SteveDF
Listen here or on the go via Apple Podcasts and Spotify
David Alton Clark, The Winter Warrior Investor, on capturing alpha with diversified dividend and growth stocks (0:40). Why he's bullish on T. Rowe Price and Duke Energy (4:50). Market cycles and buying at the point of maximum pessimism (9:30). Interest rates, Fed cuts and liking growth stocks like Dell (15:50). Updates on Exxon Mobil; thoughts on oil and energy (25:20).
Transcript
Rena Sherbill: David Alton Clark, you run The Winter Warrior Investor on Seeking Alpha. I've been reading your articles for over a decade. Welcome to the show. Welcome back to Seeking Alpha. It's always great to have you on.
David Alton Clark: Thanks, Rena. It's great to be with you.
RS: Yeah, it's always great to talk to you about stocks and investing. And I think a perfect place to start is in terms of talking to your Winter Warrior Investor subscribers and your readers in general, how do you explain the best way to capture alpha in the market? How do you look at being a retail investor? How do you advise retail investors to be approaching the markets these days?
DAC: Thanks, Rena. My first piece of advice would be to be diversified across structures, sectors, and asset classes. It's important to have diversity when it comes to your holdings, because there's always going to be situations where one sector or subset of stocks is up and the other one's down.
So, we have five portfolios in The Winter Warrior Investor. Three are dedicated towards income and two dedicated towards capital appreciation. We got SWAN and High Yield Income Portfolios, which aim for yields of 5% to 12%. And these include income generating assets such as BDCs, MLPs, C-Corps, ETFs. We've got high yield, which is higher risk.
And then The Super SWAN portfolio, which is what we might touch on that I've been focused mainly on lately that has income generating security such as Duke Energy (NYSE:DUK) and T. Rowe Price (NASDAQ:TROW), which are basically dividend aristocrats with very little risk. And then on the high-end, I've got some MLPs and REITs that have higher yields, but higher risk.
But one of the things that I try to do is not have any capital losses. Capital appreciation is really important. If you look at the performance of the group, over the past two years, we've reached our goal of a 20% total return for the two years that we've been in existence since inception. And half of that has come from capital appreciation and taking profits on the winners of the growth stocks, 200,000. We started off with a million dollar in funds. And then 200,000 has come from interest on cash, dividends, and income.
And also we have some unrealized gains that I haven't taken profits on. I've taken a lot of profits on my big winners in the growth side of the portfolio as we've reached all-time highs.
Right now, I feel that the current macro situation with the market at all-time highs, and it's overvalued. It has come down a little bit in being overbought, but basically right now I've been focused in on the stocks in the Super SWAN portfolio.
My most recent buy was Duke Energy and previous to that was T. Rowe Price and I've been really zeroed in on the Super SWAN type stocks right now because when we get into situations like this Rena, the current macro environment where we're at all-time highs and the overall macro market, the S&P 500 is currently trading at 20x to 21x forward P/E with four or five major stocks really accounting for most of the upside.
It's very condensed right now. It's a high risk macro environment. So, finding winners, whether they're growth stock winners or dividend winners is fewer and far between right now.
If you notice some of the growth stocks that are AI related, which is the latest craze, even though they beat on the top and bottom lines and raised guidance, they still got crushed after earnings. And that's a sign that we're really at a top right now. So, that's why I've been zeroed down on buying small 1% starter positions in Super SWAN stocks like Duke and T. Rowe Price.
RS: And why those two specifically? What made them stand out to you?
DAC: Well, they meet the requirements for the Super SWAN portfolio. What I'm looking for when I'm looking at these is a history of steady and dependable dividend payments with at least a 4% to 6% yield. The stock has to be in a technical positive position with little chance of downside and strong fundamentals and free cashflow support for the dividend payout.
The reason these came to light is T. Rowe Price was trading at a 52-week low and had been beaten up pretty bad already and it come off of the bottom, and so that made the yield meet the requirement for the portfolio.
And also one of the thing I do at times like this, when I feel that the market is at risk of downside based on the fact that it’s trading at all-time highs and also overvalued is, I wait until after earnings are reported so I have a really good take on what they are expecting for the future.
