Investors Alley

The past couple of weeks, we’ve talked about how looking at the right 13F filings can reveal some of the greatest investments to make right now.

It’s like having Wall Street’s best analysts working for you, for free… If you know what to look for, of course.

But before we move on to other segments of 13F analysis, I want to take one more trip into the land of deep-value investing. It’s a neighborhood that many people talk about, but only a few people ever visit.

Which is too bad, because the profits to be made there are impressive…

In many ways, the deep-value neighborhood reminds me of Greenwich Village in the 1970s. A lot of people claim to have been there, but few actually were – driving through on a double-decker tour bus doesn’t count.

Similarly, lots of people talk about value investing. But almost no one actually practices value investing.

If you want to be the biggest fund, which means collecting the most fees, you cannot be a successful deep-value investor.

You can be a relative value investor and buy companies that trade at lower valuations than the indexes or competitors, sure.

There are several money management and mutual fund firms that started as deep-value investors and got too big to continue and had to move to relative valuation.

You can do what Warren Buffett, Seth Klarman, and several other wildly successful former deep-value investors have done and become a bear market buyer. It’s the best way to deploy billions of dollars into liquid securities at low valuations.

This is because being a deep-value investor – that is, buying stocks that trade in the lowest decile of valuations based on price to tangible book value – usually involves smaller companies. And it is impossible to move the needle of a multibillion-dollar firm investing in small companies.

After all, even a 10X return doesn’t mean much if the initial investment wasn’t a big chunk of your billion-dollar fund’s portfolio.

But having billions of dollars and nothing to do with them isn’t a problem for you and me.

For us, the kinds of companies deep-value investing targets are plenty big enough to move the needle in our retirement accounts.

That’s right – when it comes to deep-value investing, you and I have a huge advantage over the big players on Wall Street.

The firm I will highlight today understands this, and says on its website that it will always prioritize performance over asset growth.

Since opening its doors in 1998, the firm has done precisely that. Aegis Financial Corp.’s Small-Cap Deep Value Fund (AVALX) has just $274 million of assets despite outperforming the S&P 500 by a little over 50% since inception.

Much like Donald Smith and Company, which we talked about last time,  Aegis buys stocks at the lowest valuations based on price to tangible book value.

Donald Smith and Company uses the bottom 10% of stocks based on this measure, and Aegis widens the universe to the bottom 20%.

The firm then begins the underwriting process of evaluating the companies to make sure they are financially strong enough to survive until they thrive.

They take that surviving universe and do a deep dive to cut the list down to the 40 -50 stocks they will own in the fund.

Most of the stocks will be smaller companies no one has heard of.

Many of the companies owned by the fund will be in industries the market hates.

For instance, the firm’s mutual fund, AVALX, currently owns quite a bit of coal stock and was buying more at the end of the year. It also holds a lot of gold and metals miners as well as steel and alloy producers.

The newfound religion of ESG (Environments, Social, and Governance) investing that has infected Wall Street over the past few years hates all these industries.

As hated as these companies may be, they are collectively a big reason why the fund had a positive year in 2022.

They are also a big part of the reason that owning the top 30 holdings of Aegis Financial has beaten the S&P 500 by about 2-to-1 over the last decade.

The four largest purchases of the firm in the last three months of the year were coal and gold stocks. However, I am not a gold fan and will leave it to gold-loving readers to decide for themselves if Centerra Gold Inc. (CGAU) and Equinox Gold Corp. (EQX) are appropriate for their metals stock allocation.

Both are cheap based on asset value.

Coal was supposed to be on its way out, but underinvestment in oil and gas and a massive overcommitment to unachievable energy policy goals have revived the industry.

History books will not be kind to the current habit of developing energy policy based on politics (no back-patting here for anyone – both sides do it), but that is the world we live in today.

Aegis was buying more of Peabody Energy Corp. (BTU), and Hallador Energy Co. (HNRG) as 2022 came to a close.

The fund increased its position in energy and materials stocks in the last quarter as these sectors weakened.

A quick web search will take you to Aegis Financials’ website, where the fund managers’ letters serve as an advanced course in deep-value investing.

Deep-value investing is not for everyone.

