Investors Alley

Even with professional investors, herd mentality makes successful investing a daunting task. This year, as you see prediction after prediction about a market decline, stocks have confounded the experts with solid gains. My Dividend Hunter strategy shows investors how to not fall into the “buy high, sell low” wealth destruction cycle.

Last week, one of the morning emails from Bloomberg noted: “…stocks are doing well. 2023 continues to be a great year. The S&P 500 is already up over 8%, while the NASDAQ is already up over 16%. If you just stopped things here, 2023 is a winner.”

The following paragraph discusses how, despite the good results in the market, sentiment remains negative. The exact words were: “…rallies are always hated these days.” The most recent Bank of America fund manager survey shows that active fund managers are the most pessimistic they have been since March 2009. Here is the tell-tale chart:

The chart shows the relative weighting between stocks and bonds by the fund/asset managers surveyed by the Bank of America. The peaks show when the investment pros were most heavily weighted in stocks and the low points where they had the lowest percentage of assets in the stock market.

For me, a few of the highlighted dates pop off the chart. March 2009 marked the absolute bottom of the Great Financial Crisis bear market. The post-pandemic bull market started in late Spring 2020 and peaked during the very first days of 2022. Last year was a true bear market, and now that stocks have turned up, money manager stock allocations are at the lowest level since 2009.

Two points to take away from this: first, no one can predict market downturns and bull markets. Professional fund managers consistently get it wrong. Second, there is a huge herd mentality among financial professionals. They all read the same reports and look at the same data. Also, those folks who manage money tend to not be the ones who show up on the financial news making bold predictions.

I don’t know if we are on the verge of a new bull market. My opinion is that stocks will stay range bound as they have for almost the last year. I may be wrong. (I am probably wrong.) We now operate in an investing world where every little bit of news moves the market until the next news item comes along.

For my Dividend Hunter subscribers, I recommend and teach a strategy to invest in building a growing income stream using high-yield investments, stocks, and ETFs. The focus is not on share prices because they are not predictable.

However, when you want to build up your portfolio income, you naturally end up buying more when prices are down, and you will see your portfolio value grow nicely when the market turns bullish. All along the way, the Dividend Hunter strategy focuses on building a growing income stream, a goal entirely within your control.

Let’s close out with an investment idea. REITs have performed poorly (actually, terribly) for the last 15 months. I don’t know if real estate stocks have bottomed, but I know you can invest in the Hoya Capital High Dividend Yield ETF (RIET) and earn a 10% yield with monthly dividends until the investing world realizes that real estate will never go away.
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.

Imagine a company whose stock that hit an all-time in December 2021, after soaring 50% that year. And that company’s sales doubled in the two years leading up to 2022. And its operating profits quadrupled.

Also imagine a company whose biggest product is set to see its sales collapse in the next three years from about $38 billion in 2022 to $10 billion in 2025.

Guess what? These two companies are actually one and the same: the pharmaceutical giant, Pfizer (PFE).

Pfizer’s fortunes soared during the pandemic, thanks to its partnership with BioNTech (BNTX) on the highly successful BNT162b2 COVID vaccine.

But what about post-pandemic Pfizer?

I believe this company is a perfect candidate for an equity income fund…or for an individual investor looking for a stock with rock-solid fundamentals and a nice dividend yield, which currently stands at nearly 4%.

Pfizer’s Fundamentals

Sure, Pfizer’s earnings are forecast to fall sharply in the current year—from $6.58 per share to about $3.62 a share. But that will still allow the dividend to move upwards with an acceptable level of cover. The payout ratio would rise to 46%, still well below Pfizer’s 10-year average ratio of 67%.

Other measures of Pfizer’s operating performance also show the company is quite healthy.

Sure, Pfizer’s 37% profit margin will no doubt shrink as demand for the COVID fades. But, if you take the longer-term view of Pfizer, you will see its profit margin has averaged 27% for the 10 years leading up to 2022. In that same period, Pfizer grew its revenue by a compounded 6.3% per year, and operating profits rose by 7.6% a year.

In the next year or so those long-term growth rates will slow a bit; however, they will still remain darn good. Wall Street forecasts are for Pfizer’s 2025 operating profit to be almost $24 billion (versus a peak of about $40 billion in 2022). That implies a nice, steady 10-year growth rate of 6.0% from 2015’s $13.3 billion.

