Investors Alley

The U.S. seems poised for a manufacturing boom as companies tap into government subsidies, pledging to spend tens of billions of dollars on new projects.

The Chips and Science Act and the Inflation Reduction Act (IRA)—passed within days of each other last August—together include more than $400 billion in tax credits, grants and loans designed to foster a domestic clean technology and semiconductor manufacturing base.

As of mid-April, a number of companies had committed a total of about $204 billion in large-scale projects to boost U.S. semiconductor and clean tech production, promising to create at least 82,000 jobs.

While not all these projects were a direct result of these bills, the projects will probably be eligible for the tax breaks. The amount committed in these projects is almost double the capital spending commitments made in the same sectors in 2021, and nearly 20 times the amount in 2019!

Throw in the Bipartisan Infrastructure Law, and you have something reminiscent of Franklin Roosevelt’s New Deal in the 1930s…except that the sheer numbers are much larger. The U.S. government is putting a whopping $2 trillion behind these acts. Measures in the IRA to support climate change initiatives alone are worth about $400 billion over 10 years.

Two trillion dollars is a huge pile of money. And many companies will benefit from the U.S. government’s incentives.

So, how can you invest to get in on this government gravy train?

Power Up Your Portfolio

I want to focus in particular on the Inflation Reduction Act.

There are a number of subsectors that will benefit from the IRA, including: carbon capture and storage, green hydrogen manufacturing, methane emissions capture from landfills, electric grids upgrading, and clean energy sources like wind and solar.

One example is the installation of utility-scale solar power, which is already the cheapest source of energy. Since last summer, shares in the largest U.S. solar stock, First Solar (FSLR), have risen more than 350%, from about $60 to a high of $221.88. The shares currently are around $177 per share.

I prefer to look at a stock that hasn’t gone up as much, even though it just hit a 52-week high: Quanta Services (PWR), which builds, maintains and improves electricity grids.

It operates through three segments: Electric Power Infrastructure Solutions, Underground Utility and Infrastructure Solutions, and Renewable Energy Infrastructure Solutions. The Electric Power segment provides network solutions for customers in the electric power industry. The Underground Utility segment provides infrastructure solutions for the development, transportation, distribution, storage, and processing of natural gas, oil, and other products. The Renewable Energy Infrastructure Solutions segment helps to build, maintain, and repair wind, solar, and hydropower generation facilities, as well as battery storage facilities.

Through a combination of organic growth and acquisitions, Quanta has grown into the largest provider of transmission and distribution (T&D) contracting services in the United States, with an approximately 15% and growing market share.

Quanta will benefit from accelerated capital spending by electric and natural gas utilities and from the expansion of 5G services and rural broadband. In addition, the company is well positioned to benefit from the aforementioned $1.2 trillion infrastructure spending bill, which included funds for renewable energy and electric vehicle charging stations, as well as for technology aimed at helping utilities to manage extreme weather conditions.

In July 2022, Quata was selected to be a lead provider in the rollout of a national electric vehicle charging network. The company will provide turnkey engineering, construction, and program management solutions for the project.

It should not come as a great shock, then, that Quanta ended the fourth quarter of 2022 with a record backlog of $24.1 billion.

I expect this backlog to continue to grow substantially. The Inflation Reduction Act will boost spending on climate change programs over the next 10 years, with much of the spending earmarked for power generation.

The company’s acquisition of Blattner Energy in October 2021 should also help it to benefit from accelerated spending on solar and wind projects. Blattner Energy is one of the leading utility-scale renewable energy infrastructure businesses in North America, providing engineering, procurement, and construction services (EPC) for solar, wind, and biomass projects. The company has a market share of approximately 30% for wind and 10% to 15% for solar, positioning it at the top of the renewable EPC industry.

