Investors Alley

Is one of your resolutions to figure out how to be more successful and less frustrated with your investment results?

Prior to the final two months of the year, the stock market was volatile and frustrating. If you weren’t correctly invested at the end of October, you missed out on most of the year’s gains (excluding the so-called “Magnificent Seven” stocks).

So, if your New Year’s resolution is to grow your nest egg and income in 2024 without worrying about timing the market or fretting what the markets do next…

Let me show you how to get solid, stress-free returns in 2024.

The S&P 500 stock index is market-cap weighted, so the largest companies have the greatest effect on the index value. The mega-cap tech stocks—the Magnificent Seven—accounted for most of the S&P 500’s 25% return in 2023.

Let’s look at the Invesco S&P 500 Equal Weight ETF (RSP) to see how the average stock portfolio performed in 2023. This fund gives an equal weight to each of the 500 stocks in the S&P 500.

The RSV chart shows graphically how difficult it was for investors to generate profitable capital gains. It is human nature to chase share prices, which causes most investors to buy high and sell low.

And 2023 was better than 2022 for investors looking for capital gains. Here is the two-year chart for RSP:

Note that buy-and-hold investors had zero capital gains over the last two years, and stock price chasers had numerous opportunities to get on the wrong side of the market swings.

I developed my Dividend Hunter strategy to give investors a plan that does not try to time the market. The Dividend Hunter strategy focuses on generating a stable—and even growing—income stream from high-yield stocks.

Unlike share prices, dividends are highly predictable. A diversified portfolio of high-yield investments can yield 8% to 9%. Those yields are cash returns you earn no matter what happens in the market.

Once you go with the Dividend Hunter strategy, it also gets easier to invest for capital gains. When share prices on your income stocks drop, buying more shares to grow your income and average yield on cost is easy.

My subscribers find that through the market cycles, as shown above, they grow both their portfolio income and the value of those portfolios. As the market goes through shorter and longer up-and-down cycles, the financial benefits continue to accrue wealth to you.

My job is to research high-yield investments to populate the Dividend Hunter recommended portfolio with the safest high-yield stocks I can find. I also provide lots of guidance on how to structure a portfolio to achieve a high income level, with security.So, if you have a resolution to be more of a successful and secure investor, sign up for a Dividend Hunter subscription today – just click the link below.
10 years ago, I showed a small group of dividend investors 3 dividend stocks to buy and hold until 2024. Those stocks could’ve generated up to $671,727 in dividends in that time. Now, here’s 3 new stocks to buy and hold until 2034. Click here to see them.

We are closing in on the end of the year—and it has been an interesting one, to say the least.

Here at Hidden Profits Report, we have shared lots of ideas and strategies, and we will share more in 2024.

This will be the last written edition of Hidden Profits Report for 2023, as I am taking next week off to enjoy some family time. There will be a video on Thursday, and then I will take a break until after the new year.

I kicked around several ideas about how to end the year with a bang and decided that giving you a handful of what I consider high-probability long shots is the best holiday gift I can offer.

Let’s get to it…

Remember that when I talk about long-shot stock picks, I think in terms of years, not weeks or months. I am looking for gains of several times the current stock price, not just a few percentage points.

When considering these picks, the trick is to think about investing a little for the possibility of earning a lot. With a 50% win rate, you will make a staggering amount of money over the next several years, even with small amounts invested in each stock.

I consider this a hero-or-zero approach to investing: those that work make us a lot of money. Those that do not have the chance to cost us whatever small amount we initially invested.

First up is Warner Brothers Discovery (WBD). The merger that created this company has had less-than-stellar results since the deal’s 2021 completion, but the stock has been picking up some steam in recent weeks.

Warner Brothers Discovery includes a fantastic collection of streaming and entertainment assets, including the HBO, Discovery, CNN, and TLC cable networks, as well as the streaming platforms HBO Max and Discovery Plus. That means with one stock purchase, you own shares of Superman, Game of Thrones, and Bugs Bunny, as well as major production studios like Warner Brothers, HBO, Discovery Studios, DC Films, and Cartoon Network Studios. You also get my wife’s favorite networks: Animal Planet, The Food Network and HGTV.

As it sits today, the company is worth more than two times its current stock price. A few years down the road, a value of two-to-three times today’s price does not strike me as an unreasonable possibility.

Which electric vehicle (EV) manufacturer will be the best investment?

I do not know, and I do not care. But what I do know is that almost all of them—as well as the manufacturers of hybrid vehicles—will buy part from Borg-Warner (BWA). (Companies that stay with good old-fashioned internal combustion engines will buy from Borg Warner, too.)

In fact, with 92 factories in 23 countries worldwide, Borg Warner is in a solid position to do business with every auto manufacturer on the planet.

My calculation of the value of the business is currently almost two times its stock price. Add in some growth from the drive for cleaner cars and continued expansion of the market for EVs, and the stock could easily trade at three to four times the current price in a few years.

We all know the lithium story—it is needed for the best batteries for everything from cell phones to EVs.

Lithium Argentina (LAAC) owns two lithium mines in Argentina, both in partnership with Ganfeng, China’s largest lithium company. The Argentinian government also has a piece of one of the mines.

The balance sheet is solid, and the company has more cash than debt.

The first mine, Chauchari-Olarloz, has just gone into production. If all goes well, it will be the lowest-cost lithium mine in the world. The cash flow from this mine will pay the startup costs of the second mine, which is located right next door.

If this company hits its potential and both mines produce at capacity, you should see a long-term return of ten times your money or more.

The political landscape in Argentina just underwent a seismic shift with the election of a libertarian, Javier Milei, who is massively in favor of free markets and who should be good for Lithium Argentina. But, if the politics go the wrong way or something goes disastrously wrong with the mines, investors will come up with a loss of at least half and maybe all their investment.

Long-shot stock picks should come with a warning label.

We are playing a game mathematicians call the asymmetric payoff wager.

A small stake can reap huge gains, but the chance of a loss is real. And some of these stocks will be losers.

Only invest money in this strategy that you can afford to lose without significant consequences.

Then, be patient. Think big, and resist the temptation to take small profits.

Happy Holidays!

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It’s been a turbulent year for the markets, to say the least.

Interest rates have been surging, labor strikes have taken a bite out of the automobile and entertainment industries, a few big banks have failed, and wars are raging on two continents.

The future looks no less uncertain. Inflation has eased a bit, but it’s still too high for the Fed to fully ease up on interest rates. The wars in Europe and the Middle East continue, making food and energy prices more volatile than they have been in years.