It should be, but fortunately for the handful of us who embrace the concept, the idea of buying cheap stocks never takes hold with most peopleFor those of you who love bright and shiny things when it comes to investing, our next edition of the Hidden Profits Report will look into finding the very best tech stocks no one has ever told you about…
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.

Last week, I showed you how I make one of the most difficult choices an income investor will ever face: when to sell a stock to lock in a profit.

Today, I’ll cover the only decision that’s even harder. I’m of course talking about when to give up on a stock, let go, and sell it at a loss…

New Dividend Hunter subscribers often ask about my criteria for selling a stock. Most are looking for some percentage loss or gain on a stock as a trigger to sell. I stay away from any rules not based on the underlying fundamentals of each recommended investment.

Over the years, I have found that the annual portfolio turnover for the Dividend Hunter portfolio averages about 25%. To me, with a buy-and-hold investment strategy, that number seems high, but it is surprising how the investment outlook for companies can change. Over eight years of Dividend Hunter investing, there has been about an equal 50/50 split between stocks sold for a profit and those on which we took a loss.

The reasons to sell fall into three distinct categories. I will cover each reason in a separate article. Today, in the third installment of this series, I’ll cover when to sell a stock at a loss.

I am frequently asked what amount of decline would trigger a sale. Many investors come from other strategies that tell them to sell after a 20% (or similar amount) decline to protect against further losses.

With a focus on investing to generate a high-yield cash income stream, a falling share price is not usually a good reason to sell. As long as the company continues to pay its regular dividends, a lower share price should be viewed as an opportunity to add shares to boost your average yield and income. A falling share price does not indicate that the dividend will be cut—at least most of the time.

Instead of basing decisions on share price, it’s an actual threat to the dividend payment that will trigger a sell recommendation. Occasionally, you can see a dividend cut coming, such as when a company’s profits decline and fall to the point where it earns less than the dividends it pays to investors. At that point, it’s a judgment call whether the business can recover; if it can’t, the dividend will soon be reduced. I will usually take the conservative path and recommend selling.

A dividend cut or suspension will almost always trigger a sale. These often come as a surprise, or the result of an unexpected event. The pandemic-triggered shutdown pushed a lot of companies to stop paying dividends. When that happens, the best course will be to sell and take the loss on the shares.

Fortunately, surprise dividend cuts are rare with a well-researched high-yield portfolio (such as the Dividend Hunter portfolio).

The bottom line is that a decision to sell a stock, especially when the share price is down, should be based on the fundamentals of the company’s business. If the profits stay predictable and the dividend is secure, a lower price is an opportunity to buy. If the fundamentals erode, that would be a reason to sell the shares.

One example that is not apparent concerns the exchange-traded notes (ETNs) offered by Credit Suisse Group AG (CS). Here are three popular funds:

Credit Suisse Silver Shares Covered Call ETN (SLVO)

Credit Suisse Gold Shares Covered Call ETN (GLDI)

Credit Suisse Crude Oil Shares Covered Call ETN (USOI)

The ETNs provide investment exposure to the designated commodities and pay attractive dividends. The problem is that an ETN is an unsecured debt obligation of the sponsor. Credit Suisse faces major business operations threats, making these funds too risky.

Electric vehicle companies have come back to earth over the last year or so, with several high fliers taking it on the chin. Lucid (LCID) is an electric car company that may have a bright future but has seen its stock dive in recent months. However, lately, options traders appear to be selling puts in

Tesla’s stock has nearly doubled from December lows… Up 69% YTD.  When the markets do well, Tesla seems to lead the charge as money flows into risk assets.  Where Tesla goes from here could spell the direction of the stock market going forward.  I’m looking at the stock right now and I’m seeing some clouds

Last time, we covered one of the questions I get asked the most: when to sell a dividend stock. As you saw, I base that decision on the fundamentals of each stock.

Sometimes, that can be difficult – especially when a stock has gone up, and you have to decide between the possibility of more gains, or cashing those gains out. So today, I cover when to sell a stock to lock in a profit…

New Dividend Hunter subscribers often ask about my criteria for selling a stock. Most are looking for some percentage loss or gain on a stock as a trigger to sell. I stay away from any rules not based on the underlying fundamentals of each recommended investment.

