Stock Market Mike

Long/short equity, deep value, contrarian, tech
Stock Market Mike
Long/short equity, deep value, contrarian, tech
Contributor since: 2013
If you want a company that is a master of the press, look at CPE. They're a smallcap fracking champion. They can get oil from the ground for $10/barrel, and are getting more efficient quarter by quarter. They're playing up their efficiency bigtime before equity raises. Thanks to those, they have no debt issues to be concerned about. Hedge book is well above today's prices, but will run out. Even so, they foresee a light at the end of the tunnel. All the company expenses should be covered and they should be cash flow positive by year end, even if oil is $25/barrel for most of the year.
Further, their proven reserves have grown massively, outpacing actual drilling by somewhere around 400%. If oil recovers, they will be able to deploy a second rig in a moment's notice to raise production rapidly.
I have been buying their preferred shares. They sink dramatically during the fear moments (like the day where the S&P500 hit 1820, and their preferrreds hit $22 (par $50) - they have already bounced to $40. They tend to hover in the mid $40's once fear has subsided.
-Mike
Good possible play for Americans. If oil bottoms here, so too does the CAD. A rebound in oil would likely strengthen our dollar by 20% over time.
http://yhoo.it/1QL2L1Z;c=
http://yhoo.it/1QL2MD1;c=
-Mike
Equity issuances are keeping the share price strong. No debt issues to worry about. Other companies have tried to avoid issuing equity... and they are now worth pennies.
I keep buying small clumps of their preferred shares whenever they sell off massively.
-Mike
His statement generally applies within the context of a sector. If you see 3 stocks in the same sector, and two yield 4% while a third yields 8%, and the payout ratios are the same, then you're likely taking on more risk with the 8% one. Reaching for that yield often burns investors.
Now when the 8% one falls and yields 12%, or 15%, or 20%, then you have to re-examine your position. Every security has a buying point!
-Mike
The cheaper the shares get, the worse that debt/cap ratio gets.
Companies like this do have options when cost of equity is extreme. Buy back shares! DRIPing is most effective when shares are beaten to a pulp, but dividends remain stable. Although the company is not expanding, your percentage of it is.
WPG, for example, is nearing P/FFO of 5x. Where in the market can you buy assets at 20% cap rates? The market is pricing in a very bleak future for these companies, but if they believe in the quality of their assets, they can certainly buy themselves back at 12-20% effective yields.
It's like a bell curve. There's TOO SAFE to pass up on one end, and TOO CHEAP to pass up on the other end. In the middle you take on the most risk.
-Mike
Keep in mind that analyst opinions are usually backwards looking. Often stocks like OHI will be BUY OVERWEIGHT at 52wk highs, SELL UNDERWEIGHT at 52wk lows.
Over the long term it pays to be contrarian - although you do have to buy primarily when a 'sale price' is deep enough that it provides significant margin of safety.
-Mike
OHI is a good one for the long haul. Where it bottoms, nobody knows - fundamentally it's a great company, but stock prices move as stock prices move - based on sentiment.
If it goes lower, I'll just buy some more. Probably not the best advice, but if I ended up with 10% of my portfolio being OHI due to all the doubling down... that wouldn't upset me. I agree with the premise that seniors will be directed to the most cost effective subsectors for healthcare needs. SNF is definitely a growth sector. It is extremely unlikely that OHI's return underperforms bonds, term deposits, and other "safe" investments over the long haul. We just have to wait a few years and be patient to get there. In the mean time, enjoy the dividend and reinvest when there's a sale.
-Mike
Does anyone really worry about that, with trade-able carbon credits? All Alberta needs is for oil to recover, and you'll be the greenest province of them all... (Lol..)
-Mike
The media created nervousness in the system, by hyping and spreading fear when there was no need.
Just like the Ebola epidemic that almost destroyed the USA in 2014. Anything to hook in a viewer. The scarier, the better.
-Mike
I'm not sure what you're complaining about? You've got to ignore the vile right-wing media that was spewing fear and drivel.
The politicians themselves telegraphed that any changes would likely be gradual and take effect in future years, and then after the review it is now announced that changes will be gradual, simplify things for oil companies, and will only take effect in future years. Seems like they're doing exactly what they said they would do, and giving businesses multiple years to react.
How is this business-unfriendly?
