiked almost 10%.
Despite these financial strategies, the stock is trading at a premium to its industry peers. ROKU’s forward EV/Sales multiple of 2.96 is 58.1% higher than the industry average of 1.88. Also, its forward Price/Sales and Price/Book multiples of 3.29 and 4.95 are 188.1% and 161.9% higher than the industry averages of 1.14 and 1.89, respectively.
Within a year, ROKU’s overall price performance presented a decelerating trend until the end of 2022, then transitioned to a stable growth phase at the beginning of 2023. This followed a significant mid-year acceleration, followed again by slight deceleration. A comparison of the current share price with that of a year ago indicates long-term growth.
Yet the stock remains significantly below its zenith recorded two years prior, echoing broader pressure on the streaming category in general to establish profitable business models.
Furthermore, changes have been observed concerning institutions’ holdings of ROKU shares. Even though approximately 80.8% of ROKU shares are presently held by institutions, of the 599 institutional holders, 264 have decreased their positions in the stock. Moreover, 81 institutions have sold their positions (1,306,808 shares), reflecting declining confidence in the company’s trajectory.
Future Prospects
ROKU has raised its third-quarter net revenue forecast between $835 million and $875 million, putting aside charges related to severance and removing certain content from its streaming platform. This exceeds the earlier third-quarter estimate of approximately $815 million in revenue.
The entertainment giant also anticipates its adjusted EBITDA to conclude between a loss of $40 million to $20 million, which shows improvement from an earlier prediction of a negative $50 million. The Hollywood double strike is anticipated to influence media and entertainment spending adversely for the rest of the year. This scenario poses a relatively severe challenge, given ROKU’s extensive promotions provided for content.
ROKU has noted some recovery hints within specific advertising sectors, including CPG and health and wellness. Yet, the spending on M&E, already facing challenges across the industry, will likely face additional pressure due to limited fall release schedules. Despite these odds, the company remains determined to deliver positive adjusted EBITDA for 2024 with continued improvements.
For the fiscal third quarter ending September 2023, Street expects ROKU’s revenue to increase 11.3% year-over-year to $847.54 million, while its EPS is expected to decline 105.1% to negative $1.81.
Moreover, for the current fiscal year (ending December 2023), the company’s revenue is expected to increase 7.9% year-over-year to $3.37 billion. However, its EPS is expected to come at negative $5.04, indicating a decline of 39.4% year-over-year.
Bottom Line
Streaming service provider ROKU is poised to capitalize on the escalating digital streaming and cord-cutting trend in the upcoming years. This positions the temporary slump it experienced in 2022 as a trifle hiccup rather than an enduring setback.
However, affirming that the company has fully rebounded and is back on its consistent growth path may be premature. Further confirmation of continuous revenue augmentation, ideally substantiated by several successive quarters of enhanced performance, is still needed.
Risk-averse investors would want to keenly observe ROKU for more tangible indications of renewed profitability over the ensuing quarters. There is a potential for the company to continue generating substantial returns, provided it can add persistent value to its platform for users, content producers, and advertisers.
The persistent issue pestering ROKU is its inability to yield regular profits. Furthermore, the company’s ad-supported sales infrastructure is stretching back into profitable territory. Yet its recently instituted cost-reduction measures should alleviate some of these financial burdens from 2023 onward.
Seeing ROKU deliver on its projected outcomes would be encouraging. Considering this, all attention will be on the company’s performance over the subsequent quarters.

Roku (ROKU) Stock: A Year-Long Analysis and Insights Read More »

Investors Alley by TIFIN

Here’s How to Profit Off the Gasoline Price Spike

Investors Alley / By

Last week, I went to fuel up my pickup truck and was shocked to see that gas prices had jumped overnight by $0.40 per gallon. Ouch!

I started digging into the cause, looking for an investment angle.

