Daily Archives: March 9, 2018

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10 Best Stocks Under $10

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Good things come in small packages goes the saying. Nowhere is that truer than in the markets where stocks under $10 grow to be $100 and possibly even $1,000 over time.

A classic example is Amazon.com, Inc. (NASDAQ:AMZN), which traded under $10 in November 2001, hit $100 in October 2009 and $1,000 in May 2017.

On both occasions, it took approximately eight years to achieve cumulative total returns of 900%. For anyone who’s held AMZN stock for the entire 18-year period, I salute you because a $10,000 investment today is worth $1.5 million.

Who needs to work, right?

However, picking stocks under $10 is easier said than done. In March 2014, I selected five cheap stocks under $10 to buy now.

Here’s how they did.

Stock

% Return

Notes

Fortress Investment Group

25%

Acquired in December 2017 for $8.08 per share

Acco Brands Corporation (NYSE:ACCO)

110.8%

Aegon N.V. (ADR) (NYSE:AEG)

-8.2%

Cencosud S.A.

N/A

Voluntarily Delisted from NYSE on June 19, 2017

Aeropostale

N/A

Sought bankruptcy protection in May 2016. Acquired by two mall owners for $243 million in September 2016.

Ok, so my five picks had a few bumps in the road, but that’s going to happen with stocks under $10.

A glutton for punishment, I’m going to do it again. Only this time I’m picking ten stocks, not five. 

Best Stocks Under $10: Arcos Dorados (ARCO)

I might be going to the well once too often picking Arcos Dorados Holding Inc (NYSE:ARCO), the largest franchisee of McDonald’s Corporation (NYSE:MCD) and a major player in the Latin American restaurant industry, but I just love this company.

In January last year, I recommended ARCO as one of three restaurant stocks to buy in 2017; it gained 92% in 2017 on the heels of a 74% gain the year before that.

McDonald’s is facing tougher market conditions at the moment and that’s got analysts a little concerned in the near term, but over the long haul, Arcos Dorados is in an enviable position.

“While we are cautious on MCD in the near term, we believe the chain has ample opportunities to course correct and re-accelerate SSS growth in the coming quarters,” wrote RBC Capital Markets analyst David Palmer in a note to clients.

Best Stocks Under $10: Trivago (TRVG)

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If you didn’t know who Trivago NV (ADR) (NASDAQ:TRVG) was a year ago, you probably do now, given how much advertising the hotel comparison site’s doing to spread the word.

“The past year has been focused on building a solid foundation that we can use to execute our vision of building the best product for our users, and to further strengthen trust in our brand,” stated CEO and founder Rolf Schrömgens in the company’s Q4 2017 press release. “Having significantly increased our brand awareness, optimized our back-end structures and broadened our offering to include alternative accommodation over the course of the year, we believe we are now in the strong position to move forward.”

While Trivago is still growing — revenues grew by 37% in 2017 — it is still losing money. However, on the plus side, it was able to cut the loss by almost 75% in the past year, providing hope to investors that it will deliver GAAP profits in 2018.

I like its chances to break through $10 by the end of the year.

Best Stocks Under $10: Algonquin Power & Utilities (AQN)

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I figure if I’m going to pick the ten best stocks under $10, being Canadian, at least one of my selections ought to be based north of the border.

Algonquin Power & Utilities Corp. (NYSE:AQN) is an Ontario-based diversified power generation, transmission and distribution utility with CAD$10 billion in total assets.

It operates two primary businesses: Liberty Utilities, which provides rate-regulated natural gas, water, and electricity to over 785,000 U.S. customers; and Liberty Power, which generates renewable power from wind, thermal, and solar energy.

Thanks to tax reform, the company feels it will be able to grow its rate base at a faster pace than it otherwise would have been able to do before the December 2017 corporate tax cut.

Acquisitions over the past year have helped the company grow. First, in January 2017, it paid $2.4 billion to acquire Empire District Electric Co., which has 200,000 customers in four states.

Then, this past November, it entered into a joint-venture partnership with Spanish utility Abengoa SA to develop renewable energy projects around the world. As part of the agreement it acquired a 25% interest in Atlantica Yield PLC from Abengoa; Atlantica Yield operates renewable energy facilities in Europe, Africa, and South America.

Going global will pay dividends, literally and figuratively, in the years to come.

Best Stocks Under $10: Sirius XM (SIRI)

A lot’s going right for Sirius XM Holdings Inc. (NASDAQ:SIRI) these days pushing SIRI stock to recent 52-week highs; yet it still only trades between $6-$7.

A big highlight from the satellite radio company’s fiscal year was the addition of 1.56 million self-pay subscribers in 2017, 160,000 higher than its projections, bringing the overall total to 27.5 million.

Another notable highlight was the Trump tax cut which is expected to add $900 million in operating cash over the next four years.