-Mike
It wouldn't be profitable to make them in this environment. Companies taking on billions in debt without first seeing higher prices are opening themselves up to huge risks.
And then there's the issue of all the protests going on, and public opinion. At this point it's easier to just put everything on hold.
Let some sanity come to the oil market. Capex deployment delays can only increase oil prices down the road, which is better for every oil producing company and nation.
-Mike
Socialist is only a bad word in America. In other parts of the world, it doesn't have the negative tone that you likely detected. He could've just been clarifying it, for anyone that doesn't know anything about Norway.
I'd say Socialist Norway, where being born currently earmarks you for over $160,000 (Likely to grow massively by the time you retire.) is a pretty great place to live. You're right, that their standard of living is near the top, if not the top. Being born in the US earmarks you got a ludicrous amount of debt by comparison, with estimates ranging from $200k to $1m+ in liabilities.
Over in Socialist Canada, where we pillaged (sorry, "borrowed" from) our wealth fund in prior years, that is not the case. You know, because it's okay to project 12% returns outward to infinity. Nobody expected decades ago that we'd consider 4% superb a few decades later. It appears borrowing was a bad idea that may have robbed from CPP contributors. Well, that's life I guess. C'est la vie!
We could have the same situation as Norway. Norway clearly better managed their resources and national pension fund. Canada has a trade surplus, quite minimal personal debt compared to the US, and doesn't have a boatload of debt earmarked for you when you're born - but despite that, we do not own between 1-2% of the world like Norway does. We were a tad more shortsighted.
-Mike
Not sure I like any of these. My preferred gold miner is AEM.
http://tinyurl.com/zfm...
-Mike
But the moon is just another planet in our binary planetary pair! ;)
http://tinyurl.com/hwd...
-Mike
Fair enough. :)
Do keep in mind the tax issue, if you're at a higher tax bracket and don't have it in a tax deferred or tax free account, 8% Income has 25% (~2%) tax being taken off the top, which impacts your compound return by that same 2%. If you factor that in, then the faster growing 4% qualified dividends surpass the higher yield 8% income by year 21.
You would have a big capital gain (+ corresponding taxes) if you ever sold that growth stock or fund, but the capital gain would be in addition to more eventual income.
On the plus side, most of the gains from an 8%+ yielder coming from dividend reinvestment rather than capital appreciation does mean that there are few to no tax concerns later on. As long as you keep track of your cost basis... you paid all the taxes along the way.
FFC is a good example of where you can get 8%+ income. It's a preferred share CEF. Minor distribution cut in 2008 in the biggest crash since the 1920's, but the share price got clobbered too, so it actually DRIPped at 15-30% for a year or so before recovering fully. (Distribution + Share Price)
-Mike
If by "never" you meant year 40, then yes, you are correct. The chart doesn't go out far enough to see the lower one surpass the higher one after zero-fee DRIP reinvestment.
It also doesn't mention that the income stream from the lower yield is up 17x over 26 years, and from the higher yield is up 10.83x. In this market at least, the higher growth will have a higher premium stuck on the share price, so capital appreciation is likely to be far greater with the higher growth. (30x original investment, or perhaps even more than that; time to unload and reallocate.)
It also doesn't factor in taxes paid on the higher dividend yield. High yield investments in the 8%+ range often pay Income rather than qualified dividends.
With charts like that, YMMV.
-Mike
MKL or BRK.B might be other good ones to consider. Close returns to BRUFX.
During market crashes, sometimes things sell off irrationally. Good time to shop individual stocks. I'd look to growth sectors like skilled nursing or datacentres during market volatility.
-Mike
Something that is not mentioned here, is that the core set of buyers could be those ~40% that upgraded. Assuming they don't break their phones, they could hand them off to family and friends, which consider whatever version they have to be adequate. I know a few people with the latest iPhone, which have handed off their two prior ones to family. As far as feature usage goes, those family members could get by with a flipphone.
Just pointing out that some portion of the 60% will be users like that.
-Mike
Your graphing software is glitching out.
Often happens when companies convert, or trade in shares for other shares. That's probably the REIT conversion date. Yahoo Finance doesn't indicate anything negative, but Google Finance shows the glitch.
http://tinyurl.com/hnk...;c=
Yahoo Finance suggests that we're now testing a long term support area. Even during 2008/2009, the company only declined into the $18 area.