If we peer ahead to 2025, Pfizer’s vaccine, BNT162b2, is likely to remain its biggest single revenue source. But Pfizer is much more than the vaccine, thanks to a portfolio of drugs that are either already approved by the FDA or are in the approval pipeline.

One such drug is Eliquis. This anticoagulant, which is a vast improvement on the older, more common warfarin, had sales of $6.5 billion in 2022. It may exceed $8 billion in sales by 2025. There is also Pfizer’s Prevnar group of vaccines, which protect against streptococcus bacteria.

Pfizer Refilling the Drug Pipeline

There is little doubt that Pfizer must refill its “medicine cabinet”—and quickly.

In addition to slowing COVID vaccine sales, Pfizer faces the loss of market exclusivity for several blockbuster drugs—including cancer medicines Xtandi and Ibrance—known as a “patent cliff.” This is expected to blow an additional $17 billion hole in Pfizer’s annual revenues by 2030.

So, Pfizer management is undertaking several moves…

First, the company is jumping into the weight loss drug sector. On December 12, it laid out plans to push ahead with a late-stage trial of an oral GLP-1 drug with potential to treat diabetes and obesity. At an investor event, the company touted the potential to claim $10 billion in annual sales by 2030. This once-a-day pill could gain a competitive advantage over weekly or monthly injections.

Pfizer has also agreed recently to acquire oncology-focused biotech firm Seagen (SGEN), for a total enterprise value of $43 billion. Seagen is a pioneer in antibody-drug conjugates (ADC), a class of drugs designed as a targeted therapy for cancer cells. They work by seeking and killing tumors without hurting healthy cells. Seagen’s four approved ADC drugs generated $4 billion in sales in 2022 and are considered first or best in class for the conditions they treat.

Complex manufacturing of these ADCs should reduce rivalry from generics. Pfizer believes the business could contribute more than $10 billion in risk-adjusted revenues by 2030, or about a seventh of today’s sales.

Pfizer CEO Albert Bourla said that oncology continues to be “the largest growth driver in global medicine,” so the deal contributed to the company’s near- and long-term financial goals. Pfizer already has 24 approved cancer medicines, and 33 others are in clinical development.

Add this all up and Pfizer looks like a good long-term investment for more conservative investors—despite Wall Street doubts. It’s especially promising since it is trading very near its 52-week low and back to levels not seen since 2021.

PFE can be bought anywhere around $40 a share, locking in that 4% dividend yield.

Investors never know for sure if a company is going to post better earnings results than expected. That’s why there are always earnings surprises. However, that doesn’t keep traders from making educated guesses. In the case of Amazon (AMZN), a trader recently purchased 17,000 bullish call spreads that expire the day after earnings come out.

High current yields and growing dividends are the cure for the directionless market. And if we are in for a “lost decade” from the stock market, yield plus growing dividends is one strategy that will still produce positive total returns. The strategy works in any market—bull, bear, or stagnant.

Let me show you.

Over the last few years, master limited partnerships (MLPs) focused on growing free cash flow, providing a higher level of coverage for dividend payments. Starting in around 2017, these companies spent their time building cash flow with little to no dividend growth.

MLPs operate in the energy midstream sector. These companies own and manage assets such as pipelines, processing plants, and terminals. MLP revenues come from long-term, fee-based contracts. The midstream sector generates much more stable revenue than upstream drilling companies and downstream refiners.

Unique among midstream companies is the use of the MLP structure. Investors are technically limited partners instead of shareholders. There are some tax implications to MLP ownership that I will touch on below.

But first, let’s talk about cash flow for the MLP sector. A recent VettaFi article reported that MLP sector dividend coverage increased from 1.4 times in 2018 to 2.3 times in 2022. The coverage is the ratio of free cash flow divided by the dividends paid to investors. Five years ago, 1.2 to 1.4 times coverage was considered adequate.

From 2020 through 2022, MLPs stopped or slowed dividend growth while their free cash flow continued to grow. The major companies in the group all followed the same strategy to increase financial stability. Starting this year, the major MLPs really started to increase the distributions paid to investors. Here are a couple of examples:

In November 2022, MPLX LP (MPLX) increased its dividend by 10%, compared to a 2.5% boost in 2021.

In April 2022, Western Midstream Partners LP (WES) increased its dividend by 53%. The payout had previously grown by less than one percent per year.

In January 2023, Plains All American Pipeline LP (PAA) increased its distribution by 23%. This was the second consecutive 20%-plus annual increase.