And if that wasn’t enough, Sirius XM’s board approved a $2 billion increase in its share buybacks as well as a 10% hike in the dividend. While you’re not going to buy SIRI for the dividend, the company is trying to increase the rate at which it rewards shareholders.

When you generate as much free cash flow as SIRI does, it’s only natural that share repurchases and dividends are a part of its capital allocation program.

SIRI could be my favorite large-cap stock under $10.

Best Stocks Under $10: ICICI Bank (IBN)

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India is one of my three favorite emerging markets; Brazil and South Africa being the others.

Canadian financier Prem Watsa has done very well in recent years by investing in the country where he was born. Watsa’s considered the Canadian version of Warren Buffett.

In July 2017, Watsa’s company, Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF), terminatedits joint venture with ICICI Bank Ltd (ADR) (NYSE:ABN) after 17 years to carry out the IPO of ICICI Lombard General Insurance Company, itself a joint venture between the two companies.

ICICI Chairman M.K. Sharma finished his 2017 message to shareholders by stating:

“The ICICI Group represents a unique financial services franchise that will benefit from the growth and formalisation of the Indian economy and the Indian financial sector. It will continue its commitment to being a partner in India’s growth and development.”

I believe that India will continue to grow at a faster rate than the emerging markets as a whole. Owning the largest private sector bank in India is a good proxy for benefiting from that growth.

Best Stocks Under $10: Gazit Globe (GZT)

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Talk about your global real estate company.

Based in Tel Aviv, Gazit Globe Ltd (NYSE:GZT) owns properties in Israel, U.S., Canada, Brazil and Europe; its stock trades on three major stock exchanges: New York, Toronto and Tel Aviv. It’s about as internationally diverse as they come.

Its best-known investment here in America would probably be its 11% ownership interest in Regency Centers Corp (NYSE:REG), a REIT with 59 million square feet of retail space with 80% of its 426 centers anchored by grocery stores, a stabilizing factor in a changing retail marketplace.

I’m more of a fan of Gazit Globe because of its 32.6% ownership interest in First Capital Realty Inc (OTCMKTS:FCRGF), one of Canada’s most interesting retail real estate owners.

Not coincidentally, Gazit-Globe director Dori Segal, was CEO of First Capital for 15 years from 2000 to 2015 when he stepped down to devote more time to Gazit-Globe.

Segal’s one of the most respected real estate people anywhere.

Best Stocks Under $10: WisdomTree Investments (WETF)

WisdomTree

Focused on ETPs, WisdomTree Investments, Inc. (NASDAQ:WETF) has taken a long and very circuitous route from its founding in the 1980s as a finance magazine to where it is today — an ETP provider with $46 billion in assets under management.

The company’s stock has performed poorly in 2018, down 21% year to date through March 6. As a result, it now trades below $10, a level it hasn’t seen on a consistent basis since 2013.

Why the retreat? The quick answer is it missed its Q4 2017 earnings estimate by three cents. Bigger picture, things look pretty good.

In 2017, if you exclude both the WisdomTree International Hedged Equity Fund (NYSEARCA:HEDJ) and WisdomTree Japan Hedged Equity Fund (NYSEARCA:DHJ) ETFs, it had net inflows of $2.9 billion. In the fourth quarter, also excluding DXJ/HEDJ, it had $1.1 billion in net inflows, its strongest quarter in the last five years.

In November, WisdomTree announced it was acquiring $18 billion worth of European AUM from ETF Securities. The $611 million cash-and-stock deal, which is expected to close by the end of March, will bring the ETP provider’s global AUM to more than $66 billion making it the ninth largest ETP sponsor in the world.

New products and innovations along with future potential acquisitions will help WisdomTree thrive in an increasingly competitive marketplace.

Best Stocks Under $10: BBX Capital (BBX)

Last July, I called BBX Capital Corp (NYSE:BBX) one of the seven best buy-and-hold “holdings” on Wall Street. Since then, it’s up 45% and ready to blow past $10. BBX stock hasn’t had a losing year since 2011.

BBX Capital is probably best known for its vacation ownership business, Bluegreen Vacations, which operates in a very hot industry. Marriott Vacations Worldwide Corp (NYSE:VAC), the industry leader, has delivered an annualized total return of 25% over the past three years as consumers look to own a tiny fraction of the places they choose to vacation.

In November, BBX Capital spun-off its timeshare business into its own publicly traded company, Bluegreen Vacations Corp (NYSE:BXG), selling 10% of the company to investors at $14 a share; it’s now close to $20.

In addition to its vacation ownership business, it also has a private equity division that invests in middle-market consumer-facing companies such as IT’SUGAR, a candy company it acquired in June 2017 for $57 million. It’s also opening as many as 50 MOD Pizza locations in Florida.

