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Natural gas has been on the decline for several weeks and it has taken natural gas producers down with it. One producer, Antero Resources (AR), may be set for a rebound, according to the options market. A trader purchased 6,000 of what appear to be bullish call spreads in AR that expire in March. It […]

The global electric vehicle market is projected to grow from just $287 billion in 2021 to a massive $1.31 trillion in 2028, forecasts Sustainalytics, a leading independent ESG and corporate governance research and analytics firm.

That nearly one-and-a-third trillion-dollar market is an opportunity few investors will want to miss.

However, many investors looking to hitch a ride on the electric vehicle boom think of only one company—Elon Musk’s Tesla (TSLA).

That focus may be a mistake… there are better, and safer, ways to get in on the EV boom than the wild ride Tesla shareholders have had to endure over the past year.

Let me show you…

Other Ways to Play the EV Boom

For example, one top rival has seen its stock fall by far less than Tesla’s 64% plunge in 2022. Hong Kong-listed BYD (BYDDY) was down by only 15% in 2022. Warren Buffett is still a shareholder and—if hybrid vehicles are counted—it is the world’s largest seller of EVs in 2022. BYD totaled 1.86 million in sales—the vast majority of which were made in China—and well ahead of Tesla’s total of 1.3 million overall sales.

But, as with the California gold rush, the obvious plays may not be the best route to profits. The reality is that the shift to electric cars is transforming the automotive industry, with automakers giving ground in terms of purchasing power to suppliers, including battery makers, mining companies and semiconductor firms.

One example of a company that I’m thinking about is Chile’s Sociedad Quimica y Minera de Chile (SQM). Its stock has risen over 68% the past 52 weeks, thanks to the 10-fold increase in the past two years of battery-grade lithium chemical prices to $75,000 a ton, according to S&P Global Commodity Insight.

Another company investors usually do not associate with electric vehicles is a manufacturer of semiconductors for EVs, Analog Devices (ADI), one of the world’s biggest analog chipmakers. Analog chips convert real-world signals, such as sound, temperature, and pressure, into digital signals that can be processed.

Let’s now take a closer look at Analog.

A promising investment

Analog Device’s key markets include: industrial (about 51% of sales in fiscal year 2022.); automotive (21%); communications (16%); and consumer (12%). Its customer base is fairly broad, with no one customer accounting for more than 10% of its revenue base.

Here is what the investment research firm CFRA says about Analog Devices:

ADI is benefiting from improving demand across the industrial and automotive markets (combined 71% of sales), with the most traction from higher semiconductor content areas like automation, instrumentation, and energy as well as for its battery management systems inside electric vehicles. Also, ADI should benefit from 5G adoption and demand for optical connectivity products from wireless carriers/data center providers.

In its last quarterly report (November 22), the real bright spot for Analog Devices was its automotive semiconductor sales. ADI’s revenue were up 28% year over year on a pro-forma basis, with automotive chip sales up 49% year over year thanks to strong positions in premium and electric vehicles.

Industrial sales were also strong, up 40% year over year. Management cited strength in digital healthcare applications.

With regard to the automotive industry, here is how Morningstar described the company’s strong position:

An especially promising end market for the firm continues to be the automotive sector. Semis are required to enable the sensors, active safety systems, and advanced infotainment systems added to cars today. Electric vehicles have even more chip content per car, and ADI is well positioned, with a market share lead in battery management systems for electric vehicles. 

Morningstar was also impressed with its industrial business: “We’re also seeing a similar trend of

increased chip content in industrial applications like robots, factory equipment, and medical devices.

ADI has tens of thousands of customers in these end markets. Further, ADI’s signal chain semiconductors continue to be prominent in 5G wireless network equipment.”

Why ADI is a Buy

Even though we currently face a lot of uncertainty right now with regard to the global economic situation, the energy transition is not going away, and electrification of vehicles is going to ramp up.

Analog Devices has outperformed most other technology stocks. In 2022, it was down only about 8.5%; over the past 52 weeks, it is now up about 11%.

Thanks to its position of strength in the automotive and industrial markets, analog chipmaker ADI is a buy in the low-160s to low-180s range.
It’s raised its dividend 37.5% on average, could be acquired, benefits from rising interest rates, trading at massive discount, and pays an 8% yield. This is my top pick for income during a rough market.Click here for details.

The 2022 bear market hit high-yield stocks (except for energy stocks) hard, and my subscribers sent me many questions about the status of their investments. One stock, in particular, moved relentlessly down, making investors wonder if the company’s big dividend was safe.

Last week, the patience paid off, and investors who averaged down are back to even, with a 25% lower share price.

Let’s take a look at how this approach really pays off for dividend investors…

My addition of OneMain Financial (OMF) to the Dividend Hunter recommendations list was not very timely. I first recommended the stock in November 2021, soon after it peaked at just under $60 per share. From the fall of 2021, the share price declined steadily for a year. This chart shows OMF from October 2021 until October 2022. You can see the near straight-line decline and the share price halving.