The Alerian MLP Infrastructure Index has a current yield of 7.9%. My research indicates the MLPs in the index are likely to grow their distributions by 8% to 10% per year going forward. A combination of 8% yield plus 8% dividend growth will produce mid-teens compounding annual returns over the long run.

Now, back to those tax implications: If you invest in an MLP, you will receive a Schedule K-1 for tax reporting. K-1 requires some extra work at tax time. Also, you should not own any K-1 MLP shares in a tax-qualified account such as an IRA; otherwise, there can be severe tax consequences.

On the plus side, MLP distributions are classified as a non-taxable return of capital. Instead, the distributions reduce your cost basis.

An MLP ETF allows you to receive a 1099 for taxes but also passes through the return of capital tax advantage. The Alerian MLP ETF (AMLP) tracks the index and currently yields 7.8%. The InfraCap MLP ETF (AMZA) is actively managed and pays stable monthly dividends. AMZA currently yields 8.8%.
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.

This week in Hidden Profits Report, I’m introducing a new feature. This is a topic I will revisit from time to time when I see the type of extraordinary opportunities I am going to talk about today.

This part of Hidden Profits is for investors who want to get rich.

I don’t mean “hitting the lottery rich” or “finding some super top-secret option trading system that will make you rich by 4:00 next Tuesday” rich.

Instead, this is the “do what history shows works time after time to make money” way to build wealth…

Look, the odds of hitting the Powerball are 1 in $292 million.

You have a better chance of being hit by space debris (1 in 10,000 according to scientists interviewed by the BBC recently) or being attacked by a bear (1 in 2.1 million) than you do of winning the lottery.

Odds may be better for the options trading systems but not by much.

I have seen just about every options trading scheme that can be imagined over the past thirty years.

To my misfortune, I have even tried a few.

I do know some folks who have done very well trading options.

Options trading did not make them rich overnight.

Most sold options far more frequently than they bought them.

Most of them know math at a level that would make a NASA engineer blush.

Options trading is a full-time job for them. They are grinding out fortunes, not hitting windfalls from highly speculative bets.

So, what I want to talk about is not a “get rich quick in the markets” scheme.

It’s the “quit trading and start buying businesses” approach to getting wealthy.

It’s not for the faint of heart. We will buy businesses in industries wildly out of favor with Wall Street and the investing public.

Your odds of success are good with this approach.

That does not mean it will be easy.

And it will not happen overnight.

At times the volatility will make you want to scream (or vomit).

You will probably see your account balance fall by 50% or more several times during the journey.

With all that in mind, let us start on the first part of the journey.

The first step is forgetting everything you learned in college. Forget what your broker told you about things like diversification and asset allocation.

That is all for protecting wealth and earning a decent rate of return, not building it.

If you are ready, let’s start out on the first steps of our journey to get as rich as possible as quickly as possible.

When you look at industries everyone thinks are on the verge of collapse, real estate must be at the top of the list.

I have read so many headlines about the coming real estate financial Armageddon that it is starting to be exhausting.

Real estate values are going to collapse, which will cause all the banks to fail.

According to financial media and the latest crop of instant experts, trillions of CRE-related debts are coming due, and it may well mean the end of the world.

Digging beyond the headlines and sound bites exposes this fascinating story as the load of “horse deposits” it is at heart.

The problem is with offices.

It’s not all offices. Just the big city downtown offices where people have embraced work from home and that has changed the need for office space for many companies.

I don’t see an issue when I look at residential-related real estate warehouses, logistic properties, self-storage assets, and data centers.

Demand is high, vacancies are low, and rents are stable.

The property owners in these segments of the CRE market may have to pay higher rates to roll over maturing debt, but there will be little of a problem passing at least some of the costs onto tenants.

Everyone is talking about the fact that Blackstone Inc. (BX) and Starwood Capital have had to limit withdrawals from their closed-end commercial real estate funds. It seems that high-net-worth investors and institutions wanted to take cash out.

Both funds have monthly and quarterly withdrawal limits to prevent selling properties at the wrong time.

It makes a statement of the opinion of investors about real estate but says nothing about valuations or the finances of real estate companies.

No one is talking about the fact that Blackstone just closed on one of its largest institutional real estate funds of more than $30 billion. The fund will be investing in CRE segments like logistics, rental housing, hospitality, lab office, and data centers.

Starwood just closed a $10 billion fund and has been investing in single-family homes and logistics properties, and hotels.