And closer to home, next year proves to be one of the most divisive election years in memory.

In short, 2024 promises to be another uncertain year in the markets.

That’s why we’ve had our team of analysts and researchers identify the most promising stocks to keep an eye on in 2024.

Let’s take a look…

Analyst: Jay Soloff, StockNews, POWR Income

I’ve spoken before about the price support that is in place for oil globally, and the recent outbreak of violence in the Middle East will only serve to bolster recent price increases.

Due to its small size and location in Colombia, GeoPark Ltd. (GPRK), an upstream oil and gas company, simply flies under the radar of most investors.  But after taking a close look under the hood, I believe there’s a compelling story here. Actually, GeoPark is an income stock in value clothing.

Take a peek at what I found…

Business Overview

GeoPark is a leading independent exploration, developer and producer of oil and gas reserves in Chile, Colombia, Brazil, Argentina and Ecuador. Fact is, Latin America remains one of the world’s richest and most underexplored hydrocarbon regions.

GeoPark’s value begins in its drilling operations where GPRK has a 75% drilling success rate over the past 16 years.

Its prize asset is the Llanos 34 block—in its own words, “the largest oil discovery in over 20 years in Colombia.” Gross production has rocketed from zero to 75,000 barrels of oil per day in less than a decade.The drilling site was purchased for $30 million in 2012, has produced almost $2 billion since drilling began, and is estimated to contain another $2 billion of production today.

GeoPark also has a strategic partnership with ONGC Videsh – the government oil company of India – to jointly acquire, invest in, and create value from upstream oil and gas projects across Latin America.   The company has net proven reserves of 87.8 million barrels of oil equivalent.

Here’s a look at all of GPRK’s operations:

Source: GPRK September 2023 Investor Presentation, p. 2

Financial Results

After weathering a downturn in earnings per share during the pandemic, GPRK bounced back and turned in explosive numbers in 2022.

Earnings Per Share:

●    2019 – $0.97  

●    2020 – ($3.84)  

●    2021 – $1.00   

●    2022 – $3.78

GeoPark closed a record year in 2022, with revenues over $1 billion, adjusted EBITDA over $540 million, and bottom-line net profit of over $224 million.

Full year cash flow from operations was $467 million, which not only funded its capital expenditure program, but also paid down $170 million in debt, canceling entirely any debt owed in 2024.  

In 2022, GeoPark paid shareholders more than $60 million, representing  a yield of 6.15% or $0.52 per share. The company also has repurchased more than $133 million in its share buyback program since 2017.

Investment Considerations

Let’s talk a moment about the “value” side of GeoPark. The company trades at a lowly P/E of only 3.2, and at a super low 3x earnings. Its price to sales ratio is .88, and yet its operating margins are just under 50%. The company has $129 million of cash and cash equivalents on hand, and a credit facility of $80 million which has yet to be touched.

Its shares are a good value compared to the industry average P/E of 6.3. The company is extremely efficient, with operating margins clocking in at 44.4% and net profit margins of 22%.

Earnings have skyrocketed by 114% over the past year, and have grown by an average of 31.5% over the last five years.  Meanwhile, dividends have blasted higher, from $0.02 cents per share in 2020 to $0.52 today—a 531% improvement in just three years, including a 58% jump since 2022.

And the good times should continue – the company plans on returning between 40% and 50% of free cash flow after taxes to shareholders (through dividends and buybacks).

Despite its low profile, the company is being squarely targeted by one group of savvy investors.  Insiders currently own 16% of the shares and the top five shareholders own 55% of the company.  Private equity firm Compass Group LLC, has almost 75 million shares and 14% of the float, while Cap Trust Financial Advisors holds another 13%.

What’s more, analysts project the share price to blast higher to $16.71 in the next twelve months, a massive 85% bump from current prices.

Not surprisingly GPRK has an outstanding 94.64% rating on the Value component of our POWR Ratings. GeoPark also scores highly in the areas of Quality and Sentiment where it ranks above 80% of the companies we track in both categories.

I like the conservative management of this South American driller, and think its income potential is in the sweet spot of the current oil market.

The shares are extremely undervalued, and for small investors, remain in stealth mode.  But if you’re willing to dig down for a bargain in the energy field, I think they are worth a deeper dive and could leave you celebrating an even better New Year!

Analyst: Jay Soloff, StockNews, Stocks Under $10

If you’re looking to ring in the New Year with a “buzz,” look no further than haptic technology maker, Immersion Corp. (IMMR).

The stock trades under $8 but’s in a rapidly growing field and brings strong financials to the table. While it may be best known for its gaming impact, there are a multitude of growth areas the company is attacking with its innovative technology.

Here’s how IMMR is shaking things up…

Business Overview

If you’re a gaming fan, you know the new Call of Duty (COD) just dropped its full release on November 10th. And even if you’re not a COD fan, if you’ve played any video games recently, you probably know there is nothing more important to a gamer than their controller.

Immersion Corp. is in the business of, among other things, making controllers more fun, keeping gamers engaged, and bringing new gamers to the table.

The company makes haptics…that’s the technology that makes the controller buzz in your hand when you hit a target, or your real life steering wheel vibrate when you cross the double yellow line, or even your phone vibrate when you get that important text telling you your takeout is ready.

As we become more and more tied to our video devices, Immersion is finding more and more ways to make the devices interactive, and in the case of automobile haptics, safer.

And with the emerging world of VR/AR (virtual reality/augmented reality) really coming into its own, Immersion has a whole new area of technology to deploy their interactive haptic devices. When most people think of VR/AR they think of video games, but there is a whole other side to the technology.

Training, from military to industrial to educational, is an especially vibrant part of VR/AR and spans a multitude of uses for haptic technology. And IMMR is perfectly positioned to cash in.

They have licensing agreements with industry giants like Samsung, Sony, Microsoft, and Nintendo to name a few. In 2022 and 2021, mobile communications represented 60% of total revenue, gaming and VR accounted for 21%, and automotive contributed 13% and 19%, respectively. These figures demonstrate the company’s successful penetration into key markets.

As a result, Immersion generates revenue across Asia, North America, and Europe. For the three months ended June 30, 2023, 83% of its total revenue came from Asia, while North America and Europe contributed 14% and 3%, respectively. A global presence ensures the company is well-positioned to capitalize on opportunities in diverse markets and regions.

As of December 31, 2022, Immersion and its wholly-owned subsidiaries held over 1,200 currently issued or pending patents worldwide, an extremely deep portfolio of intellectual property (IP).

And Immersion is laser-focused on protecting its IP portfolio. You see, protecting its IP is vital to safeguarding its technology and supporting its licensing model.