I don't take chances and buy in prior to earnings. And then once, so both Duke and T. Rowe Price gave great earnings reports and great guidance going forward, very positive. And so, that was a big plus. Plus I also layer in to reduce risk at times like this. I see some articles on Seeking Alpha where they say they're buying things hand over fist. I would never buy anything hand over fist, Rena. So it's all, 1% positions and right after earnings so I've got a really good idea of where they stand.
And as far as Duke was always on my radar screen because I don't know if you saw my article on that, but my uncle back in the 80s was actually the VP of Public Relations for them. It was called Corporate Communications then, but I've been a big fan of Duke for a long time. And it's a second derivative AI play, the new AI craze, you know, whatever you want to call it that's going on right now, it's going to require a lot of energy.
And Duke just signed agreements with Amazon (AMZN), Microsoft (MSFT), Google (GOOG) (GOOGL), and Nucor (NU) for new data centers in their area in the southeast in order to supply the energy for the new AI realm that's coming forward.
RS: Are there any metrics on either of those stocks that give you pause, that make you question the highlights that you're seeing?
DAC: There is always risk involved. One thing I would say is the fact that the new AI realm that everyone's talking about, it's not a 100% chance that it's going to come to fruition.
I've been doing a lot of research on the AI end of things and NVIDIA (NVDA) is definitely a winner regardless, but they're also priced to perfection as well.
Another thing is the second derivative, that's why I've been working on the second derivative plays like Duke, which has like 16 P/E ratio rather than a higher, 20 – the S&P 500 right now is 20% to 21% or 20 to 21 forward P/E ratio.
So I guess one of the biggest risks is the macro environment that we're in right now. We could have a macro pullback, which is going to pull down all stocks, but as far as Duke goes, they're in pretty good shape across the board.
Like I said, I checked out the latest earnings report. And I guess the biggest risk would be if some of these things didn't come to fruition. The deals that they just signed with Amazon and Microsoft and so forth, those are just preliminary agreements to make a further agreement. So, it's not a signed agreement saying X amount of dollars and we need this much power and gigawatts from you guys. That's all still to come. So, we'll have to see if that all plays out.
RS: And what are your thoughts - you discussed how you're looking at the broader market and how that affects what stocks you're paying attention to and what stocks that you're more focused on? You mentioned now about stocks maybe being unbuyable if the market keeps heading in a certain direction.
How do you figure for that or how do you look at the cycle that we're in and start maneuvering? What's a marker that's going to happen in the market that will make you switch focus or change points of focus?
DAC: Yeah, that's a great question, Rena. One of the reasons why we've done so well is, when I started the service, we were in a bear market, technically. It was 20% below the recent highs.
It really goes back to my past history and my father. I learned a lot from him about investing. I was actually born in Omaha, Nebraska, the birthplace of Warren Buffett. And so, my father retired from the Strategic Air Command in Omaha and became a stockbroker and ran in the same circles as Warren Buffett back in the day and has the same mindset of a conservative investor. And so, it really goes back to the buy low, sell high, invest in things when they're out of favor.
One of my favorite investing sayings is buy at the point of maximum pessimism. That's the hardest thing to do, but that's what we did with a lot of the positions. I was buying at the lows back in ‘22 when things were really selling off and a lot of people were thinking that we were heading for a deeper dive, but you have to have courage in your convictions and do your research.
So a lot of the positions I bought then, and then over time over the last year or so, we've had this huge comeback and it was just, a nice steady drive upwards for several months with, I think we went maybe 200 days or something like that without a 1% pullback in the (SPY), the ETF that tracks the S&P 500. And that's when it got to – and then we reached the all-time highs. And that's when I had a lot of big winners at that point.
I had many stocks that were up double, 50%, I think I showed you the list of my sold stocks, but that's when I decided to take profits as part of the risk management. It depends on, okay, how much am I up on that position? Where do we stand from a macro outlook? The market was trading at all-time highs in early 2023, it's still in early 2024 and late 2023, it still is right now. And it gets really hard to break through these levels.
If you look at the recent action, it's really got a lid on it right here. What happens is, when you get to this position where everybody's all in, the sentiment, I'm always looking at the sentiment. The sentiment was off the charts bullish in late 2023, early 2024. And just taking all those factors into consideration, we had SPY was 21 forward, which is the historical range is 15 to 20.