Increasingly publicly traded real estate-related investments reflect all the potential negatives and then some for real estate over the next year.

Let me be clear that it will get bumpy.

There will be a recession at some point. I have been saying that for over a year, and now even the Fed agrees with me.

The headlines will continue to be negative because negative sells.

The prices of real estate-related equities are going to be very volatile. I expect to see wild swings in both directions.

The swings create the opportunity.

Buying real estate securities on the down sings will plant the seeds of a fortune to be harvested several years down the road.

On Thursday, we will start to look at real estate companies that have the financial strength to survive the volatility and provide patient-aggressive investors with massive gains.
Check out the picture on the next page. It’s a beat up building that would’ve turned $25k into $4.1 million. It’s not a real estate play. Actually, with the Fed raising rates, it’s the best asset to buy right now. View this beat up, millionaire-making asset.

With the fall of Silicon Valley Bank, the financial news media has remained focused on finding the next “crisis” of the day.

The so-called banking crisis petered out after a couple of weeks, but that didn’t stop the pundits from using it to proclaim that commercial property values and commercial mortgages would be the next problem for the banking industry.

Let’s dig in – and find the opportunity…

Here is how the story goes:

An article in Bloomberg last week noted that a $1.5 trillion “Wall of Debt” is approaching for commercial property owners. As a result, office and retail properties may fall by as much as 40%.

The crisis theory involves owners being unable to refinance because their property values have fallen. Also, lenders—mainly local and regional banks—may be in trouble when property owners default on commercial mortgages.

There are several fallacies to the argument. Bloomberg states that $1.5 trillion of commercial mortgages will mature between now and the end of 2025. But property owners will start lining up new financing many months before their current loans mature. You won’t see banks out repossessing commercial properties because the owner made the last payment and didn’t plan ahead.

The article also focuses on office and retail properties. For both of these types of real estate, there is a tremendous range of quality or status and location. A Class-A office building in Miami will not decline in value, and an owner will have lenders lined up at the door to offer terms on a new loan. And yet a Class-C office building in San Francisco may soon lack tenants as work-from-home policies remain the norm.

There exists a wide range of commercial property types. Hopefully, lenders in the space have spread their risk across different types of properties. For example, here is the breakdown for the commercial loan portfolio of Starwood Property Trust (STWD):

There is a risk that regulators may tighten lending and asset standards for banks. Smaller local and regional banks would be the most affected. Smaller banks have provided 30% of the credit for office properties and 46% of the financing of retail properties.

Challenges for a specific group of lenders, in this case, smaller banks, provide opportunities for less regulated sources of real estate financing. Over the last month, the commercial mortgage REIT stock prices have fallen along with bank share prices. These REITs have excellent long-term track records, and I would expect them to take advantage and thrive in a credit-challenged real estate market. Here are three to research:

Starwood Property Trust (STWD) is currently yielding 11%.

Blackstone Mortgage Trust (BXMT), paying 14.5%.

Arbor Realty Trust (ABR), with a current yield of 15%.

I recommend two of these three to my Dividend Hunter subscribers. See below on how to join.

The global transition away from fossil fuels in favor of low carbon energy sources is accelerating. In 2022, a little more than $1 trillion was invested in new technologies such as renewable energy, energy storage, carbon capture and storage, electric vehicles, and more.

Not only is this a new annual record amount, but—for the first time ever—it matches the amount invested in fossil fuels, according to Bloomberg New Energy Finance (NEF).

However, at the same time that copper demand is growing due to the energy transition, the global supply pipeline is running thin, due to shrinking exploration budgets and a dramatic slowdown in the number of new deposits discovered, as well as the quality of those deposits.

That’s why—after a long period of relatively small deals—large mining mergers and acquisitions deals focused on copper are back in a big way.

Here’s the ones to look at…

Mining M&A

The latest salvo came from mining giant Glencore PLC (GLNCY), which announced on April 4 an unsolicited $23 billion offer to buy Canada’s Teck Resources (TECK). If the offer is accepted, it would create the world’s third-largest copper miner, producing 1.4 million tons of the metal a year.

On April 11, Glencore sweetened its offer. Under the revised proposal, it has offered to pay a cash element that could amount to $8.2 billion to buy Teck shareholders out of their stake in a coal-focused spin-off, while also granting them a 24% stake in a separate industrial metals business that would be created off the back of the deal.