That’s why IMMR is currently pursuing patent infringement lawsuits against Meta, Valve, and Xiaomi. That commitment to safeguarding its IP locks in its competitive advantage and also a strategic incentive for potential customers.

Financial Results

●    2019 – $0.64

●    2020 – $0.19

●    2021 – $0.40

●    2022 – $0.92

Clearly, IMMR is headed in the right direction. As you can see, IMMR turned profitable in 2020 and has continued to grow earnings over the last three years.  For the latest quarter it reported earnings of $7.0 million, or $0.21 per diluted share, handily beating the consensus estimates of $0.16 per share. The firm posted a net loss of more than $1.8 million a year ago.

The company also declared a dividend for the fourth consecutive quarter. The shares now yield 1.8%.

IMMR is also actively making share repurchases too, retiring 1.3% of all outstanding shares in the second quarter.The stock repurchase program was originally approved on December 29, 2022 and authorized the repurchase of up to $50 million of the company’s common stock.

“During the quarter our stockholders’ equity increased by $4.3 million sequentially and $12.3 million year-to-date while providing $3.9 million and $5.1 million, respectively, in stock repurchases and dividends.”said Eric Singer, Chairman and CEO.

The company’s revenues are almost entirely attributable to licensing. About $6.9 million of its $7 million in revenues came from its licensing stream.

Meanwhile, IMMR’s product mix delivers revenues from a slew of different industries.

In 2022 and 2021, mobile communications represented 60% of total revenue, gaming and VR accounted for 21%, and automotive contributed 19%. These figures demonstrate the company’s successful penetration into key markets.

Investment Considerations

Simply put, IMMR shares are dirt cheap at current valuations.

IMMR has a P/E of just over 5, and pretty incredible gross margins, at almost 98%.  What’s more, operating margins are running at almost 64%.

Our POWR Ratings have Immersion at an overall grade of B, with a rating 87.43% better than all the stocks we track. It’s especially strong in Quality, at 96.78%.

Immersion is currently trading at the low end of a range it has been in over the past year, at just under $7, trading as high as $9.25 in late March.

The CEO Eric Singer made the biggest insider purchase in the last 12 months. A single transaction was for $146,000 worth of shares at a price of $7.29 each. Think about it – an insider was happy to buy shares at above the current price of $6.71.

Whether you’re picking up your copy of COD in the next month or not, Immersion should be on your radar as an under $10 stock that is bringing valuable technology to a number of hot technology areas.  

Plus, the shares are trading at a price that should deliver a “buzz” to your portfolio and start the New Year off right.

Analyst: Tim Melvin, Investors Alley, The 20% Letter

It is that time of the year again.

I know what you are thinking.

Thanksgiving is fast upon us. It is time to start thinking about shopping for the big day. We will need turkey and all the fixings, along with some pies. We better stock up on wine and bourbon as well, with all the family headed our way.

We might even want to get some for them to drink.

That’s not it?

Then it must be Christmas.

We need a new tree.

What should we get the granddaughters?

Are we putting up outside lights this year?

That’s not it either.

Oh no-Don’t tell me. Not that.

I hate doing that. It is stupid and pointless.

That’s right, kids.

It is time to determine what stocks we should buy for 2024.

“What will the stock and bond markets do in the New Year?” everyone’s asking. “What will the market do in 2024?”

This is the most pointless exercise in the history of finance.

Nevertheless, publishers, Research Directors, and the marketing heads love it.

If you make a prediction and it’s wrong, that’s no big deal. Pretty much everyone will be wrong.

After all, who had American Coastal Insurance (ACIC) and its 1,757% 2023 gain on their 2023 bingo card?

How many folks suggested shorting market darling Enphase Energy (ENPH) before its 70% collapse this year?

How many suggested we would see another war breaking out in the Middle East involving Israel?

How many of us had Jimmy Buffett passing away in our 2023 checklist? Or that Keith Richards did not pass away?

The point is that people have yet to determine what will happen in the markets or the world in 2023, yet alone 2024.

Some stuff is predictable. With that in mind, here are my core predictions for 2024:

We will have a contentious election in 2024 for all levels of political office.

Vote chasers will make many stupid statements. Shockingly, people will vote for them anyway.

Something, somewhere in the world, will happen that no one expected.

Most days, the stock market will be open from 9:30 a.m. to 4 p.m.

During those hours, prices will fluctuate. Sometimes prices will fluctuate wildly.

In 2023, some stocks no one has ever heard of will skyrocket in value.

Some stocks everyone loves will collapse in value.

Most people who make predictions will miss the mark.

Publishers and marketing directors will promote those who get it right, or come close, as geniuses who can make you wealthier beyond your wildest dream by lunchtime a week from Tuesday.

They will not accomplish that.

Nor will they help you when their advice turns sour.

In short, predicting the market is a waste of time. You are far better off reacting to what the market does during the year.

When stocks sell off and everyone hates stocks, you should look for good companies at great prices. It will make you a lot of money over a year or two.

If you find companies with outstanding momentum attracting institutional buying, you should buy them. As long as the fundamentals improve, the stock price should keep climbing higher.

If stocks soar in value and sell for ridiculous multiples of asset values and cash flows, you should sell them.

If you can buy bonds in companies with a high probability of surviving until the principal is due, that yield more than historical stock market returns, you should do that.

I know that is not what you want to hear.

It is not what publishers or market directors want to see either.

It’s the right way to approach investing in 2024, but everyone wants magic stock picks.

I will not give you any of the picks I gave my members. It hardly seems fair to give you something they are paying for, does it?

Since the two anomalies that never go away, which I mentioned above, are value and momentum, I will give you two cheap stocks that could recover and give you huge returns. Both have passed my credit filters and should not experience any severe financial distress in 2023.

Along with that, I will give you stocks with fundamentals and price momentum that have the potential to keep climbing higher.

Our first value pick is JELD-WEN Holdings (JELD). This company makes windows and doors for homebuilders, home improvement, and replacement markets. It will be a bumpy road, but we need new homes, especially at the lower end of the market, to meet demand, which could drive substantial profit gains for JELD-WEN.

The upside could be enormous with the stock trading at an enterprise to earnings before interest and taxes multiple of just 5.

My next pick combines being undervalued and something of a long shot. PHX Minerals (PHX) is a natural gas and oil mineral company with acreage in Oklahoma, Texas, Louisiana, North Dakota, and Arkansas. It is a royalty company that has been working to increase its acreage and grow cash flows. The stock is currently trading at just 94% of tangible book value.