So, it was over the top of the high-end of the historical range, as far as being over overvalued. And then it was also at 70 RSI, Relative Strength Index, which is the point at which the market became overbought as well. So, at that point in time, if I've got a bunch of big winners, I have a risk management discipline and I say, look, everything that I'm up over 20% on, I'm going to take profits. And so, that was a lot. Majority of my growth stocks were up big. I had a lot that were up 40%, 50%, 100%.
So, I just took profits on those and locked all that in. And so, now at this point in time, we're still at those highs. Tomorrow is going to be a big day with the jobs report coming out. It's going to be huge. And so, I'm waiting before I make my pick for this week to see what happens with the jobs report tomorrow, because I think that's going to be highly determinative of what the Fed does.
The ECB just cut by a quarter percent today, which they're not doing nearly as well. Their economy is not doing nearly as well as ours. This AI boom has really got the U.S. economy firing on all cylinders right now. That's why it's harder for the Fed to cut rates at this time, but the ECB cutting a quarter and yesterday, Canada cut a quarter that gives Powell a little breathing room to possibly cut a little sooner than expected.
Recently, everyone's been pushing back the rate cuts of the Fed because the economy of the U.S. has been doing great, but with those two different regions cutting their rates by a quarter point, I think that gives Fed a little room to cut earlier than many expected. So, if the jobs report comes in in-line or maybe a little bit soft tomorrow, I think we could be off to the races again.
So, my next pick right now that I'm considering is Dell (DELL), which is one of the examples of a stock that sold off big on earnings, which really weren't that bad. They got beat up a lot harder than they should have been. And now they're trading back down just right above their 50-day moving average. So, I'm zeroed in on that one for tomorrow potentially.
RS: And why? What does that have to do with the jobs number coming out soft in interest rates? How does that make you, why does that make you think about Dell?
DAC: Because that would be more on the growth side of things. Everything I've been picking lately has been the dividend aristocrat safe bet, little risk of downside.
And if the jobs report comes in in-line or not just crazy high to where everybody's afraid, the Fed’s never going to cut again. If it comes in in-line or just slightly below or maybe just even slightly above just to where it's not just crazy high and the Fed is able to cut a little earlier than that, well, that's going to grease the wheels for the growth stocks again. And we might flip back.
Right now, they've being getting beat up pretty bad, but Dell actually had a good earnings report, but it just wasn't good enough for the price to perfection type market we're in right now. It was up almost 200% over the last year. And now it's been knocked back down about 20%, I think. And it's still up big for the last year.
It's been doing great, Dell has, and they're actually firing on all cylinders. It just, it was priced to perfection. So people took profits when they didn't raise guidance even further than they did. But I feel more confident in making a growth stock pick right now under those conditions that are more favorable towards growth stocks because they're long duration and when interest rates are lower, that the value of the future cash flows is higher on those types of stocks.
RS: And do you think the mispricing is a result of them being in the AI group?
DAC: Yes. NVIDIA is pretty much leading the entire market. I haven't looked, I was watching earlier today, but if NVIDIA is down, the market's down. If NVIDIA is up, the market's up. So, a lot of the – in the tech sector, most of them are following along with whatever NVIDIA does each day. So, it definitely has a big effect on whether they're going up or going down overall in the tech sector.
RS: And then what were your favorite things about Dell? You mentioned their good earnings. What were your favorite points there?
DAC: Dell is a Texas company. I've been familiar with them for over 30 years. Michael Dell had started out in Austin. I'm here in San Antonio, Texas. So, it's kind of a hometown stock for me. So, I really like Michael Dell and his attitude and just the whole mindset of the company. They've done really well. They're conservative on their investments. They've got a fortress balance sheet. It's only trading for, I think 16x forward P/E, so they are not overly valued.
So I see it as a way, I'm looking for ways to get in on the AI craze without buying into these stocks that are way overvalued. Right now, the forward P/E of Dell right now is 14.5, which is great. That's at the lower end of the of the historical average for Dell. They're still up 185% for the year.