Here is what research firm CFRA said about Quanta Services, which it rates as a strong buy:

Our Strong Buy opinion reflects our view of rising demand for power transmission and electrification projects in the next few years as PWR provides skilled resources and technology. We forecast robust growth from utilities as we think the industry is in the early stages of a multi-decade modernization program to replace aging infrastructure. PWR is well positioned to benefit from federal infrastructure stimulus in the coming years, as significant funding is directed towards grid hardening and modernization project work.

Quanta is actually a defensive growth story thanks to its exposure to both electric transmission and distribution, as well as renewable energy. That will be a positive catalyst for earnings growth even if the broader stock market suffers from declining earnings per share.

Goldman Sachs energy equity research analyst Ati Modak said Quanta is still a “best-in-class equity expression” of companies with exposure to the megatrends in the electric grid modernization and renewable generation markets.

I totally agree, making Quanta a buy. The stock is up about 20% year-to-date and 42% over the past year. Buy PWR anywhere in the $155 to $185 range.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

As bank stocks fall around us, it is important to remember that the perception of the market is often not reality. In this presentation from my recent MoneyShow appearance, I cover why the banking ‘crisis” is a buying opportunity of historic proportions. We are seeing high-quality banks with plenty of capital, strong balance sheets, and

For almost a year, the stock market has been brutal for those investors who have tried to time the next upturn or downturn.

Since the bear market first bottomed last June (and then again in October), the stock market rallies have run enough to get investors excited before dashing their hopes by turning down again.

But there’s a time-tested way of making money even in these markets. It’s actually simpler, and even takes less time than trying to find the “hot stock” of the day.

Let me show you…

A couple of weeks ago, this chart from the weekly note from the Momentum Structural Analysis technical service caught my eye. The price bars are the monthly ranges for the S&P 500.

The chart really gives a visual of how tough the market has been since early last summer. I expect this pattern to continue until the Federal Reserve decides it has “Whipped Inflation Now.” (That’s a 1970s reference, if you weren’t around then).

In this market, my high-yield Dividend Hunter strategy will give investors a chance to make money while other investing or trading strategies fail. Here are the Dividend Hunter basics:

Focus on building an income stream by investing in a portfolio of high-yield stocks and other investments. The Dividend Hunter portfolio has a current average yield of about 9%.

Continue to buy shares by reinvesting a portion or all of the dividends earned. Also, with additional investments if you are in the building stage of your portfolio.

Portfolio income is the primary tracking metric. As long as income is stable and growing (which it will be), share prices are a negligible concern.

As you reinvest dividends and add new money to your portfolio, you will automatically buy more shares when prices are down (and yields are high) and fewer shares when share prices are up. Over time, the result is a low average cost for your shares and a nicely growing, high-yield income stream.

Then, when the stock market goes into the next bull market, you go, “Heck, where did all this money come from?” as share prices appreciate.

It works. I invest in the same stocks I recommend to Dividend Hunter subscribers. I track my income, and it grows every single quarter. When share prices drop, I get excited to buy more and increase that income.

If you want to get started, look at Hercules Capital (HTGC), which just declared a $0.47 per share dividend ($0.39 regular dividend plus $0.08 supplemental payout). HTGC yields 11.8% on the regular dividend.

For more great high-yield investments, join my Dividend Hunter community.

The pharma giant GSK PLC (GSK) is working to emerge from years with a share price that goes nowhere. The company’s CEO, Emma Walmsley, is still trying to convince investors that she is delivering a “new chapter of growth” after many years of underperformance.

GSK shares are down 3% over the past five years, while its U.K. pharma peer, AstraZeneca (AZN), has soared more than 125%. AstraZeneca shareholders are willing to pay 20 times forward earnings per share for 2023, while GSK’s shareholders are barely willing to pay 10 times earnings.

GSK’s Turnaround

Turning around GSK may be like trying to turn an oil tanker. But make no mistake—Walmsley is turning the GSK ship around.

Last year, the company completed its biggest restructuring in 20 years, spinning off its consumer health division, which sold the company’s over-the-counter medicines, as Haleon (HLN).