Through the year-long decline, I monitored OneMain’s financial results, and the company continued to pay a $0.95 per share quarterly dividend. Earnings came in each quarter as expected, and for 2022, the company earned over $7.00 per share.

The share price bottomed in late September 2022 at just under $29 per share. From October until the fourth-quarter earnings were released last week, OMF reversed course, reaching $42.30 the day before earnings were announced on February 7.

Those earnings were in line with Wall Street estimates, and the company announced a 5% dividend increase, to $1.00 per share. The share price popped higher by more than 10% on this news.

The moral of this tale is that through the year-long decline, I trusted the fundamentals and continued to add shares. I recommended the same to my subscribers, suggesting building up a position with small purchases as the share price continued to fall.

I bought my first shares in November 2021 for $59.20 per share. By averaging down, my cost per share is now $47.60. My position is now close to profitable, and I suspect it will soon turn positive. Over the last year, I also earned $3.80 per share in dividends, and my position has a yield on cost of 8.5%.

The averaging down of OMF to a profitable position happened because I understood that the OMF financial results were fine and that the share price decline was unwarranted.

Oil giant BP (BP) posted strong earnings last week, accompanied by a dividend hike and share buyback. The stock price jumped from $34 to over $38 in just two days. Judging by a block trade in BP options, the stock could remain elevated into March. A trader purchased 10,000 covered calls which collect about 1%

The markets are showing some signs of rolling over into a big move downward, but not soon.

The tug-of-war between what the Federal Reserve says and what the market hopes the Fed will do continues to be front and center for equity prices.

In other words, nothing much has changed since we last spoke. But there are still some great buying opportunities for those willing to go against the grain.

Take a look at this one…

Most traders who are active today have never seen a series of rate hikes like we have seen in the past year. This has been one of the fastest rate increases ever, with the fed funds rate going from a functional zero to 4.75% in a very short period of time. More to the point, with something close to 80% of all trading done by algorithms, none of the people who programmed the black boxes have even seen inflation and rising rates.

The result is a market that is choppy and sloppy.

There are signs of momentum rolling over, but it has not happened yet.

Most mid to large capitalization stocks are still somewhere between moderately and ridiculously overvalued. Instead, market conditions like this have historically been an excellent opportunity to shop for some stocks no one cares about but are likely to be much higher a few years from now.

The first stock that is worth consideration for patient investors is CarMax (KMX). I have to confess to some bias here, as we bought a vehicle at CarMax in 2021, and it was the best car-shopping experience of my life.

We needed a car to replace my wife’s old CRV. Unfortunately, our youngest daughter had wrecked her new car, so we gave her the old Honda (HMC), a reliable tank, and went shopping for a new one. The Honda salesman was willing to part with a new CRV for just $15,000 over sticker at the time.

After a few minutes of exponentially expanding the vocabulary of the salesman and his boss, we left and left. I pulled into the CarMax lot a few miles down the street on a whim. We found a year-old CRV. (My wife loves them for some reason. This one is her third in a row.) The price was fair, the vehicle history checked out, and the salesman was fantastic. We were in and out in less than an hour.

Neither my wife nor I are car people, so a good car at a good piece is all we ever need. We have better things on which to spend our money than cars. Given the high level of service and great prices we got, I doubt we will ever buy another car anywhere but CarMax again.

CarMax has the size and scale to price its inventory well under its competitors. Its sales strategy is to develop happy customers, not realize the highest gross profit attainable on every transaction. CarMax salespeople are paid the same commission on every car they sell, regardless of price. They have no idea what the profit margin is and no incentive to fight for every possible dollar.

The company is prepared for an economic slowdown, and its pricing and sales strategy should be an advantage in a slowing economy.

Management expects revenue to grow by 12-29% over the next several years, accelerating the growth rate from 2000 through today.

CEO William Nash obviously thinks his company’s stock is a good buy, seeing as on December 30, he broke out his checkbook and spent more than $500,000 to add to his ownership stake in CarMax.

CarMax is not statistically cheap at the current price. The stock is trading at about 21 times earnings right now. However, a customer-first sales and service policy in an industry that has made customer abuse a hallmark should enable CarMax to continue to excel at its business and reward shareholders.

Until 2013 CarMax committed 100% of its capital to opening new brick-and-mortar dealerships. That year, the company began buying back stock and has repurchased shares every quarter since. The share count has been reduced by almost 30% in the years since.

The current buyback authorization still has more than $770 million left, so buybacks will continue to be a part of CarMax’s strategy to build shareholder value.

Buying a little here and adding shares in every steep selloff in the broader market will have enormous long-term rewards for patient-aggressive investors.
But using them, I can beat the market 2-to-1 while collecting 2-10X MORE yield from regular dividend stocks.I learned this trick while I was rubbing elbows with some of the biggest fund managers in US history. They too are buying these little known funds, cashing in huge discounts and collecting income while they do it.Click here to learn the secret yourself.