“Glencore acknowledges that certain Teck investors may prefer a full coal exit and others may not desire thermal coal exposure,” the company said in a statement. As such, the revised offer allows investors to choose cash instead of shares or a combination of both in the coal spin-off. However, the valuation of the total offer remains the same as the original bid, at about $23 billion.

Glencore is hardly alone in its interest copper. The M&A spree extends to the $6.5 billion bid for Australia’s Oz Minerals by BHP Group Ltd (BHP), the recent takeover of Turquoise Hill by Rio Tinto PLC (RIO), and the Newmont Mining (NEM) unsolicited $17 billion offer for Australia’s Newcrest Mining (NCMGY), which was raised to $19.5 billion on April 11.

Under the terms of the revised Newmont offer, Newcrest shareholders would also get some cash. This would be a special dividend of $1.10 a share, worth almost $1 billion in total. Newcrest investors would also get a bigger share of the combined company. Newmont is offering 0.4 of its own shares for each one they hold, up from 0.38 at the previous attempt.

All these deals have something in common: copper. The world’s need for copper is driving this surge of interest from miners, all of whom anticipate a shortage later this decade, and have plenty of cash to put to work after years of high profits.

As we seek to electrify everything, from power generation to transportation to heating (heat pumps), copper is the one material that’s used everywhere in the energy transition. Copper’s essential role in electrical wiring, grid infrastructure, wind turbines, and electric vehicles makes it indispensable for the energy transition.

Demand for copper could rise to 40 million tons a year by 2030, up from 25 million tons a year in 2021, according to estimates from S&P Global. Given that it takes up to a decade to open a producing copper mine, the coming shortfall is inevitable.

However, much of the world’s most accessible, high-grade copper deposits have already been mined. The stark reality was laid out by S&P Global, which stated that most of the copper that’s being produced currently comes from assets that were discovered in the 1990s!

That leaves relatively few high-quality copper resources still available, with the easiest way to find such resources on the stock market and not through exploration. That has led to fierce competition among the major miners for these dwindling resources.

BHP Group

Among the major miners, my top choice remains BHP Billiton. The company mines copper, silver, zinc, molybdenum, uranium, gold, iron ore, as well as metallurgical and thermal coal. It also is involved in mining, smelting, and refining of nickel and potash production. Most of its revenues come from assets in the relative safe havens of Australia, North America, and Europe.

To say the least, the company—the world’s biggest mining company, as measured by market capitalization—is doing quite well.

Adjusted free cash flow in fiscal year 2022 totaled $24.3 billion (a new record year) and up from the previous record of $19.4 billion, set in the 2021 fiscal year. That has allowed BHP to pay down its debt—net debt of $333 million, as of June 30, 2022, is down from more than $20 billion in the 2016 fiscal year.

This puts BHP in a position to weather economic cycles—especially since its generally low-cost, high-quality assets mean the company is one of the few miners that can remain profitable through the commodity cycle.

Despite weak output from its flagship Escondida mine in Chile, BHP management maintained copper guidance, given the strong performance of the company’s other copper mines. BHP’s copper division accounts for about 20% of the miner’s forecast earnings.

The company is paying a fair price for Oz Minerals. And with net debt of about $7 billion—around 0.2 times its EBITDA (as of the end of December 2022), BHP can easily afford the $6.6 billion price tag for Oz Minerals.

BHP’s offer is a bet on copper as well as nickel, with continued confidence in Australia’s relatively stable geopolitics. The deal will also offer BHP a pipeline of growth opportunities.

Oz Minerals’ Prominent Hill and Carrapateena mines are both close to BHP’s Olympic Dam mine (the world’s fourth-largest copper deposit and the largest known single deposit of uranium) and Oak Dam prospect, opening up the potential for synergies with infrastructure. And Oz’s West Musgrave nickel and copper project in Western Australia is under construction. It will likely supply nickel to BHP’s Nickel West operations once fully ramped up later this decade.

BHP shares have rallied by 17% over the past six months. I expect more to come. While its dividend will not be as massive as it had been over the last year or two, BHP will still treat shareholders generously. The current dividend yield of 8.8% is nothing to sneeze at.

The stock can be bought anywhere in the low $60s per share.

I put out calls to traders and managers I know on Wall Street to get their take on the recent economic data.  This is data the Federal Reserve also uses to make decisions… And they told me some surprising things.  One of them being that bond yields look as if they’re about to collapse. We

Major changes are underway at Alibaba (BABA), China’s best known e-commerce company, which was founded 24 years ago by Jack Ma.