What I found reinforced my belief in what I think is one of the best investment opportunities in the energy sector…

Many news outlets reported the price jump, referencing a GasBuddy post. I found the original post and here is the opening paragraph:

Drivers in Oklahoma, Missouri, South Dakota, North Dakota, Nebraska, Minnesota and Kansas: be ready. GasBuddy, the leading fuel savings platform saving North American drivers the most money on gas, today predicts that gas prices in these states will spike anywhere from 50¢ to $1 per gallon over the next several days. While there are few details on the particulars on what is driving the increase, trade sources tell GasBuddy a refinery outage may be to blame.

I live in South Dakota and was traveling through Iowa (also hit by the increase) and Minnesota. I don’t remember seeing that magnitude of price increase in just a couple of days.

A few days earlier, I read an article titled: “‘No Plan B, No Excess Capacity Anywhere’: Oil Industry Warns of Looming Refining Crisis As ‘Dirty’ China Grabs Market Share.” Here is an excerpt from the article (emphasis mine):

The lack of spare crude-processing capacity due to under-investment, and shutdowns happening more frequently with refiners ramping up on better margins and deferring planned work were common themes at the APPEC by S&P Global Insights conference in Singapore this week. That’s left fuels like diesel and gasoline vulnerable to sudden swings when there are unplanned outages.

Here’s how to play this.

Refining companies operate with the significant challenge of having the prices of both raw material inputs (crude oil) and finished products (including gasoline, diesel fuel, jet fuel, and heating oil) determined in the commodity markets. As a result, refiners need to be highly efficient to stay profitable when the spread between oil and fuel prices is tight. The efficiency means that profits can explode higher when the spread widens.

In the U.S., refineries are operated by a range of companies, from large, diversified multinationals like ExxonMobil and Chevron down to small, single refinery companies. To start investing in refining stocks, I recommend looking at the three large companies whose businesses focus exclusively on refining:

Phillips 66 (PSX) is a $55 billion market cap company that owns and operates 13 refineries.

Marathon Petroleum Corp (MPC) has a $62 billion market cap and owns and operates 13 refineries.

Valero Energy Corp (VLO) has a $50 billion market cap and owns and operates 15 refineries.

One of these refining stocks is in my Monthly Dividend Multiplier newsletter recommended portfolio. The stock is on the portfolio due to a 2018 merger and has performed very well for my subscribers. I view all three as equally well-run, with comparable investment potential.

Here’s How to Profit Off the Gasoline Price Spike Read More »

Wealthpop

Block (SQ) Presents A Bearish Opportunity On Continued Weakness

Wealthpop / By

Block (SQ), formerly known as Square, has had quite a lackluster year with largely sideways trading or continued declines. Most recently, we have seen more declines, falling all the way down to a support level of around 55. On Friday, price finally broke that support level, giving traders signs of a move lower to what could end up being a new 52-week low.
For those looking for short opportunities, it would seem this chart favors the bears, however, those looking to go short here should not jump in with both feet. If the overall market can push a bit, it could take SQ with it to retest that 55 level.
In this scenario, the risk/reward would be a bit greater and probability of a retracement from there would be greater. The key to a trade like this is patience, waiting for the proper time to enter the trade rather than chase a move in one particular direction or another.
Also, postion yourself based on the level of confidence you have in the trade, while leaving yourself room to add should the trade experience some drawdown. An important piece of trading to remember, trade for tomorrow, not just today. This will help you preserve capital and stay in the game longer.
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If you like The Profit Machine (TPM), then you will really like my Wednesday Profit Room trading service. Same high-quality options action, as well as more world-class trading education. As I say, the more screen time and education you expose yourself to, the better. Give it a try for one month here and if you don’t find even more value, cancel anytime. Your success as a trader is on the other side of hard work and education, will you be willing to put in the work with me as your guide? Give it a try today!
Good Luck With Your Trading!
Christian Tharp, CMT

Block (SQ) Presents A Bearish Opportunity On Continued Weakness Read More »

Investors Alley by TIFIN

Why Value Stocks are About to Outperform

Investors Alley / By

The bulk of stock market gains since last October are due to large price increases from a handful of large-cap, tech-focused stocks.

But growth stocks like that have had their time in the sun.

Let’s look at why value stocks could outperform in the future…

According to Investopedia, growth stocks are shares of companies that have the potential to outperform the overall market over time because of their future potential. In an upmarket, investors seem willing to pay any price to participate in the growth, which can produce rapid share price appreciation.