Over the years, I have found that the annual portfolio turnover for the Dividend Hunter portfolio averages about 25%. To me, with a buy-and-hold investment strategy, that number seems high, but it is surprising how the investment outlook for companies can change. Over eight years of Dividend Hunter investing, there has been about an equal 50/50 split between stocks sold for a profit and those on which we took a loss.

The reasons to sell fall into three distinct categories. I will cover each reason in a separate article. Today I cover when to sell a stock to lock in a profit.

The Dividend Hunter strategy primarily focuses on generating a stable and growing high-yield income stream. I do not include capital gains in my return expectations. When I add a new stock to the recommendations list, I expect the investment to be a long-term position, paying quarterly dividends, year after year. As a result, it takes extraordinary circumstances for me to send a sell recommendation on one of the Dividend Hunter stocks that had previously performed well.

On occasion, one of our high-yield stocks will catch the attention of investors, and the stock price will significantly appreciate. One example was EnLink Midstream (ENLC). My subscribers loaded up on this stock in the summer of 2020, when it traded between $1.00 and $3.00 per share. During those days of the pandemic shutdown, EnLink remained committed to paying a dividend, and the shares yielded in the high-teens to low-20s.

The stock was a big winner for my subscribers, who stuck with the plan through the first years of the pandemic. I recommended selling ENLC in April 2022, when the share price topped $10.40, and the yield was just over 4%.

The low yield was my trigger for selling. When the yield of a dividend paying falls below what is typical, especially for a higher-yielding stock, I view the stock price as overvalued. When I recommended selling ENLC, its peer midstream stocks yielded 6% to 8%.

Although ENLC is a great little energy midstream company, selling the shares at a 4% yield and reinvesting the proceeds into a similar stock with a higher yield provided an immediate boost to subscribers’ income streams. With the sale of ENLC, I recommended the purchase of ONEOK, Inc (OKE), another high-quality midstream company. OKE yielded 7.5% at that time, so the exchange produced a 75% boost to dividend income.

Under the Dividend Hunter strategy, my reason for selling a highly appreciated stock is always to lock in the gains before the share price drops, resulting in a more historically typical yield. For the yield to rise, the share price must fall. At the same time, I want to invest the sales proceeds at a higher yield, giving an immediate boost to our portfolio income.
Anyone can take advantage of this.Unfortunately, brokers don’t often advertise their “Income Accelerator Accounts” so many never request an upgrade.Now you don’t have to worry about missing out…I’ve prepared everything you need to know right here.

Software company Fastly (FSLY) had a rough 2022, but things are looking up for the company so far in 2023. Analysts have recently upgraded the stock, which also posted better than expected earnings last week. At least one trader believes the positive momentum may continue. The trader purchased a 10,000-lot call spread tied to stock

New Dividend Hunter subscribers often ask about my criteria for selling a stock. Most are looking for some percentage loss or gain on a stock as a trigger to sell. I stay away from any rules not based on the underlying fundamentals of each recommended investment.

Here’s what I do instead…

Over the years, I have found that the annual portfolio turnover for the Dividend Hunter portfolio averages about 25%. To me, with a buy-and-hold investment strategy, that number seems high, but it is surprising how the investment outlook for companies can change. Over eight years of Dividend Hunter investing, there has been about an equal 50/50 split between stocks sold for a profit and those on which we took a loss.

The reasons to sell fall into three distinct categories. I will cover each reason in a separate article. Today, I will start with the easy one, and usually the most profitable. Unfortunately, it is also the rarest.

As soon as one of the companies in the Dividend Hunter portfolio gets a buyout offer, I recommend selling that stock.

When a buyout gets announced, there is always a nice gain for the share price. Then the share value typically goes “stagnant” while investors wait for the merger to close. It’s rare for anything good to happen during the waiting period, and it is possible for the deal to unwind, which would hurt the share price.

So, when there is a buyout offer, I am out of the stock and recommend the same to my Dividend Hunter subscribers. For example:

The 2021 buyout of MGM Growth Properties (MGP) by VICI Properties Inc (VICI) was one of our most recent sales. MGP was a very nice dividend growth stock, and I was sad to see it go.

One of my all-time favorite dividend growth stocks, Aircastle, Ltd., was taken private in 2019. This stock traded for less than $3.00 per share in 2009 and was bought out for over $32.00 per share. And the company had paid nicely growing (10% per year) dividends.