So now, investors are now focused on how GSK will spend the £7 billion ($8.72 billion) payoff it earned from the split to make acquisitions to fill its drug pipeline.

GSK needs to re-stock its “medicine cabinet” ahead of the expected loss of exclusivity on its HIV drug, dolutegravir (marketed as DOVATO), towards the end of this decade. It is a big hole to fill: products using dolutegravir generated $1.62 billion in the latest quarter, about 19% of total revenues of $8.72 billion.

One attempt to partially fill that gap is an agreement  to acquire Canadian biotech firm Bellus Health for $2 billion. Bellus has a medicine for chronic refractory cough (CRC), a debilitating and persistent condition that GSK says affects 10 million people worldwide. The drug, camlipixant, is in late-stage trials.

Luke Miels, GSK’s chief commercial officer, said camlipixant had the potential to be “best-in-class” for CRC, for which there are no approved medicines in the U.S. or Europe. If approved, GSK expects to launch the drug in 2026 and see a contribution to its earnings from the following year. Sales could hit $1.1 billion by 2028, according to Wall Street estimates.

The proposed acquisition builds on GSK’s expertise in respiratory therapies. Last year, sales of GSK’s drug for severe asthma, Nucala, rose 25% to $1.74 billion, while revenue from Trelegy, a treatment for asthma and chronic obstructive pulmonary disease (COPD), soared 42%, to $2.12 billion.

Another area of strength for GSK is its vaccine division, which developed the blockbuster Shingrix shingles vaccine. The company has now developed the first-ever vaccine for a common infection, respiratory syncytial virus (RSV). GSK believes its RSV vaccine presents a similar sized market opportunity as its shingles vaccine, which generated over $1 billion of sales in the first quarter. The vaccine may be approved soon in both the U.S. and Europe.

RSV leads to about 2.1 million outpatient visits annually in the U.S., between 58,000 and 80,000 hospitalizations, and 100–300 deaths among children under than 5. For patients 65 or older, each year brings about 60,000–120,000 hospitalizations and 6,000–10,000 deaths, according to the CDC.

The total global market for RSV vaccines is thought to be worth more than $10 billion per year.

Why Buy GSK?

The market seems to be underappreciating the steady core sales growth that was shown in the latest quarter and will likely continue for several years. Also, the market is overly concerned by the Zantac litigation, which I expect will be settled for close to $1 billion, not the $30 billion being sought.

In the latest quarter, GSK’s total sales increased 10% operationally, excluding the expected COVID-19 product sales decline. The growth was broad-based, with solid traction for vaccines (up 15%), HIV (up 15%), and general respiratory (up 10%). GSK’s shingles vaccine Shingrix (up 11%) looks well positioned to post significant gains as more manufacturing capacity has been building.

Sales of longer-acting HIV drugs Cabenuva and Apretude each grew over 100% and now represent close to 10% of HIV drug sales. GSK’s respiratory drug Trelegy (up 28%) is poised for further gains based on leading efficacy in chronic obstructive pulmonary disease (COPD), and the complexity of the molecule likely means less competitive pressure following the 2027 U.S. patent loss.

On the pipeline side, GSK is making solid progress. I expect U.S. approval for GSK’s RSV vaccine in May, with peak annual sales potential over $2 billion. Also, later in the quarter, solid data should be available about the RSV vaccine testing’s durability over two years. This will enable increased pricing power and a stronger position versus competing vaccines. Also, I expect approval for myelofibrosis drug momelotinib in June for patients at higher risk for anemia, leading to another billion-dollar annual sales opportunity

Using industry parlance, GSK’s new formula for success is still undergoing early phase trials.

The good news for value investors is that GSK’s stock still trades at a one-third discount to the overall pharmaceutical sector. The shares currently trade on a forward price/earnings ratio of 9 for the 2024 financial year, which is a significant discount to their peers, with a group average of 15. And the modest size of the Bellus acquisition leaves GSK well positioned to make further deals, as leverage has fallen and cash is still plentiful thanks to the Haleon spin-off.