So what that tells you is, they are increasing their growth and earnings by leaps and bounds for them to be up 185% over a year, but yet still have the valuation of forward P/E of 14.5, that means they are increasing money. The EPS quarter-over-quarter growth is 67%. Year-over-year, trailing two month is 35%.
So they are definitely making money. And then right now it's falling back and it's trading just right above the 50-day moving average, which is right in-line with the bottom of the upward trend channel. So, it's a big point of support where they're at right now. So, they've got solid technical support.
They're increasing earnings per share and sales quarter-over-quarter, year-over-year. They're trading at a good point and at for a good valuation. So, I see that the sell-off was like wiping off the froth off the top of your beer. Now, we're going to the good part.
RS: Would you say that there are specific things that investors get wrong about looking at the growth space and looking at the dividend space? What would you say that investors get wrong about both those spaces or is it more general investing things that they get wrong?
DAC: I think a lot of people start from the wrong point where they, as far as dividend stocks go, dividend investments, a lot of people start off screening with the yield on the top, high yield. There's several authors and analysts across the board, not just at Seeking Alpha, but in the investing realm where it's all about the yield and the high yield and nailing down a high yield. And so, with me, that's the last thing I look at. It's got to pass my three pillars of investing in order for me to even get to, okay, now where is the yield?
So, starting off with looking at the yield first is probably the biggest mistake that I think a lot of people make when it comes to dividend or income investing. You've got to look at the payout ratio, the growth history, the payout history, and then look at the yield.
Don't take the yield first. And also you need to look at management, the management teams, I think, need to get more focus from investors, whether they're novice or not. It's really important to see, how long has the CEO been on the job.
I've been doing this for about 30 years, so I've got my favorites, Barry Sternlicht with Starwood (STWD). There's a lot of CEOs, so really you need to take into consideration the management team. And that goes for the growth side as well.
As far as growth stocks go, you need to look at their profitability level. I think a lot of people make the mistake. This was what happened back in the dotcom bubble and subsequent crash was people weren't paying attention to the fundamentals that those stocks actually weren't making money back then, Rena.
It was really, at that point in time, I was working for Ernst & Young as an IT consultant and I actually got sent out to Silicon Valley. I was working out of San Ramon but driving around to San Francisco and San Jose and those places meeting with clients and stuff. And I was on a team that was green lighting IPOs for venture capitalists. And my job was to check out, specifically I was doing the business continuity disaster recovery part of it. Everyone had to have a great plan for that. But one thing I realized was none of those companies were making money.
And so once the year 2000 clicked over and people were able to sell-out and then the big crash happened, it was, none of those were making any money. A lot of people compared this time era where we're in right now with the 2000 dotcom bubble, but the big difference between now and then is these companies are actually making money now.
So on the growth side, it's don't put all your eggs in the basket of stocks that are based on future cash flows.
And then for the dividend side, you shouldn't even consider what the yield is until you've already done your homework on the fundamentals and how their historical payout ratios and those types of things.
RS: Yeah, absolutely. Stay away from the headline, from the sexy numbers, and do the real due diligence and plug for Seeking Alpha in terms of looking at different filters in terms of following growth stocks, in terms of following dividend stocks, lots of filters that you can avail yourselves to if you're a Premium subscriber, lots of things that you can look into and look at and dive into.
David, something else that I wanted to ask you about, last time you were on Investing Experts, we had a bull bear case on Exxon Mobil (XOM). By the way, if anyone misses those bull bear cases or if anyone wants to hear one, give us a shout in the comments about what stock you'd like to see covered.
In any event, you were bearish on Exxon. You mentioned Duke Energy as a stock that you're looking at. I'm curious if you have any thoughts on that sector or updates on Exxon or how you're thinking about things there?
DAC: That's interesting. I'm glad you asked that question, Rena. I don't think Exxon's really - my main point on Exxon back then was it hit a lid. It wasn't going any higher. The dividend was 3% and Exxon's basically still – I didn't say Exxon was going to crash. I just said, it's not a good dividend investment at that point in time because it was only earning 3% and it's not a good capital appreciation play because it's topped out.