And this time, Ma is hoping for better results. The last time Alibaba made a big move to reorganize its business, the company set in motion a chain of events that led to a proverbial train wreck—a clash with Chinese regulators, the disastrous cancellation of what would have been the world’s biggest IPO (of its fintech unit Ant Group), and a crackdown by the government on Big Tech.

This time around, Alibaba hopes to please both investors and Beijing bureaucrats with a major restructuring into six business units.

In a way, it’s reminiscent of the forced breakup of the old “Ma Bell” telecommunication system by the U.S. government (a consent decree signed on January 8, 1982) into seven regional “Baby Bells” that were ultimately formed in 1984.

Let’s take a look…

BABA’s Restructuring

It appears that Alibaba presented its restructuring plan to China’s regulators before announcing it publicly and received positive feedback from Chinese regulators that remain eager to see China’s tech giants slim down their empires.

The company portrayed the revamp, in which Alibaba itself would become a holding company, as a way to “unlock shareholder value and foster market competitiveness.”

Alibaba certainly needed to do something. Its shares had lost more than 70% of their value since Jack Ma made a 2020 speech criticizing China’s financial watchdog and banks. It was languishing near where its ADR began trading in the U.S. in 2014.

Under the proposed restructuring, Alibaba’s six new business groups will be focused on: e-commerce; cloud computing; local services (food and grocery delivery, mapping apps); logistics; digital commerce (Lazada, AliExpress, etc.); and media (Youku, Alibaba Pictures, etc.). The company’s main moneymaking units—its Taobao and Tmall e-commerce platforms—will remain wholly owned by the main company, Alibaba.

These six business units had already been operating separately for several years, so IPOs for all of them over the next several years would not be a surprise.

What’s It Worth?

Goldman Sachs analysts estimate Alibaba’s e-commerce business holds the vast majority of its value, worth about $103 a share, followed by Ali Cloud at $16 a share, and its international business at $12 a share. Goldman estimates that all the units combined are worth $137 a share.

However, I would not be surprised to see some of these “Baby Babas” actually fold, the cash generated by Alibaba’s e-commerce is spread across the other businesses. In effect, the subsidies will end with no money engine to feed the other businesses. This is a conglomerate that may be stronger as a whole rather than as individual business units.

But some of the Baby Babas will be able to stand on their own.

One of these is Alibaba’s logistics unit, Cainiao. Not only does it deliver throughout China, but it also ships packages that shoppers have bought on AliExpress, the group’s international sales platform.

In the fourth quarter of 2022, Cainiao was Alibaba’s fastest-growing business line, with sales up 27% from a year earlier, and it was operating at nearly break-even.

Alibaba’s cloud computing unit could also attract investor interest. Its business is recovering smartly after China’s zero-COVID policy lockdowns ended.

And since the Chinese government is pushing for semiconductor independence from U.S. influence, it would not be a shock to see Alibaba’s semiconductor unit, T-Head, get funding from government-related entities and possibly IPO.

However, don’t look for an IPO of Ant Group yet. It has been in limbo for more than two years and is yet to complete a government-mandated revamp. To appease regulators, Ma opted to give up control of Ant in January. That change, under Hong Kong listing rules, will delay any IPO for at least a year.

Buy BABA

BABA’s stock has rallied a good bit on the back of this restructuring announcement. It has jumped from about $86 a share to over $100 a share.

Yet, it still is very cheap, trading at just at 8 times forecast EBITDA. That is a third below the valuation of Amazon (AMZN).

I believe, thanks to the restructuring, investors will be more inclined to value Alibaba using sum-of-the-parts valuation. And I am more in the camp of Morningstar than Goldman Sachs on that valuation.

Morningstar thinks Alibaba is significantly undervalued. Under a sum-of-the-parts valuation, its analyst Chelsey Tam said “Assuming a 20% holding discount of all the five business segments, we value Alibaba at $172 per ADS…The shares are trading at just 11.6 times next-12-month P/E as per PitchBook as of March 30, which is undemanding. We think the current market capitalization ascribes zero value to all the other five businesses, its 33% stake in Ant Group, and all the strategic investments booked on the balance sheet.”

Alibaba’s internet services had annual active consumers of over 1 billion as of March 2022. And core annual active users on Alibaba’s China retail marketplaces had a retention rate of over 90% for the year ended September 2021. Those are impressive numbers.