The company just turned down a takeover offer from a larger royalty company as inadequate. A higher offer in 2024 would not be a surprise.

Our first momentum stock is an Orlando-based company, MtronPTI (MPTI). The company makes radio frequency components that it sells to all the major defense companies. Its products are used in space flight, defense, aircraft, and instrumentation for air and spacecraft.

Its products are also used in hypersonic missiles, missile defense, drones, and electronic warfare.

Business is good.

Thanks to geopolitics and the overwhelming stupidity of nations, it will keep getting better.

Sales and earnings are growing. Margins are expanding. Analysts are raising estimates for sales and profits this year and next.

Fundamental momentum is driving strong price momentum.

Profile Systems (PFIE) makes burner management and combustion systems for the oil and gas industry. Its products make using burners that are part of the oil and gas production process safer by acting as a kind of thermostat to prevent accidents.

It’s a low-priced stock with strong sales and earnings momentum that is attracting buying pressure from institutional and retail buyers alike. Profits have exceeded analyst expectations, and Wall Street has been raising its estimates for Profire’s earnings in 2023 and 2024.

Profire’s fundamentals have everything you want to see in an outstanding growth stock. If that continues, this could be one of the biggest winners of 2024.

There you have it.

Flawless predictions for market behavior in 2024 that have been correct every year for all my years in the business.

Two growth stocks and two value stocks that have the characteristics of winning stocks.

Anything more is just guesswork and marketing.

Now, if you will excuse me, I have to go work on the shopping list for Thanksgiving and figure out what to buy the granddaughters for Christmas.

Analyst: Tim Plaehn, Investors Alley, The Dividend Hunter

I regularly review a large number of high yield stocks. I try to dig out the details that separate a high-quality company from one that has the potential to truly whack investor wealth. I often talk about how tremendous value can be found in the dark corners of the stock market, where the investing public doesn’t understand how these undiscovered nuggets of dividend paying companies operate. But sometimes I realize I need to go back and discuss a stock that should be a core holding for almost every stock market investor.

And this one may just be the best income stock that exists.

That’s why Main Street Capital (MAIN) is my conservative pick for 2024. The increase in interest rates dictated by the Fed over the last year has been very good for the profitability of business development companies (BDCs). Main Street Capital is the class of the BDC sector. The company has an unmatched record of dividend growth. MAIN pays monthly dividends. Plus the company historically has paid quarterly supplemental dividends.

MAIN is a stock that will produce consistent low to mid-teens compound annual total returns.

Legally, a BDC is a closed-end investment company, like closed-end mutual funds (CEF). The difference is that a CEF owns stock shares and bonds, while a BDC makes direct investments into its client companies.

A BDC will have up to hundreds of outstanding investments to spread the risk across many small companies. The client companies of a BDC will be corporations that are too small or too new to be able to issue stock or bonds into the publicly traded markets.

As a risk control factor, BDCs are limited to debt of no more than two times its equity.

This means that if a BDC has $500 million of equity raised from selling shares, it can borrow $1 billion. The company can then make $1.5 billion of loans or equity investments.

Main Street Capital Corp. is really quite different from the rest of the BDC crowd. Since its 2007 IPO, MAIN has tripled the total return average of its BDC peers.

Houston-based Main Street Capital has helped over 200 private companies grow or transition by providing flexible private equity and debt capital solutions.

The company provides “one-stop” capital solutions (private debt and private equity capital) to lower middle market companies and debt capital to middle market companies.

Main Street’s lower middle market (LMM) companies generally have annual revenues between $10 million and $150 million. While Main Street’s middle market debt investments are made in businesses that are generally larger in size.

The company’s current investment portfolio consists of 51% LMM, 36% Private Loan and 7% Middle Market companies and 6% other investments.

On December 31, 2021, Main Street Capital had 30 middle market clients with an average loan amount of $13 million. The loans total over $306 million or about 7% of MAIN’s total portfolio.

Middle market loans are floating rate and match with MAIN’s floating rate debt facility. The average 11.8% yield on this group of loans is 4.75% higher than Main Street’s debt used to fund the loans to clients. The 4.5% interest margin is almost pure cash flow that can be used to help pay dividends on MAIN’s stock shares.

The largest portion of the portfolio is lower middle market (LMM), where the company takes equity stakes along with providing debt financing. Equity provides a significant boost to the total returns generated. Lower middle market companies are smaller than the typical BDC client and have annual revenues between $10 and $150 million.

There are over 175,000 companies in this revenue bracket in the U.S., and MAIN has 79 lower middle market clients with loans and equity investments worth $2.1 billion. The loans to the companies in this part of the portfolio have an average yield of 12.6%.

The equity position gives an average 41% ownership of the client companies. The equity stakes are what have allowed MAIN’s net asset value (NAV) to increase from $12.85 in 2007 to $27.23 on March 31, 2023 – 112% growth.

The equity investments are what set MAIN apart from most other BDCs. The rules under which these companies operate prevent them from setting aside loan loss reserves. Because a BDC makes higher risk loans, there will be loan losses. These losses have a direct negative effect on a BDC’s book or net asset value. That is why most BDCs struggle to maintain their book values compared to the growing value built by Main Street Capital.

In recent years, Main Street has been growing what it calls its PrivateLoan Portfolio. These are loans originated through strategic relationships with other investment funds on a collaborative basis and are often referred to in the debt markets as “club deals”.

The private loan portfolio makes up 36% (86 loans for $1.5 billion) of the overall MAIN portfolio and carries an average yield of 12.4%. The loans have floating interest rates and benefit from lower overhead costs.

This three-tier investment portfolio is what sets MAIN apart from the rest of the BDC crowd, and what makes it an income stock for all seasons.

The lower middle market client, middle market client, and private loans mix provides a combination of net interest income to support MAIN’s very excellent history of dividend payments. Plus, MAIN holds an industry leading position in cost efficiency, with an Operating Expense to Assets Ratio of 1.4%.

The result has been a BDC that has generated both regular dividend growth for investors and special dividends to pay out capital gains. As an additional bonus, MAIN pays monthly dividends, smoothing out the cash flow into your brokerage account. MAIN should be a core holding for any income focused investor.

These facts add up to a very high-quality income investment with a 7% yield on the monthly dividends alone. The bonus dividends are just that, an added bonus on top of a great yield. The regular dividend increases will result in a low-teens yield on cost in just a few years. I know of no other stock that can be counted on to pay you 12-plus dividends per year and provide a growing cash income stream. If you do not own any MAIN shares, go buy some.