One other corporate action also usually deserves an immediate sell recommendation: when a company spins off part of its business into a new stock. One recent example was the spin-out of what became Warner Brothers Discovery (WBD) by AT&T (T). At the time, I recommended hanging onto both stocks. I was curious as to how it would work out. It didn’t work out well, and we ended up selling both at share prices significantly lower than those in effect at the time of the spin-out. The lesson learned is that waiting and hoping is not a good strategy.

Strange things can happen with corporate actions, such as mergers and spin-offs. History shows that your investment returns are unlikely to improve by holding on. When one of these announcements hits my inbox, I send a sell recommendation to my subscribers. The good news is that buyout offers usually provide a very nice pop to the share price, letting us sell for a profit.
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.

The global energy transition away from fossil fuels and toward low carbon sources is well underway.

In fact, investment in this transition is accelerating. In 2022, a little more than $1 trillion was plowed into 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 what was invested in fossil fuels, according to Bloomberg New Energy Finance (NEF).

As we seek to electrify everything, from power generation to transportation to heating (heat pumps), copper is the one material that’s used every step of the way. That’s a key reason why the International Energy Agency (IEA) estimates that global copper demand will increase by almost 40%, to 33 million tons a year, by 2040.

And this is the company that will benefit…

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.

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!

Peru Unrest = Opportunity

The world’s largest copper-producing countries are Chile and Peru, so it is relevant that anti-government protests and unrest in Peru are threatening copper supply from the world’s second-largest producer. (The country produces about 10% of global copper supplies.)

Freeport-McMoRan, which operates Cerro Verde—Peru’s largest copper mine—said in an earnings call several weeks ago that the company had reduced ore extraction by 10% to 15% at the site, to about 350,000 tons per day, in a bid to conserve supplies critical to keeping operations running.

Peru’s National Society of Mining, Petroleum and Energy thinks perhaps 30% of the country’s copper supply—approximately 2.4 million tons a year, or about 11% of the world’s mined total—is at risk.

The unrest in Peru highlights the fragility and risks to global copper supply, and only strengthens the long-term bull case for the metal. Or, as the Financial Times’ Lex team put it, “…a lot of copper comes from very few places.” Almost half of world supply comes from Chile, Peru, and China. The number-one copper producer—Chile—actually saw production fall in 2022, thanks to water and labor shortages, as well as a tax dispute with the government.

Global copper supply in 2022 suffered a disruption rate—the amount of supply lost versus forecasts—of 6.3%. That was well above the usual average of 4% to 5%, according to the commodity trading firm Trafigura. The rate in Peru was even much higher, at 12%.

With the latest flare-up in Peru’s longstanding issues with the mining industry, it seems to be more likely that we could see copper prices as high as $12,000 or $13,000 per ton in 2023.

Even over the short-term, we already have seen a rally of more than 20% (to nearly $9,000 a ton) in copper’s price since the late-September lows, thanks to China’s economy reopening. Mining stocks with copper exposure have done well in the past six months. The threats to Peruvian copper supplies will only boost their share prices further.

With that mind, let’s take a look at the mining giant that produces the most copper among the world’s largest mining companies: BHP Group Ltd. (BHP).

BHP Group

BHP engages in the mining of copper, silver, zinc, molybdenum, uranium, gold, and 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.

The company—the world’s biggest mining company, as measured by market capitalization—is doing quite well, to say the least. Adjusted free cash flow in fiscal year 2022 totaled $24.3 billion (a new record year) and up from the previous record in fiscal year 2021 of $19.4 billion, allowing BHP to pay down its debt. The current 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 of strength 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 its other copper mines. BHP’s copper division accounts for about 20% of BHP’s forecast earnings.

BHP shares have rallied by a third since the start of November, due to surging iron ore and copper prices. I expect more to come.

And while its dividend will not be as massive as in the last year or two, BHP will still treat shareholders generously. The current dividend yield of 9.75% is nothing to sneeze at.The stock can be bought anywhere in the $60s per share.
Brokers don’t typically advertise “Income Accelerator Accounts…”But if you follow the simple step-by-step instructions here…And request an upgrade before my next trade…You’ll be able to buy the same stocks as everyone else but collect as much as 96X MORE income.Click here to see how.

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.