Value stocks are shares of companies that are currently trading below what they are really worth, and will thus provide a superior return. Value stock investors use fundamental analysis to determine a “fair value” for individual stocks. These stocks typically pay dividends with attractive yields. Value stock investing requires patience; it works best when it seems that no one else is buying this type of stock.

Market wags, coined by a Bank of America analyst to describe analysts, are calling the top-performing, large-cap tech stocks the Magnificent Seven. The stocks are Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), NVIDIA Corp. (NVDA), Alphabet Inc. (GOOGL), Meta Platforms Inc. (META), and Tesla Inc. (TSLA). Year to date, through September 5, these seven stocks posted an average return of 102%. The S&P 500 is up 17.7%.

The S&P 500 is a market-cap-weighted index. The seven listed stocks are very large and account for 27% of the index’s market cap. This is fuzzy math, but if you multiply 102% by 27%, you get 27.5%. That result tells me the remainder of the S&P 500 has, on average, posted a negative return for the year.

Another clue is that the SPDR Portfolio S&P 500 Value ETF (SPYV) is up 10.7% for the year. The top three holdings of this ETF are MSFT, AMZN, and META, so this fund also benefited from the Magnificent Seven effect.

Throwing out the large-cap stocks, the Vanguard Mid-Cap Value Index Fund ETF Shares (VOE) is up just 1.1% for the year.

What would cause a rotation out of the large-cap growth stocks into value stocks? I think professional money managers will lead the shift. They must harvest profits from those 100%-plus gains to balance their portfolios. Some will go into value stocks as money rotates out of the Magnificent Seven. Buying will increase stock prices, leading to more buying, and soon, we will have a value stock bandwagon.I don’t know when value stocks will start a meaningful move, but it has been two years since there was a meaningful really for undervalued stocks. To my subscribers, I recommend the InfraCap Equity Income Fund ETF (ICAP) to get a great current yield from a value-focused fund manager.
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Why Value Stocks are About to Outperform Read More »

INO.com by TIFIN

Are Stocks Ready to Make New Highs?

INO.com / By

Please enjoy this updated version of weekly commentary from the Reitmeister Total Return newsletter. Steve Reitmeister is the CEO of StockNews.com and Editor of the Reitmeister Total Return.Click Here to learn more about Reitmeister Total Return

SPY – The recent sell off is over for the stock market…but are stocks really ready to make new highs above 4,600 for the S&P 500 (SPY)? 43 year investment veteran Steve Reitmeister shares his latest market outlook, trading plan and top picks in this fresh commentary below…

It’s been a couple weeks since my last commentary thanks to a much enjoyed vacation. Gladly most of that time stocks were in the plus column as the market rightfully bounced from recent weakness.
This fits in with my theory that we will be playing around in a trading range for a while. 4,600 for the S&P 500 (SPY) being the top end of the range and 100 day moving average (currently at 4,337) framing the bottom.
How long will we be in the range?
And what will be the catalyst to finally break out of the range?
And what are the best trades for this market environment?
Those key questions and more will be explored in this week’s Reitmeister Total Return commentary.
Market Commentary
As expected, the early August downturn was nothing more than a healthy round of profit taking after the tremendous bull run that started in March. Thus, after seeing a fairly customary 5% pullback investors were ready to hit the buy button again pushing stocks the S&P 500 higher.