Analyst: Tim Plaehn, Investors Alley, The Dividend Hunter

Ongoing global events have me convinced that liquified natural gas (LNG) could be the world’s most important energy source for years—possibly decades—to come. The LNG infrastructure system allows the cost-effective transport of clean-burning natural gas from regions of plentiful supply to more populous countries with limited energy sources.

That’s why, for a more aggressive play for 2024, I’ve chosen New Fortress Energy (NFE). It’s a rapidly growing company focused on developing and operating downstream LNG infrastructure assets including LNG regassification and power generation. New Fortress also has employed the first of its Fast Gas upstream liquefaction plants that is installed on an offshore oil and gas rig.

Business Overview

New Fortress Energy operates primarily as a downstream seller of natural gas, delivered to its global network of LNG gasification terminals.

At the end of 2021, New Fortress Energy had 11 regasification terminals, up from five a year earlier. Now the company shows 14 facilities either operating or under development. Gas transport ships totaled 20, up from five. These assets provide LNG midstream and downstream services. New Fortress Energy will soon complete the cycle with its first LNG upstream investment. New Fortress Energy operates on long-term contracts to deliver LNG-based natural gas to customers served by the transport and terminals network. The contracts make New Fortress the exclusive gas supplier to its contracted customers.

Business History

New Fortress Energy launched with a January 30, 2019, IPO. As of the IPO, the company owned three operating large-scale projects and had four more under development.

In January 2021, New Fortress Energy announced the acquisition of HYGO Energy Transition Ltd. and Golar LNG Partners LP. With the acquisitions, the company bought three terminals and power plants in Brazil and 11 LNG ships from Golar.

These additions allow New Fortress to turn the corner to profitability. Here is the swing to profitability since the IPO.

2019: EBITDA of negative $115 million

2020: EBITDA of $33 million

2021: EBITDA of $605 million, including $334 million for the fourth quarter

2022: EBITDA of $1,071 million, exceeding the full-year guidance of $1.0 billion

To continue to expand, New Fortress Energy is moving to upstream LNG production with what it calls Fast LNG (FLNG). The first project will be to provide offshore liquefaction at Italian integrated energy company Eni’s offshore development in the Republic of Congo.

On March 31, 2022, the company filed to build its second Fast LNG offshore LNG export plant, off the coast of Louisiana. The company plans to have this plant up and running in 2023. In July, a third FLNG project was added to develop facilities off the coast of Mexico.

The Fast LNG projects will provide low-cost LNG to be resold to the company’s upstream customers.

The next project will be a green hydrogen production facility located in Texas. The plant will produce clean hydrogen close to end-users in the power generation, petrochemical, refining, and steel sectors.

Investment Considerations

During the 2021 fourth-quarter earnings call, New Fortress CEO Wesley Edens noted, “This really does mark the end of the beginning of us as a company.”

By that comment, he means the company has invested a lot of capital over the last few years to get to the point where the company is now very profitable, and additional capital investment will grow those profits.

Long-term LNG supply contracts provide a stable revenue base. The Fast LNG facilities will produce low-cost LNG to supply those contracts. Fast LNG can also ramp up production during price disruption to sell more gas into the markets when prices spike higher.

All in all, New Fortress Energy has strong visibility for the next two years of tremendous earnings growth. The company is also poised to continue to grow as LNG becomes the dominant form of global energy.

Currently, NFE pays a $0.10 quarterly dividend, for a 1% yield. The dividend has been paid since the 2020 fourth quarter.

In December 2022, the company announced a supplemental dividend plan to pay out 40% of adjusted EBITDA in semi-annual installments. A $3.00 per share dividend was declared at that time and paid in January.

New Fortress generated EBITDA of $600 million in 2022, will exceed $1 billion in 2023, and is forecasting $1.6 billion and $2.4 billion for 2024 and 2025, respectively.

This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. Investors should carefully consider the investment objectives and risks as well as charges and expenses of all securities before investing. Read the prospectus carefully before investing.

Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice.  Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. [FirmName] explicitly disclaims any responsibility for product suitability or suitability determinations related to individual investors.  This information does not constitute an offer to sell or a solicitation of an offer to buy securities, nor shall there be any sale of securities, in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

Smaller capitalization securities involve greater issuer risk than larger capitalization securities, and the markets for such securities may be more volatile and less liquid.  Specifically, small capitalization companies may be subject to more volatile market movements than securities of larger, more established companies, both because the securities typically are traded in lower volume and because the issuers typically are more subject to changes in earnings and prospects.

Securities of small and medium-sized companies tend to be riskier than those of larger companies. Compared to large companies, small and medium-sized companies may face greater business risks because they lack the management depth or experience, financial resources, product diversification or competitive strengths of larger companies, and they may be more adversely affected by poor economic conditions. There may be less publicly available information about smaller companies than larger companies. In addition, these companies may have been recently organized and may have little or no track record of success.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.

Mutual Funds and Exchange Traded Funds (ETFs) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. 

Advisory services are offered through Magnifi LLC, an SEC Registered Investment Advisor. Being registered as an investment adviser does not imply a certain level of skill or training. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State where notice-filed or otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.

Recent weeks have seen a massive global bond rally on growing optimism the Federal Reserve has nearly finished hiking interest rates and will soon have to hit pause on its tightening regime.

Just look at what has happened in the normally very quiet world of municipal bonds.

Spoilers: there’s still time to get in…

Munis are issued by state and local governments, and generally pay tax-exempt interest at the federal, and potentially state levels.

The proceeds from municipal debt fund a wide range of state and local infrastructure projects, including schools, hospitals, universities, airports, bridges, and highways, as well as water and sewer systems.

Muni Bonds Are Hot

Municipal bond trading soared to an all-time high in November, as retail investors snapped up bonds, driving the market’s best month of performance since the 1980s. Muni bonds posted a 6.3% return in November, the best month of returns since 1982.

There were 1.5 million trades in November, which was a monthly record, according to the Municipal Securities Rulemaking Board. The regulator said that demand from small investors was a major factor in the spike in trading.

This led to, in November alone, AAA benchmark yields dropping more than 90 basis points depending on the maturity, according to Bloomberg data.

This swift, surprising surge has been enough to lift returns and erase losses. The Bloomberg muni index is now up over 3% for the year, a rebound from a loss of 2.2% at the end of October. Benchmark yields for muni bonds due in 10 years and rated AAA are now down to 2.6%, their lowest since April 2023. A very low supply of new bond sales from state and local governments has provided an additional lift for the muni market.