I also think that BABA’s Ant Group stake and its ownership in China’s leading logistics company, Cainao, are being valued at near zero by investors, so around $150 a share is fair value for its stock. That’s makes its current stock price a bargain, a rarity in the current stock market.

BABA is a buy anywhere under $110 a share.
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.

In the classic movie Ghostbusters, Gozer the Destructor appears in the form of the StayPuft marshmallow man, and the end of humanity is narrowly avoided thanks to the high-risk maneuvers of the ghostbusting adventurers.

In the stock market, the form of the Destructor changes with frightening regularity: For much of last year, it was inflation and rising interest rates. A few weeks ago, it was the social media-manufactured banking crisis.

And now there’s a new Destructor allegedly wreaking havoc on the economy. But all it’s actually doing is giving us a great profit opportunity…

Each form of the Destructor has a kernel of truth, which varies in size. Inflation and rising rates have been an issue for stock prices and may well continue to be a problem. The kernel in the banking collapse was smaller, but it dominated the headlines and market activity for a couple of weeks.

As soon as that passed, the Destructor assumed a new form: commercial real estate (CRE).

As with the other recent Destructors, there is some truth here. Higher rates can be a problem for commercial real estate. Morgan Stanley’s chief investment officer, Lisa Shalett, pointed out in a recent report that office properties were facing a wall of refinancing this year at much higher interest rates.

The report also speculates that more than a trillion dollars of office-related debt will need to be refinanced over the next 24 months. Shalett goes on to suggest a peak-to-valley trough for commercial real estate prices of 40%.

Morgan Stanley is not the only firm talking about potential problems in office markets. For example, Joan Solotar, the global head of private wealth solutions at Blackstone (BX), recently told Bloomberg that traditional office in the United States is much worse than most people think.

She also said that Blackstone’s real estate fund had reduced its holdings of U.S. offices to just 2% of assets and focused on stronger segments like data centers, warehouses, and single-family rentals.

While I am in complete agreement as to the difficulties facing the office market in the U.S., I will point out that the Destructor appears in the financial markets every few months with world-ending predictions, and yet with the exception of those who overleveraged or ignored valuations, most of us are still here.

Those who rush to name the latest form of the Destructor almost always leave out a few details, and in those details, there are opportunities.

In the internet bubble, the Destructor’s disciples left out the fact that when the markets collapsed and weak companies ceased to exist, the stocks and bonds of those tech companies that were strong enough to survive represented a life-changing opportunity for massive profits. And in 2009, almost no one was talking about how high the price of surviving banks and other financials could climb as the Great Financial Crisis ground to a close.

I hear a lot of people talking about how the regional and community banks have a lot of commercial real estate loans on the books. I hear very little discussion about how low loan-to-value ratios are for these loans. And I hear even less about how low the percentage of total commercial real estate loans are center city office loans in community banks portfolios.

Does anyone think that a bank in Youngstown, Ohio, with branches located, for the most part, in small midwestern towns, is exposed to New York or Chicago office towers that will have refinancing and occupancy problems?

The bank is more likely to have exposure to office buildings full of local accountants, financial planners, brokerage firms, realtors, dentists, and insurance agencies—people who have been back in the office for a long time. Their rent is current, and their mortgages will be paid.

And yet the shares of smaller banks with pristine loan portfolios with little exposure to the riskiest part of commercial real estate are priced like they bet it all on Midtown Manhattan offices.

No one is talking about the fact that an office building in Tampa has different characteristics than one in Chicago. Sunbelt office real estate is doing more than just fine—it is booming. If a current owner struggles to refinance, willing buyers are waiting.

Everyone talks about Joan Solotar’s comments on offices. I hear very little about her comments on where Blackstone is investing capital.

Real estate investment trusts (REITs) that invest in data centers, apartments, and other strong segments of the commercial real estate markets have seen their prices decimated in the past year despite strong and improving fundamentals.

The form of the Destructor has been chosen: It is commercial real estate.

As is always the case, those who are overleveraged or ignored valuations will suffer enormous pain.

Those patient-aggressive investors who recognize that every step the Destructor takes sows the seeds of massive opportunities will be in a position to collect outsized profits.
It’s not REITs or blue chips like Disney. A small, little-talked about area of the dividend stock market is pumping out market-beating returns like no tomorrow. Over 22 years, they’ve handily beat the market… and I have the #1 stock of these to give you now.