Things that could torpedo them, sending them lower: Recall acquisition failing, being viewed as a dying industry rather than a growing one.
-Mike
Over the long term, a 4% dividend with 8% growth has more value than an 8% dividend with 2% growth. Some number of years into the future, the dividend of the former will pass the latter. Growth primarily determines whether people are likely to be paying the same or more a year or two from today.
With individual stocks, the sector can also have value, as does having a wide moat. But for funds/ETFs, often the position in the capital stack adds the most value. Generally if I'm aiming to DRIP my way to wealthiness, I pick higher yield yet safer instruments. There are preferred shares paying 7-11% with quite minimal risk, and CEFs/ETFs in the same ballpark - they will compound far better than a next-to-no-growth IRM, and since generally preferred share payouts only get cut after common share dividends, their safety shows during market turmoil. A few were compounding at > 30% rates during 2008/2009 - their share prices were clobbered, but the funds came out the other side alright, and much stronger due to the on-sale reinvestment.
-Mike
I saw a few ETFs sell off 10% on that day. BIG moves. I bought a bunch of on sale stuff.
Probably my best buy that day was CLDT. Also bought some preferred share funds (for the slightly less brave), which were yielding ~9% for whatever reason. They've already rebounded 10% due to the turmoil passing.
I see that through all this carnage, Realty Income (O) does nothing but rise slowly. I suppose the more fidgety the market, the lower the 10yr goes, which lowers their funding costs and makes their stock more appealing. Also, they just had a dividend raise. (But what else is new?)
-Mike
It's starting to look like these big miners were very negligent. I'm inclined to agree that they're going to be on the hook, bigtime. And it'll be justified.
-Mike
They make money off me buying Pro versions of apps. I prefer that they don't track me, spam me with ads, or sell my info. I have no trouble paying a bit for non-infested apps, since the highest end iPhone is about $1400 CAD after tax - I bought an Android equivalent with an equal/better camera for $700...
Leaves ~$550 to invest in something, $50 for a huge MicroSDXC card, $100 for apps.
-Mike
They do seem to be the most resilient.
I'm also grabbing CNNX on any dips under $9. Midstream oil MLP with low debt. How odd.
-Mike
Don't forget about Ludicrous Speed!
http://bit.ly/1lixW9u
http://bit.ly/1PKH5zV
-Mike
I know you didn't ask me, but...
I like OHI, NHI, VTR, possibly Welltower.
OHI - SNF is the most cost effective healthcare subsector. As budget constraints tax the system, more and more procedures will shift to SNF. OHI is currently the heavyweight in SNF, with VTR spinoff CCP nipping at their heels.
Less fond of senior's housing. Overbuilding is taking place, so pricing power will be difficult to maintain. Also, seniors often require medical procedures - those will take first priority over quality of housing. After all, if you need a new knee or hip to move around, isn't it worth it to downgrade a notch or two on the housing front? I know what I'd get the most quality of life from. Hint: I need to be able to walk places.
NHI - Low debt, locked and loaded for acquisitions if the market does sell off.
VTR - Higher debt, but also a very strong stock and one of the big three. Their amazing growth over the past decade means that the stock will be more resilient than many others would be in a big crash. They're also locked and loaded for acquisitions. I consider VTR and XOM to be equivalents in different sectors.
-Mike
Yes, you are. But that's the wrong question.
"How Low?" is the right question. Explosive upside of 1000% doesn't matter if it sinks 90% from here first. SDRL longs can attest to that.
-Mike
+1. Be a gobble monster. Don't be the gobbled.
-Mike
+1 if they're free.
PWE/PWT has tons of volume. A limit order for 100,000 shares probably wouldn't move it more than a penny or two. If needed, you could put through a hundred of those throughout the day to close a rather large position. You'd move the stock a bit, but no more than daily volatility these days. Tons of liquidity for this stock.
-Mike
He is converting from USD to CAD when he says: "to PWE it is..."
If PWE had no debt, they could survive $25 CAD oil. They do, though - a monster load of it. The banks should play nice given their assets, but nothing of this magnitude is ever certain.
PWE/PWT is definitely speculative.
-Mike
Anyone got thoughts on GSPE today?
-Mike
You'd think that, but often when it happens it goes down regardless. It may rebound within days, but there can be some irrationality when any cut is announced.
-Mike