GSK also pays a decent quarterly dividend. The latest declared dividend is $0.35 per share, giving GSK a yield of 3.85%.

In addition to the ongoing Zantac litigation over whether Zantac causes cancer, concerns persist over the drugmaker’s long-term growth prospects. However, I believe the improving drugs pipeline means that GSK’s days of underperformance are disappearing into the rear-view mirror.

That makes it a buy anywhere in the mid-$30s.

Sitting down with Phil Timyan to talk about banks and bank stock is a rare treat. Phil Timyan has been on both sides of the table as a banker and investor. He has filed 13D on several banks and waged activist campaigns to improve bank operations and even the outright sale of under-performing banks. Phil

Last week’s earnings reports from a few different REITs indicated that commercial office space and commercial lending have not fallen into the crisis the financial media has warned of. The fear in the markets is that low office space occupancy will lead to declining property values and commercial mortgage defaults.

Also, since commercial mortgages are almost exclusively adjustable, rising interest rates hurt commercial property owners with sometimes significant increases in the cost of servicing their debt.

There have been anecdotal stories of downtown office buildings remaining mostly empty post-pandemic. There also has been a couple of defaults on commercial loans. The question now is whether these will be isolated problems or indicate a larger issue with commercial property (especially office buildings) and commercial mortgage lenders.

Last week, a couple of office building REITs, as well as one of the larger commercial loan REITs, announced earnings. Here is what they reported:

Boston Properties (BXP) owns office buildings in Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, D.C. Those cities are often cited when discussing occupancy and value problems. For the first quarter, BXP reported FFO of $1.73 per share, beating the Wall Street estimate by five cents. The company increased its full-year FFO guidance by four cents, to $7.17 per share. The company reported positive net operating income growth and signed 522,000 square feet of office leases during the quarter with healthy GAAP and cash rent spreads. This office REIT posted very good first quarter results. BXP currently yields 7.8%.

Highwoods Properties (HIW) owns business district office buildings in Sunbelt cities, including Raleigh and Charlotte in North Carolina; Nashville, Tennessee; Atlanta, Georgia; Tampa, Florida; and Dallas, Texas. Highwoods reported FFO of $0.98 per share for the first quarter, beating the Wall Street estimate by five cents. At the end of the quarter, occupancy was 89.6%.

During its earnings call, the Highwoods management team acknowledged industry headwinds. They will selectively sell properties as the $518 development pipeline projects come online. The company appears to have a plan for the current market, and the 8.9% dividend yield makes the shares attractive.

Blackstone Mortgage Trust (BXMT) is a commercial mortgage REIT. The company owns a $26.7 billion senior loan portfolio across 199 loans. The portfolio has a 64% loan-to-origination value.

For the first quarter, Blackstone Mortgage Trust reported distributable earnings of $0.79 per share, up 27% over the year-earlier period. Management also noted that 3% of loans were non-performing, and the company had increased its reserves against defaults. The BXMT results highlight both the pros, greater interest income, and cons, higher chances of default resulting from higher interest rates. The shares yield 14.7% on a very well-covered dividend.

The earnings results from these three companies show that the businesses continue operating as expected, but caution levels have ratcheted higher. We are entering a period where market conditions could be very tough on less-than-well-managed companies, but provide once-in-a-decade opportunities to those with dry powder to invest.

Earnings results over the next few quarters will let investors separate the good from the scary in the commercial real estate sector.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

While options block trades can potentially provide insight into what the smart money is doing, it’s impossible to know for sure what the goal of a big trade is. For instance, a 22,000-lot call spread expiring in October appears to have been purchased in iShares 20+ Treasury Bond ETF (TLT) options. This would seem to

Not long ago, I sat down with Jay Soloff, who runs several outstanding options income and trading services at Investors Alley. We had a long discussion about what is going on in the markets in general and banks, specifically. I talked at length with Jay about what has happened in the banking industry since early

Last week I was a speaker at the MoneyShow in Las Vegas. Besides speaking, I like to network with a wide range of investment professionals. I was intrigued by one idea concerning preferred stocks from the discussions: that they will allow investors to benefit from the Fed’s interest rate increases.