When returns turn positive, municipal bond funds begin to see investor cash come back. For example, investors added about $292 million to municipal-bond funds during the week that ended November 22—marking a reversal from 11 consecutive weeks of outflows—according to LSEG Lipper Global Fund Flows data.

While December may not have as much momentum as November did, the last month of the year has tended to stay in the green. December muni returns have been positive since 2014, according to Bloomberg Intelligence.

The return for November is creating a bit of buzz for this often-overlooked asset class. Karen Altamirano, an analyst with Bloomberg Intelligence, said in a report: “The tremendous reversal of fortune and subsequent run of wins has muni buyers tripping over themselves.”

But be careful, and don’t just pay any price for munis. A similar November trend has played out in the previous two years. After three months of losses from August through October, munis rallied in November in both 2021 and 2022. Last year, the end-of-year gains were due to—you guessed it—increasing expectations that the Federal Reserve would cut rates in 2023, which obviously did not occur.

However, the fundamentals in the municipal bond market are solid.

Credit remains strong, with historic levels of rainy-day funds. While revenue collections are solid and above 2021 levels, they have slipped below the peaks witnessed in 2022. Nevertheless, expect municipal defaults to remain low, rare, and idiosyncratic.

Why Buy Muni Bonds?

One main reason munis make sense to me is that many issuers have a monopoly over their services and don’t face competition like corporations do.

An even better reason is that issuers are often backed by durable revenue sources such as taxes. As a result, defaults tend to be rare, even during recessionary periods. For example, during the financial crisis of 2007–2009, only 12 rated issuers defaulted, compared with 414 corporate bonds of similar credit quality.

Currently, many muni issuers are financially strong. In fact, the balances of the aforementioned rainy-day funds—money states set aside to use during unexpected deficits—are at near-record levels. Even Illinois, the lowest-rated state in the muni market, had a rainy-day fund balance of more than $600 million in 2022, compared with just $4.15 million in 2020.

Also keep in mind that muni bonds generally have strong credit ratings—usually higher than corporate bonds. Nearly 70% of the Bloomberg Municipal Bond Index is rated in the two highest categories, compared with just 8% of those in the Bloomberg Corporate Bond Index.

How to Buy Munis

Your best bet may be to buy individual munis tailored to your specific financial situation. All the major brokerages have bond specialists that can do this for you.

However, there are municipal bond mutual funds and ETFs that you can buy online in your brokerage account. Here are two examples…

The first muni bond ETF that’s really interesting to me is the Xtrackers Municipal Infrastructure Revenue Bond ETF (RVNU). This fund tracks an index of investment-grade municipal bonds backed by revenues from local infrastructure projects such as airports, toll roads, and water and sewer.

Its portfolio is allocated this way:

Transportation: 32.73%

Airport: 29.95%

Water: 12.80%

Utilities: 7.42%

Power: 7.19%

Other: 9.91%.

Keep in mind, though, that since it is focused on just one segment—infrastructure—it may be more volatile. The fund is up 4.3% year-to-date and has an expense ratio of just 0.15%. The total return over the past year was 5.33%. The 30-day SEC yield is 4.01% and pays distributions monthly.

If you’re looking for broader exposure to the muni market, one of the largest ETFs is the Vanguard Tax-Exempt Bond ETF (VTEB). The investment objective of this index fund is to track the performance of a benchmark index that measures the investment-grade segment of the U.S. municipal bond market.

As is typical for Vanguard ETFs, its expense ratio is a miniscule 0.05%.

The fund is up just 1.29% year-to-date. Its total return over the past year is 3.10%. Its 30-day SEC yield is 3.63% and pays distributions monthly.
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In today’s short discussion on gold, I aim to cover two key points.

Firstly, I’ll share my outlook on the multi-year price target for gold. Secondly, I’ll explore a strategy to generate yield, addressing a common concern about gold’s lack of dividends compared to stocks and other assets.

Critics rightly point out that gold doesn’t pay yields, unlike traditional investments. However, if we consider a sustained and linear bull market similar to the one experienced in 2009 and 2011 – a possibility I foresee – gold could potentially rally by 100% or more, mirroring its past performance.

I hold a strong belief that such an upswing is likely to happen in the next 2-4 years. Specifically, I anticipate a break from the current consolidation phase in 2024, leading to an upward trajectory for gold. While it may sound ambitious, I see no reason why gold couldn’t reach 4,000 or even 8,000. A historical precedent in the 2003 bull market saw gold rallying about 350%, making such gains possible.

To maintain a realistic perspective, hitting 4,000 is a more likely target for gold.

The challenge with gold, however, lies in its lack of dividends. To address this, I like using SPDR Gold Shares (GLD) as an investment option. With the GLD ETF, investors can generate a yield by selling option spreads below the market.

Here’s what you’ll do…

In today’s 4-minute video, I discuss how to sell put spreads on gold, pinpoint the right time to trade gold, and detail a strategy for generating a monthly return on gold from a yield perspective. It’s a simple yet effective way to unlock the potential of gold in your investment portfolio.

I release these weekly tips every Thursday for free, so stay tuned and stay subscribed here. 

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This week, I want to continue to offer some long shots that have the potential for huge payoffs if they work.

Some will. Some will not

Please understand that these companies have the potential for massive gains over the next several years.

They are highly unlikely to make you rich beyond your wildest dreams by next Tuesday.

Owning them will not protect you from the Federal government or keep your banking information from being accessed by the Chinese Central Bank.

But if we have a batting average of 50% and half of the losers survive, we will almost certainly handily beat the S&P 500 over the next three years or so.

So, let’s take a look at these two long shots…

Returns will be increased if you buy on big down days in the market.

Taking small profits using the rationale that you can never go broke taking a profit will lead to underperforming the S&P 500 over the next three years or so.

We are looking to keep score in multiples of the purchase price, not just percentages.

Our first long shot is Sleep Number Corporation (SNBR). In case you live under a rock or watch even less TV than we do, this company makes beds with adjustable firmness numbers that guarantee a good night’s sleep, domestic tranquility, and increased personal productivity.

The mattresses are sold online and in company-owned stores around the United States.

High-end bedding has been a weak market over the past year. Consumers are being cautious and avoiding high-price tag items.

A shocking number of 20–30-year-olds still live at home, so demand for mattresses is below expectations.

Sleep Number is growing market share in a weak market but losing money.

As a result, the stock is down about 50% over the past year.

This is a decent company with good products. When housing improves, so will business for Sleep Number.

The stock trades at a price-to-sales ratio of just .17.

As long as management does not screw up too badly and the economy does not end up in a deep-lasting depression, it is hard to see how this stock does not give patient-aggressive investors a return of 4-5 times the current price.