And so over the last two years, I think that was almost two years ago that we had that discussion, it's pretty much still in the same spot, but the one that's not, and I am bullish on the sector, the energy sector right now.
The one that I picked up recently a few months back was actually I switched over to Chevron (CVX), which I don't want anyone from Texas hearing me say that because Exxon is the Texas oil Titan. That's the Texas company. Chevron is the Cali oil Titan, but Chevron has a higher dividend yield. Currently it's 4.2% for new buyers.
I went in on it at 4% when it reached my bottom limit for the Super SWAN portfolio. I have it in the Super SWAN portfolio because I have no fear that they're going to cut the dividend.
Right now, oil's taking a hit because OPEC just came out and said that they are going to start OPEC and OPEC+, just recently in the last couple of days, Rena, came out and said that they're going to start taking off the cuts in October, I think, and layering out the cuts throughout 2025. So, that's why oil is down right now.
But I feel like we may be, with the ECB cutting rates, Canada cutting rates, things are starting to turn again, and hopefully this is going to incentivize some growth across the globe. China's not been doing very well. They've been having big problems with their real estate market, but hopefully I'm seeing, that's a situation where I'm buying low and helping to sell high again.
Chevron was trading near the lows. I think I got in there. Let me see. I got in at 161. And so, it's still around that same level, but that's been the recent low for Chevron. So, I'm expecting it to go to like 200 hopefully over the next year or so.
RS: And what are your thoughts about all the mergers and acquisitions happening in that space speaking of Chevron?
DAC: Yes, that is very interesting. The Guyana situation has brought on some consternation and that's part of the reason why Chevron was a buy, was the fact that Exxon came up and said, hey, we feel like we have the right of first refusal on the Hess assets that are in Guyana. Guyana is the golden goose right now for the oil industry. That's supposedly, the best set of assets out there right now.
I don't feel like it's going to – the reason why I'm still sticking with Chevron is I'm pretty sure that at first Exxon and Chevron CEOs were cordial about it. Then the next thing you know, they wanted to go to arbitration to decide whether Exxon had the right of first refusal on the assets of Hess, but I feel like they're going to resolve it one way or another. Maybe they'll get a little more money out of it or whatever, but Chevron will still end up getting the Hess (HES) assets and bygones will be bygones.
The other part is the FTC with Exxon's purchase of Pioneer Natural Resources, the FTC has raised an issue with Sheffield who was the CEO of Pioneer Natural being on the Board of Exxon and due to conflicts of interest, I don't really see why that's an issue, but I don't really feel like that's going to be an issue for Exxon either.
If the FTC wins out on that, they just won't have Sheffield on the Board, and he'll sell-out and do whatever he has to do, but they'll comply and get through that as well. But the reason why there's been so many – and then the other one, I actually have ConocoPhillips right now as one of my Buys and they just bought-out another company as well.
There's a lot of money in the oil markets right now, but some of the smaller players, when the oil price goes down, their profits take a bigger hit. And then the big companies like ConocoPhillips (COP), Exxon, Chevron that are flushed with cash, that's when they see an opportunity to pick up assets at a cheap price. So, that's why you're seeing a lot of M&A in the oil industry right now.
RS: I appreciate that. Anything else that you feel like investors should be paying attention to or anything else you want to mention in terms of stocks or sectors or things to be looking at?
DAC: Sure. One thing I tell my members and another thing is, with the team of people we have over the past two years we've gained up some really super, super smart and prescient investors. It's important to have a sounding board when you're making your investments. You should have at least some friends that are investing alongside you that you can bounce ideas off of. It's hard to do it in a vacuum. So, one of the reasons why we've had such a great performance is the fact that I've been able to collaborate with the hundreds of other investors in the chat room, as far as my ideas and things of that nature.
So, I think it's really important to not to try to do it in a vacuum or just read articles on your own. Somehow you need to get involved with Seeking Alpha Premium. I think the Premium service actually has some chat now, I believe, as well.
And then the other thing that I've learned over my lifetime is don't be an action junkie. That's one of my primary bits of advice I give to people. You don't have to be in the market all the time or be buying things every week. Sometimes my top idea of the week is for everyone to review their portfolio and just hold tight this week based on the macroenvironment that we're in. When it's a sell-off or I see a potential sell-off coming, I'll say, hey, this week, you just need to hold tight.