Now that Bluegreen Vacations is operating on its own, I’d look for BBX Capital to pick up the M&A pace and burst into the mid-teens.

Best Stocks Under $10: J. Jill (JILL)

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This is a speculative bet all the way, so if you’re thinking about using your retirement fund or your kid’s college fund, don’t. Run away from J. Jill Inc (NYSE:JILL) as fast as you can.

However, if you’re an aggressive investor and can afford to lay down a small bet with the full understanding you could lose the entire sum, by all means, take a closer look at it.

First, a little history.

J. Jill was founded in 1959 as an apparel brand catering to women over 40. Fast forward to 2015; it was acquired by TowerBrook Partners, the same private equity firm behind True Religion Brand Jeans, for $400 million.

Two years later, J. Jill did an IPO in March 2017 at $13 a share allowing TowerBrook to get back a big chunk of the cash it put into acquiring J. Jill back in 2015. Still owning 59% of the company, TowerBrook wants to exit with as much cash as it possibly can.

Retail holiday sales across the industry were good this past year, so I’m hoping the two-day delayof Q4 2017 results isn’t anything more other than the retailer wanting to get the numbers right.

Analysts expect J. Jill to be one of the big retail beneficiaries from the corporate tax rate cut, so that’s a bonus.

Bottom line: At $13, JILL stock was probably a little pricey. At $8 and change, it’s got some upside, especially given the extra profits from lower taxes.

Best Stocks Under $10: Oaktree Specialty Lending (OCSL)

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Business Development Companies (BDCs) aren’t nearly as popular as they once were, but this one caught my attention while writing a piece about the best alternative asset management stocks available.

Oaktree Specialty Lending Corp (NASDAQ:OCSL) is managed by Oaktree Capital Group LLC (NYSE:OAK), the alternative asset management firm co-founded by Howard Marks, one of the best investors of our time.

Oaktree Specialty Lending provides first and second lien loans, unsecured and mezzanine loans, as well as preferred equity to middle-market companies across all industries, preferably ones with strong financials.

It’s been less than a year since Oaktree Capital acquired Fifth Street Finance Corp. It’s going to take the asset manager time to remodel the 122-company portfolio.

At $4 and change, I’m betting Oaktree Capital will turn this around.

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What Happens to Your Money Under High Inflation and a Recession?

In a recent interview with Chuck Butler, he warned us that we may be in for a significant “Minsky Moment”.

The federal reserve is raising interest rates and unloading trillions in their US debt holdings. Countries that normally buy our bonds are slowing down their purchases or reducing their holdings. With fewer buyers, what happens if interest rates continue to climb?

Chuck then sent me an article by David Stockman which concerns me; the issues we discussed are happening worldwide.

David Stockman presented an eye-popping graph. Debt being held by central banks has tripled in ten years to well over $20 trillion.

If world-wide central banks are working in unison unloading debt – the Minsky Moment could be much bigger than I originally imagined.

It’s time to get some input from someone outside the US who is involved in global finance on a daily basis. I contacted Rob Vrijhof, President and Senior Partner in Weber Hartmann Vrijhof & Partners Ltd. located in Zurich, Switzerland.

DENNIS: Rob, thanks for taking the time for our education. Several experts are warning about the world-wide, staggering government debt. Central banks have reversed course – some have stopped buying, while others are selling off some of their holdings.

What are you seeing in Europe, China, Japan and elsewhere?

ROB: Thanks for inviting me.

The debt that has been building up by the world national banks is indeed staggering.

After the real estate bubble burst in the USA, enormous amounts of money created out of thin air were being pushed into the system trying to avoid a complete collapse of world economies. It seems that national banks, working in tandem, saved us from a total downfall – with interest rates falling into negative territory in Europe.

Reality is now kicking in and these enormous accumulated debts will eventually have to be paid back. The big question is how this will be done. This question is faced not only by the USA but also by Europe and Japan to name just a few.

This presents a real challenge for central banks for the years ahead. Higher interest rates are poison – perhaps it could be done through inflation.

Unfortunately, we strongly believe there will be no happy end to this party of cheap money.

DENNIS: The law of supply and demand hasn’t been repealed. When supply of debt instruments (bonds) is higher than demand, interest rates will rise. Interest rates on US treasuries have already doubled since July 2016.

A two-part question. What are you seeing outside the US? Are the days of negative interest rates disappearing?

ROB: The interest rate hikes started in 2017 by Madame Yellen of the Fed. We believe new Fed chairman, Mr. Powell, will continue the process. We anticipate he will increase rates by 0.25% in March followed by another two hikes in 2018. While he says he will keep a close eye on inflation, we believe the 2% target will be shuttered – we may be in for a period of higher inflation.

The European Central Bank headed by Mr. Draghi is under no pressure to hike interest rates. We feel he will wait and we expect the first rise in interest rates in Europe during the fourth quarter of 2018.