Preferred stock shares can be quite bland. Preferred dividends are safer than common stock dividends, with the trade-off that preferred dividends pay at a fixed rate, rather than growing, as common stock dividends can.

Most preferred shares are perpetual but, at some point, become callable by the issuer. Whether preferred shares get called in is entirely at the company’s discretion. I tell my subscribers to think of preferred investing as buying a long-term income stream.

Different preferred stock issues may have a range of features to either enhance the investment potential or protect the issuer. One such feature would be a fixed-to-floating interest, or coupon rate, structure. With this feature, when a preferred stock becomes callable, it also changes from paying a set dividend rate to a variable rate.

The floating rate will be the secured overnight financing rate (SOFR) (which replaced LIBOR, the London interbank offered rate), plus a fixed margin put out in the prospectus. The margin would be lower than the initial coupon rate, and when interest rates were low, the automatic conversion to a floating rate would have been a bad deal for investors.

Now, after a series of interest hikes by the Federal Reserve Board, SOFR stands at about 4.8%, and any preferreds that go fixed-to-floating will be paying significantly larger dividends. Here is an example:

The Rithm Capital Preferred A (RITM.PA) shares have a 7.5% coupon rate. The dividend is calculated on the $25.00 par value, so RITM.PA pays $0.46875 per share per quarter. This preferred share currently trades for $20.90, giving a current yield of 9.0%.

RITM.PA becomes callable and switches to a floating rate on August 15, 2024. The floating rate margin is 5.802%. If SOFR is the same on August 15 next year as it is now, the coupon rate for RITM.PA will jump to 10.6%. If SOFR is above 1.7%, the preferred share dividend rate will increase. Actual dividends are always calculated based on the $25.00 par price.

Of course, Rithm Capital could choose to call in the shares, doing so would mean paying $25.00 per share.

The fixed-to-floating rate means there is a lot of upside plus income potential for investors buying now at around $21.00 per share. RITM.PA is a recommended investment in my Dividend Hunter recommended portfolio.

I know that the managers of the Virtus InfraCap U.S. Preferred Stock ETF (PFFA) are focused on growing their portfolio income with fixed to floating rate preferred issues that will soon convert to floating rate. PFFA pays monthly dividends and yields over 10%.

If the fed funds and SOFR rates stay high, as preferreds go to floating rates, the higher coupon rates should drive up share prices. Watch for preferred stocks that convert to floating rates soon, and are trading at discounts to the par value.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.

Cheryl Pate is one of the managers of the Angel Oak Financial Strategies Income Term Trust (FINS), one of the closed-end funds we own in my Underground Income Service. Normally we would not share this information with everyone, but after giving paid members a first look, we decided her message was too important not to share with everyone.

Given that all the negativity surrounding bank stocks right now is making it difficult for investors to make clear decisions, I thought it was important to see the industry through the eyes of someone who views the industry from a credit as well as an equity perspective.

Cheryl shares my view that most of what we saw in March was a couple of one-off events related to specific developments at Silicon Valley Bank and Silvergate Capital. These developments had very little to do with most community banks across the United States.

Cheryl also points out that there are many bullish events that come out of the volatility that should lead to accelerated M&A activity in the second half of 2023.

This video presents you with information that outlines two massive investment opportunities. One is from the community bank industry in general, and the other is in the fund Cheryl and her team manage. With a 15% discount to net asset value and a yield over 9%, the Angel Oak Financial Strategies Income Term Trust (FINS) offers an extraordinary opportunity for huge long-term total returns. Cheryl also talks about developments in the market for community bank debt that make this fund a must-own for most 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.