It just goes back to the fact that some people make the mistake of thinking that they've always got to be in the market or buying new things and that's just not the case. Patience equals profits is one of my abiding principles. So, you need to be patient and do your homework before you make that initial purchase and then also layer into those positions.
Don't buy something hand over fist. Hand over fist to me means that you're plunking down and say you have 40,000 you're going to put towards that position. If you were going to buy it hand over fist, well, then that would mean to me that you're going to put that whole 40,000 on it in one day. Whereas I would probably buy it at 10,000 in four parts or at least maybe even more than that, depending on the risk level, that's how many more layers I put in.
When I assign a risk value on something, Rena, I'll say, okay, I'm going buy this one in thirds, or I'm going to buy this one in quarters, or even more, over time, dollar cost average in is important.
RS: In terms of The Winter Warrior Investor, I'm curious why you started that group and also how you got the name for it? What, what that focus is about?
DAC: That's interesting. I took some time off. I had been writing for Seeking Alpha for a little over 10 years. I think I started in 2010 and wrote and wrote and wrote and publicly on the site until 2020. And I'd done really well in investing and I just felt like - the pandemic hit as well right then. And I had advised everyone that I was writing for. I actually got lucky and saw that big 30% drop we had at the beginning of 2020 coming. And I sold out of all of my stocks.
That's another thing I learned from my dad. And it's basically something my mom actually taught my dad or whatever, but there's no – if uncertainty level is high, then there's no shame in stepping to the sidelines and waiting it out to see what happens. And then you can jump back in and afterwards, you don't have to make, a lot of people are like, okay, am I going to go short or am I going to go long because I see this certain event coming up and I want to be right.
Well, if you choose long or short, then you've got a 50% chance that you're going to be wrong, but if you hit the side, if you're up big and you hit the sidelines and then you just wait that out and then after the event occurs, then you can make a more educated decision on what to do. And so that's what I saw when things started shaping up in late 2019 and the murmurs of the COVID virus in China and stuff. I said, this looks big.
And so, I kind of said, I'm going to tell you, I'm up big. I've been doing this for 10 years. I'm going to take some time out. And I actually built a house for myself. I built a new, my final house. I was a home builder. I built about 500 homes here in Texas over the last 20 years for people. So, I built my own house for myself and took a break from 2020 to 2022. And then Michael Hopkins looked me up in 2022 and sent me an email and said, hey, we miss you. There's a lot of people, members, I had 30,000 followers at that time. And so Michael was telling me that a lot of people were wondering what happened to me.
And by that point in time, I got my house built and I was refreshed and I thought, you know what, I'm going to come back on and start writing again. And so, I did, and it was really enjoyable. And so, I started writing and I was getting a good response from people. Then that's when Yoni and Michael contacted me and said, hey, we think you should start an investing group service. And that would be great with your – you've got a big following and people love reading your articles. And so, I was like, hey, let's give it a shot.
And it was actually Michael Hopkins that came up with The Winter Warrior Investor. We had a team meeting and I started my career. My dad was a big, big disciplinarian and a big on teaching me the value of a dollar. He never gave me, I never got an allowance. He backed me in my first lemonade stand. And so then when it came time for school and to go to college, he was like, well, you should look into joining the military.
So, I joined the 10th Mountain Division as a Winter Warrior mountain climber up in Fort Drum, New York. And part of the reason for that was they gave a $5,000 bonus for signing up for that, but anyway, that's how The Winter Warrior came about when I was talking to Michael, and Michael knew about that from – he's been my editor for the past 10 years or whatever, and he's the one that said, hey, you should differentiate yourself by calling yourself The Winner Warrior Investor rather than some of the standard things that are like High Yield Forum and things of that nature. So, that's how that came about. It's pretty interesting.
RS: Awesome. Love an origin story.
Related Articles:
T. Rowe Price: A Dividend Aristocrat With 25% Upside Potential
Duke Energy reaches clean energy supply deals with Amazon, Google, Microsoft
Exxon Mobil - Is Good News Priced In? Bull/Bear Thesis With David Alton Clark And Callum Turcan