The Swiss National Bank will do everything they can to keep their negative interest rates in place, inflation in Switzerland is still not on the horizon. We strongly believe that the negative interest rates will be with us for another 12 to 18 months. We don’t expect the Swiss National Bank to raise rates until well into 2019.


Wouldn’t inflation have to be considered?DENNIS: Rob, I’m concerned about the bond market. Central banks alone hold over $20 trillion in bonds that pay interest rates well below the market. What are you telling your clients who may be holding long-term bonds?

ROB: We’ve been telling our clients to use any rally on long-term bonds as an opportunity to sell since we strongly believe this everlasting bull market in bonds could be coming to an ugly end.

We are always looking for short-term bonds that are paying higher interest rates than the ones in the USA. In foreign currencies, you profit from higher interest rates and also from the weaker US Dollar. High-quality foreign currency bonds are available and very liquid, so we view this as a solid alternative.

Yes, inflation is a big concern. We anticipate a revival of inflation with most of the world economies blasting ahead at full speed, wages and interest rates moving up.

We should all hope that it will not be galloping away since high inflation numbers could also be bringing the ugly “R” – word (recession) back into circulation.

DENNIS: I’ve wondered if I would ever see safe, high quality 6% bonds again in my lifetime. When we did our retirement projections, 6% was a given. Do you feel it’s possible to return to those days? At 6%, how could debtor nations possibly afford to pay the interest on their current debt levels?

ROB: This is a very tough question at my age. It seems not very long ago that we were getting well above 6% interest on Swiss Government bonds, this was back in 1991.

When we bought our first house in 1998, our mortgage was a 4.5% fixed rate. I believed I had the best deal of the century. My last fixed 10-year mortgage rate was 1.25%.

To address your question, yes interest rates could be heading up to these levels during the next few years; helping lenders and hurting borrowers.

You are correct, the gigantic debt of our central banks will then also have to be paid back at a much higher interest rate – which could end in a catastrophe. It would probably mean higher taxes and inflation.

While lenders may like the higher rates we are seeing today, if we see galloping inflation, the higher rates will do us no good. Unless interest rates (after taxes) are higher than true inflation, you are losing buying power every day.

DENNIS: It looks like we’re anticipating a huge Minsky Moment. A bond market collapse, high inflation, and rising interest rates will certainly affect businesses all over the world and their respective stock markets.

No one can time the market; we expected the issue of skyrocketing debt to come to a head years ago. If/when it does happen, there will have to be some real bargains for investors who have cash and were patient.

What are you advising your clients?

ROB: There are times where cash could or should be looked at as an investment and we strongly believe this is the time to have cash on the side. This doesn’t have to be in US Dollars it could also be in Swiss Francs, Pounds or Euros.

We are currently underweight in equities and overweight in cash, foreign currency bonds, and precious metals.

We do not know when this party will end but we want to make sure that we are not the last ones to exit.

You have to stay ahead of the crowd, patience is a virtue and will be rewarded. The stock markets might be holding at these skyrocketing levels for another few quarters, but a big correction is in the cards, then be ready to go all in.

DENNIS: Market historians like to point to an event that sparks a crash. What do you think readers should be looking for? Are there any countries or markets that you feel might be leading indicators of what’s to come?

ROB: What we’ve been seeing since the beginning of the year is indeed very scary, with the Dow dropping 1100 points, and then ending up with a small gain in only one trading day. We do feel a large correction is in the cards in the not too distant future for many reasons.

  • We have experienced one of the longest-running bull markets in history.
  • Inflation and interest rates might surprise market makers to the upside, bad news for stocks.
  • Profit taking on stocks could easily start an avalanche of stop losses, particularly with the programmed traders.
  • North Korea, Syria, Iran, Israel etc. could scare investors which could lead to the large correction we expect.
  • A trade war between the USA, China and/or Europe could also spark the expected fire.

Pick any of the above, but then again it might come from a completely different angle. We just don’t know. We will be told by historians after it happens and that won’t be very helpful.

It appears that a serious correction is imminent and that investors need to make wise decisions now.

DENNIS: Rob, one last question. I’ve had some readers ask if you ever come to the US. Are you going to be speaking/attending any events in the US in 2018?

ROB: I will be speaking at the Four Seasons in Las Vegas from March 15th until the 18th for the Oxford Club. I’ll be back there again in September for the Total Wealth Symposium organized by Banyan Hill.

DENNIS: As a reminder, I have an account with Rob’s firm, however, we have no other financial arrangements. He graciously gives of his time. On behalf of our readers, thank you again.

ROB: My pleasure, Dennis.

Waiting (and waiting) for something to happen is difficult. With today’s computer traders, a Minsky Moment can be sudden. I agree with Rob, better to be patient than the last to exit the party!

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