Wolverine World Wide Inc. (WWW) is in the shoe business.

I was sure I had never seen a Wolverine brand shoe until I investigated the company and realized they made Sperry, which makes Docksiders.

That was my shoe of choice for decades when I lived on the Chesapeake Bay.

In Annapolis and on Kent Island, Docksiders are acceptable footwear anywhere, up to and including formal events.

Wolverine also makes a lot of other shoes, including Hush Puppies, Keds, Saucony, and several other brands.

The stock has been cut in half recently as earnings have disappointed on weaker-than-expected sales. As a result, the CEO was canned and replaced with a retail veteran who has had success at Under Armour (UA), Gap Inc. (GPS), and Abercrombie & Fitch Co. (ANF).

Plans are in the works to transform the business, dispose of weaker brands, and focus on stronger ones.

A successful turnaround should help the stock price climb by at least three to four times the current price over the next few years.

If Wolverine comes anywhere near analysts’ expectations for 2024 profits, the stock could be a surprise market leader next year.

Long-shot investing can work out very well for a certain type of investor.

You must love risk and volatility and have the ability to make price swings work for you and not against you,

A strong stomach helps.

So does patience and the ability to resist the temptation to cash in too soon.

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November was an excellent month for the U.S. stock market. The S&P 500 gained 9.1% in the month, compared to losing 5% over the previous two months. I was especially pleased to see the real estate sector (read: REITs) near the top of the sector performance chart.

And more is coming. Let me show you…

The real estate sector had the second-highest return for the month, just 0.32% less than the technology sector. Here are the returns for November for the Select Sector SPDR ETFs:

REIT performance had suffered since early 2022 when the Fed started increasing interest rates. REIT values decreased for the 18 months that the Fed kept raising interest rates. The Fed announced hopefully the last rate increase at the end of July this year.

Real estate stocks continued to decline, with the Real Estate Select Sector SPDR (XLRE) bottoming out in late October. REIT investors especially welcomed the November REIT rally.

However, the higher quality REITs I recommend in my newsletter services started to recover in early October. Here are a couple of examples.

Since early October, Alexandria Real Estate Equities (ARE) has been up over 20%, with about half that gain coming in November.

Over the same period, Simon Property Group (SPG) gained more than 25%.

It is not too late to get into REITs and participate in coming gains. SPG was a $170 stock two years ago, and it now trades for about $130. Two years ago, ARE was $100 per share higher than the current $120.

These REITs also pay attractive and growing dividends. Investments in high-quality REITs should pay off handsomely over the next few years.
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If you asked the typical investor which two sectors led the charge in November’s big stock rally, few would come up with the right answer.

The sector everyone would assume correctly that led the pack is technology, with a 13% gain. But the second sector—with a 12% rise—would not only come as a huge surprise, but also outpaced the 9% jump in the S&P 500.

And there’s still time to get in. Let’s take a look…

Wall Street Loves REITs Again

It was real estate. Yes, real estate investment trusts (REITs), which have been beaten down by surging interest rates and economic uncertainty, are now showing signs of strength. The big upward move was fueled by bets the Federal Reserve may begin cutting interest rates early in 2024. The pullback in Treasury yields supported trader optimism that the worst of the interest rate environment has passed.

A Bloomberg article related that one believer in the sector is Bank of America, which is overweight real estate going into 2024. It says that while the real estate sector still lags behind the broader market year-to-date, the group may be a bright spot heading into 2024.

Norah Mulinda of Bloomberg reports that BofA’s Jeffrey Spector called the REIT sector the stock market’s “diamond in the rough.” He listed Americold Realty Trust (COLD), Empire State Realty Trust (ESRT), Kimco Realty (KIM), Prologis (PLD), and Welltower (WELL) as among his top picks in a note to clients on December 1.

Spector explained the logic behind his recommendation of the REIT sector.

Worries over commercial real estate (CRE), and specifically office-related stocks, have placed a pall on the REIT sector as a whole, though offices only represent a sliver of the overall group. Investors have fled the office sector due to fears of remote work’s impact on office occupancy and elevated borrowing costs. “Real estate has seen the biggest de-rating since 2021 among all industries on concerns over office, but office is less than 5% of real estate’s market cap,” Spector said. REITs ended October at their lowest level since March 2020.

REITs do appeal to me because they are so beaten down. I’d rather own something at a good value than chasing some AI high-flyer that may be profitable one day.

So let’s look closer at one of Spector’s picks, Welltower.

Stay Healthy with Welltower

Welltower is an REIT that invests in healthcare facilities offering skilled nursing, assisted living, independent living and specialty care services, and medical office buildings. The company’s investments are primarily real estate properties leased to operators under long-term operating leases or financed with operators under long-term mortgages.

As of the end of 2022, Welltower had real estate investments totaling $34.14 billion, consisting of over 142,000 senior housing and wellness units and approximately 23 million square feet of outpatient facilities in most U.S. states, the U.K., and Canada.

The company’s health should continue to improve as the lingering effects of the pandemic fade away. For example, I see continued signs of improved market conditions for seniors housing operating conditions into 2024, with occupancy gains and improved pricing power.

Favorable supply/demand conditions have started to emerge within senior housing as construction has slowed due to increased funding costs (higher interest rates) and supply chain issues. In addition, favorable demographic trends—such as an aging population and rising healthcare spending—are in place, leading to increasing demand for Wellcare’s facilities.

The best healthcare real estate providers stand to disproportionately benefit from the Affordable Care Act (ACA). There is an increased focus on higher-quality care in lower-cost settings benefiting the best owners and operators in the industry—like Welltower, which should see demand funneled to them.

Keep in mind, too, that the baby boomer generation is in its senior years. The 80-and-older population, which spends more than four times on healthcare per capita than the national average, should almost double over the next 10 years.

Welltower will benefit from these industry tailwinds because of its portfolio of high-quality assets connected to top operators in the senior housing, skilled nursing facilities, and medical office buildings segments. The company has spent years forming and developing relationships with many of the top operators in each segment. These relationships allow Welltower to push revenue-enhancing initiatives and cost-control efficiencies at the property level, creating net operating income growth above the industry average. It also provides a pipeline of acquisition and development opportunities to meet the needs of its growing operating partners.

Add it all up and Welltower is a superb REIT, with tremendous growth opportunities.