Moving Averages: 50 Day (yellow), 100 Day (orange), 200 Day (red)
The recent bounce is nice…but are investors truly ready to break out of the range and make news highs above 4,600?
I believe the answer lies in a review of the recent slate of economic events. This should tell us if we have the proper catalysts in place to race to new heights:
8/25 Jay Powell @ Jackson Hole:  Remember that last time in 2022 Powell scared the pants off investors with his hawkish rhetoric. The key line being to expect economic pain (recession and job loss) before their war on inflation was over. This led to stocks going on a severe two month sell off to bear market lows in October 2022.
This time around Powell gave the usual sound bites. Inflation is too high…more work to do…may need to raise rates.
At first, investors were still in correction mode and hung on the words about “may need to raise rates”. This initially put some red arrows on the board. But as the day progressed investors realized that it was truly no different than any speech given by the Fed in the last several months. From there stocks leapt higher and have not looked back.
9/1 Government Employment Situation: Pretty much right on the money at 187K jobs added. The big surprise was how the unemployment rate unexpectedly jumped from 3.5% to 3.8% as the participation rate also went up. The best part of the report was that wage inflation continues to moderate with a lower than expected +0.2% month over month increase (that is only about 2.4% annualized…not far off the Fed’s target).
This all fits in with the narrative that the Fed is making serious headway with inflation and that more rate hikes are likely not needed. The bigger question is when rates can start to head lower. They say that is a 2024 issue…perhaps true. But it is still possible to start in late 2023. Either way it was welcome news to stocks that rallied hard on this news to end a strong week of price action.
Note that back on 8/29 the JOLTs report gave clues that the jobs market is softening with fewer and fewer job openings (see chart below). This trend also speaks to the likelihood of moderating wage growth which is one of the stickier parts of the inflation picture.

9/1 ISM Manufacturing: This has been the weakest part of the economic picture with 9 straight readings under 50. Make that 10 months now with the 47.6 reading. Gladly that is the 2nd straight month of improvement. Note the PMI version of this monthly report was even more optimistic.
And now a glimpse of the key reports that lie ahead:
9/6 ISM Services: This is the larger, and healthier part of the economy where we got a 52.7 reading last month. Right now expectations call for a fairly similar reading of 52.4. Yet I suspect the strength of the most recent Retail Sales report may say there is some upside to that number.
9/13 Consumer Price Index (CPI): Investors like to focus on this inflation report even though the Fed has consistently said they find the Core PCE reading to be the much more reliable inflation indicator. Regardless, this has been trending nicely lower and mostly coming in under expectations for the past several months.
Too much focus is given to the year over the year # which has a lot to do with inflation many months ago. That is why experts like to drill down to the month over month readings which gives a sense of the current pace of things. That is expected to modulate to +0.2% which again is getting much closer to the Fed’s 2% annualized target. And will have folks readjusting odds for what happens  on the next item…
9/20 Fed Rate Announcement: Right now it’s a forgone conclusion the Fed will stay put on rates at this meeting. What is not as certain is whether they have one more rate hike up their sleeves…and when they finally start lowering rates as the longer they leave these restrictive policies in place…the more they risk a recession forming.
Right now the CME calculates 40% odds of 1 more hike by the end of the year (either at November or December meeting). Honestly, with the facts in hand, I don’t see that happening. The nails are already in the inflation coffin. Just better to apply some patience to see it through as Fed policy typically has 6+ months of lagged effects.
Expectations & Trading Plan
We are in a young bull market…but still not out 100% out of the woods. Meaning the Fed has a history of going too far with their policies thereby creating a recession.
I sense this group is wiser than some of their predecessors and will manage the soft landing from which they can lower rates…which will be an elixir for economic growth…earnings growth…and share price growth.
So for as positive as recent economic news has been, for right now I expect a bit more time in the aforementioned trading range (4,337 to 4,600). And that time will likely be volatile with no seeming direction. That is the very nature of trading ranges.
All you have to do is keep your eyes on the long term horizon which is bullish which gives you ample reason to load up on the best stocks now for WHENVER the catalysts come to push them higher. Meaning don’t stay on the sidelines any longer. The time to get on the bull train is now.
The next section will discuss a bit more about which are the best investments to stay a step ahead of the pack.
What To Do Next?
Discover my current portfolio of 7 stocks packed to the brim with the outperforming benefits found in our POWR Ratings model.
Plus I have added 4 ETFs that are all in sectors well positioned to outpace the market in the weeks and months ahead.
This is all based on my 43 years of investing experience seeing bull markets…bear markets…and everything between.
If you are curious to learn more, and want to see these 11 hand selected trades, then please click the link below to get started now.
Steve Reitmeister’s Trading Plan & Top Picks >
Wishing you a world of investment success!