I believe it’s a buy anywhere below $90 for income investors, even though its current yield is only 2.72%. It will be in the growth portion of an income portfolio. The stock is actually trading near a 52-week high and is up 35% year-to-date!
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Nuclear energy remains controversial as a power source—to say the least. Some say it is the solution to our energy needs, while meeting zero-carbon targets. Others say it only adds another type of problem for our environment.

Meanwhile, in the world of markets, uranium has been the hottest commodity so far in 2023 (except for orange juice). Its price has soared by 68%, jumping from about $30 per pound in the summer of 2021 to more than $80 today, the highest it’s been since 2008.

Is this just a bubble blown by speculators? The fundamentals say not. Let me explain…

Uranium Demand Growing

Output from nuclear power plants fell by 4% in 2022, largely due to an unusual number of outages in France. Overall output has remained close to the same level it has been since the early 2000s.

But that is changing.

A new conventional reactor, long delayed, has opened in Georgia, with another expected to start up soon. And existing nuclear power plants are benefitting from what amounts to a soft price-floor in the form of credits from the Inflation Reduction Act.

Elsewhere, Japan has restarted some reactors that were closed after the Fukushima accident in 2011. And, importantly, China’s rapid expansion of nuclear capacity continues. China’s latest five-year plan means there will be a 40% increase in its nuclear capacity by 2025.

However, much of uranium’s current strength relates to two factors: geopolitics and mining snafus.

Here are some examples, as pointed out by Bloomberg’s Liam Denning:

Canada’s Cameco (CCJ), the world’s second-largest uranium miner by production, recently scaled back output targets due to a variety of operating issues. Keep in mind that uranium mining is highly concentrated, with just two countries—Kazakhstan and Canada—accounting for almost 60% of overall production.

Meanwhile, a coup in the African country of Niger this summer has hampered uranium mining and processing operations in the seventh-largest producing country. Niger accounts for about 4% of mined supply, and there is a big question mark now over expansion plans there.

Then there is Russia. Before the Ukraine war, Denning relates, Russia’s strategic stockpiles and the prominent role of state-owned Rosatom in the global nuclear industry made it an important supplier of fuel to reactors worldwide. But now, Russian nuclear fuel may be cut off, at least from Western countries—but if you add Kazakhstan and Uzbekistan, countries close to Russian influence, the share of uranium purchased by U.S. and European nuclear power plants coming from these three nations is almost half.

Let’s not forget that the financial markets have also jumped in to add more fizz to uranium’s pop.

Uranium is a relatively small, illiquid market, worth only about $14 billion a year at the current spot price.

Into this market has come three listed investment funds physically backed by uranium. The largest of these is the Sprott Physical Uranium Trust (SRUUF), which just surpassed $5 billion in net asset value. Altogether, the three trusts added about 50 million pounds to their stockpiles between 2020 and 2022 as investor money flooded in—equivalent to almost 30% of the annual regular demand for uranium.

So, what does all of this mean for the future of uranium?

A Bright Future for Uranium

Nuclear power’s long-term growth prospects look good, thanks to Asia. The International Energy Agency (IEA) projects global capacity rising almost 50% by 2050, even under a conservative scenario. And the IEA sees nuclear power capacity more than doubling in a world that actually realizes its net-zero ambitions.

The U.S. Energy Information Administration (EIA) reports that, at the end of 2022, unfilled uranium market requirements for 2023 through 2032 totaled 179 million pounds for U3O8 (triuranium octoxide), the form in which uranium is sold.

Globally, looking only at nuclear power plants that are currently under construction, reactor demand is set to grow from 188 million pounds to 240 million pounds by 2030.

If every uranium-producing country gets back to its maximum output (unlikely), primary production of uranium will only grow from 140 million pounds to 174 million pounds by 2030. If secondary supply stays flat at 20 million pounds per year, the annual uranium market deficit will grow from 27 million to 45 million pounds by the end of the decade—and that figure does not include further financial buying.

The cumulative deficit between 2023 and 2030 will likely exceed 250 million pounds, possibly depleting all commercial stockpiles.

Uranium ETF

Bottom line: for the first time in history, uranium has moved into a persistent and widening supply deficit. That means—despite the price rise—it’s still a good time to get into uranium.

My preference is for a broad approach, in the form of an exchange traded fund (ETF). I like the Sprott Uranium Miners ETF (URNM), which has gained over 55% year-to-date.

Sprott is based on the North Shore Global Uranium Mining Index. Its expense ratio is reasonable at 0.83% and it is rather concentrated, with only 39 holdings, and its top three positions account for about 43% of the total portfolio:

Cameco: 15.17%

National Atomic Co Kazatomprom JSC ADR (NATKY): 14.63%

Sprott Physical Uranium Trust Units (SRUUF): 13.40%

URNM is a buy anywhere under $50.

The current economic cycle has been, in a word, unusual. Housing stocks have remained strong even as banks have failed and mortgage rates have skyrocketed. Infrastructure stocks have done very well, and there is currently a bidding war breaking out over U.S. Steel (X – Get Rating).  And consolidation in the steel industry should further lift the industry which has several stocks trading near all time highs. 

One steel stock which may not be on your radar, but should be, is Ternium (TX – Get Rating). Ternium trades as an ADR, and though headquartered in Luxembourg, focuses on the Central and South American steel markets. The company has 18 production centers across several countries, including the U.S., and 2 mining facilities in Mexico.

Demand for steel is strong in Mexico (where shipments reached an all time high in the recent quarter) and Brazil, two of Ternium’s main markets. The majority of Ternium’s steel goes to commercial clients, with the automotive industry in particular ramping up production and demand. Ternium makes flat steel used in a variety of construction projects as well as for appliances and automobiles. 

In its latest earnings report the company reported a 39% increase in shipments, which resulted in a 77% boost to quarterly net income. Ternium has two new facilities coming online, one a downstream finishing facility due to begin operations in mid-2024, and a new cold-rolling mill scheduled to open in 2025.  

The stock trades at just 5.3x projected earnings, only 0.5x sales, and around 1.9x cash holdings. Yet Ternium has gross margins just under 24%, and operating margins run close to 17%. 

On top of that, Ternium pays a nice 7.2% dividend. For reference, Steel Dynamics (STLD – Get Rating) pays a dividend yield just under 1.5% and U.S. Steel pays just 0.55%. 

Currently our POWR Ratings have Ternium rated as an A, or strong buy. The company ranks second of 32 stocks in the steel industry. Ternium has a high B ranking in three separate categories, Growth, Stability, and Quality. 

The stock is trading right at $40, but was well into the mid-$50s just a few years ago. Paying a great dividend, and in an industry looking to consolidate, Ternium deserves a close look as an income stock on the right path to continued profitability. 

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