SPY shares . Year-to-date, SPY has gained 18.36%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks.

Are Stocks Ready to Make New Highs? Read More »

Investors Alley by TIFIN

How to Get a 12% Yield, Safely

Investors Alley / By

Fixed income investors who listened to Wall Street earlier this year and bought bonds have been left holding the bag. Rates have yet to peak, and yields have continued to move higher, lowering the value of any bonds the investors already held.

So, what should income investors do now?

With so much uncertainty still surrounding the path of the global economy and interest rates, conservative investors may just opt for parking funds in short-term Treasury bills that currently yield more than 5.25%.

For more aggressive investors, the best path to follow is a diversified approach for the income-producing part of your portfolio. Let me show you what I mean…

Pimco Income Strategy Fund

An easy way to diversify the fixed income portion of your portfolio is through a closed-end fund like the PIMCO Income Strategy Fund (PFL). Run by one of the best-known names in the fixed income space, the CEF offers exposure to varying credit types, credit qualities, and regions of the world.

Here is a brief description of the fund overview pulled from Pimco’s website.

Employing a multi-sector approach, the fund seeks high current income consistent with the preservation of capital by investing in a diversified portfolio of floating and/or fixed-rate debt instruments. The fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment grade and non-investment-grade securities.

In addition, the fund will not invest more than 20% of its total assets in securities that are, at the time of purchase, rated CCC/Caa or below by each ratings agency rating the security. The fund’s duration will normally be in the short to intermediate range (zero to eight years).

Finally, yield is just one component of the portfolio manager’s approach. Also considered are capital appreciation and principal preservation.

Be aware, though, that the fund does use leverage (total effective leverage = 23.76%) to try and improve its performance. This makes it more volatile than a non-leveraged bond fund.

So-called junk bonds comprise the largest chunk of the portfolio, with roughly 43% of the fund made up of non-investment grade and unrated bonds. While there is a modest allocation (roughly 12%) to government and agency securities, this is mostly a corporate bond fund.

Overall, PFL still qualifies as a well-diversified portfolio given its global exposure (about 23%) and mix of maturities. Industry-wise, PFL’s top investment sectors are: healthcare (9.14%), technology (7.9%), banks (6.04%), and consumer products (5.79%).

Maturity-wise, most of the bonds are currently in the intermediate range, with 27.58% having a maturity of three to five years, and 21.81% having a maturity of five to 10 years.

PFL Track Record

The PIMCO Income Strategy Fund is nearing the 20-year mark from its IPO, so it has been through the 2008-09 global financial crisis and the coronavirus pandemic.

Since its IPO, the fund’s 204% total return translates to roughly 6% annually. Like most bond funds, it performed reasonably well up until the post-pandemic period, when the Fed began hiking interest rates and effectively hammering fixed income valuations.

During the depths of the brief pandemic-related recession, PFL fell nearly 50% from peak to valley, but managed to gain it all back and then some before the end of 2020. Right now, the price of PFL is sitting about 35% or so below its post-pandemic peak.

Closed-end funds can trade at a premium or discount to their net asset value (NAV). PFL trades at a small premium of 3.43%. This is no doubt due to investors being attracted by its high yield—12.46%. PFL maintains a fixed monthly distribution policy that currently pays $0.0814 per share, or $0.9768 per share annually.

Part of the reason why PFL trades at a premium is its history of stability in its distribution. Income seeking investors just love predictability when it comes to their income streams. And, with the exception of one post-pandemic instance, this fund has delivered steadily. Judging its track record, it seems that the fund managers are willing to let the net asset value decline in favor of distribution stability.

It’s rather unusual to find a fund that encompasses so many different regions, credit qualities, maturities, and credit types, but PFL does it. Its rock-solid distribution history over the past 20 years makes the PIMCO Income Strategy Fund quite attractive. Predictable income is a good thing. PFL is a buy under $8 per share.
I met Patrick recently who was failing miserably as an investor. Suddenly, he stumbled on a stock ‘ranking’ software that’s made him $5M over the past 7 years. I asked him to recreate his approach for dividend stocks. You won’t believe the results here.

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