Daily Archives: March 20, 2018

CEFs

This “Billionaire’s Secret” Lets You Buy Stocks for 19% Off

One of the greatest things about closed-end funds (CEFs) is that they often cost less than they’re really worth.

And no, I’m not basing that on some obscure metric—I’m literally talking about the difference between the market price of the assets the fund owns and the market price of the fund itself.

It works like this: a CEF can trade for, say, $9.90, even though all the assets the fund holds (known as the net asset value, or NAV) are worth $10. Believe it or not, this happens a lot—it’s exactly how billionaire investors make big money in CEFs.

Take, for instance, Boaz Weinstein of Saba Capital Management. He’s a pretty big name on Wall Street for one reason: he was the guy who took down the so-called “London Whale,” a reckless trader with JPMorgan Chase & Co. (JPM) who racked up $6 billion in losses on phenomenally dumb bets.

Weinstein was the guy on the other side of those bets.

And now Weinstein has another lopsided Wall Street mistake in his crosshairs, and it has everything to do with closed-end funds.

As I told you last year, Weinstein stated that he was betting big on CEFs, spotting an opportunity to buy these funds, which were heavily discounted at the time, and waiting for the market to clue in to the big profits they offered.

Here’s how our CEF Insider equity indexes have done since Weinstein’s big bet:

A Steady Profit

Source: CEF Insider

Even after the recent volatility, these funds are up around 15% from a year ago. The best news is that there are still a lot of discounted CEFs floating around, despite this gain, so if you want to get in on the action, you’re not too late.

Which brings me to the 2 CEFs I’ll show you now.

2 CEFs Selling for Up to 19% Off

Let’s start with the Eagle Growth & Income Opportunities Fund (EGIF), which is a tiny, $111.5-million fund trading at a huge 16.8% discount to NAV. If you think this is because EGIF is holding dangerous stuff, think again; many holdings are value stocks with strong cash flows, like AT&T (T), Phillip Morris (PM) and Cisco Systems (CSCO).

Buy these stocks on the open market or hold them through a value-stock mutual fund or ETF and you’ll get $100 worth of stocks for every $100 you put in.

But with EGIF, you’ll get $100 of stocks for $83.20, thanks to that absurd discount to NAV.

Why else should you consider EGIF now?

Simply put, its discount has gotten a lot bigger thanks to the recent market volatility:

Cheap Fund Gets Cheaper

So if you were to buy now and wait for the fund to trade at par, you’d be looking at a 20% return. Or if you’re more impatient, just wait for this CEF to go back to where it was less than a year ago. You’ll still get a nice 5.6% return. And while you wait, you can enjoy EGIF’s 5.6% dividend stream.

A second fund to consider is the GDL Fund (GDL), run by famed value investor Mario Gabelli. Mario is a seasoned Wall Street billionaire not unlike Warren Buffet; using time-tested value-investing principles, his team looks for discounted stocks around the world and bets big on them.

But despite all that expertise, GDL trades at a ridiculous 18.6% discount to NAV!

GDL’s Absurd Markdown

The bottom line?

With $81.40 you’ll get $100 worth of stocks in high-quality global companies like Time Warner (TWX), which is likely to pop soon when it merges with AT&T, as well as Parmalat (PLT), the Italian dairy producer, which has a large share of the EU market, and Advanced Accelerator Applications (AAAP), which drug-making giant Novartis (NVS) is seeking to acquire.

Obviously, Gabelli’s team knows their stuff.

Buying now would get you this value portfolio at a huge discount. Wait for its discount to revert to where it was a few months ago, and you’ve got 8.1% upside. Keep holding on and collecting the 4.2% dividend stream and you’ll likely rack up even more gains, thanks to GDL’s strong and under-appreciated portfolio.

Michael Foster has just uncovered 4 funds that tick off ALL his boxes for the perfect investment: a 7.4% average payout, steady dividend growth and 20%+ price upside. — but that won’t last long! Grab a piece of the action now, before the market comes to its senses. CLICK HERE and he’ll tell you all about his top 4 high-yield picks.

Source: Contrarian Outlook 

Dividends, Uncategorized

Buy This 17% High-Yield Stock Selling at a Temporary Discount

Last week a Federal Energy Regulatory Commission (FERC) ruling sent the MLP and energy infrastructure stocks into a tailspin. The news release caused an immediate 10% drop in the MLP indexes. Prices recovered to close at a 5% decline. A closer read of the facts shows the fears were overblown and this steep drop may end up in hindsight as the MLP sector’s equivalent of the March 2009 bottom of the last stock bear market.

Here is the scary headline from Bloomberg:

Pipeline Stocks Plunge After FERC Kills Key Income-Tax Allowance

The reality is that the ruling only applies to interstate (not intrastate, which is most pipeline miles) pipelines and to just one of the methods a pipeline company can use to set interstate transport rates. Here is how large cap MLP Magellan Midstream Partners, L.P. (NYSE: MMP) explains the effect of the FERC ruling on its business:

“Although Magellan is organized as an MLP, it does not have cost-of-service rates that would be directly impacted by this policy change. Rather, the rates on approximately 40% of the shipments on Magellan’s refined products pipeline system are regulated by the FERC primarily through an index methodology. As an alternative to cost-of-service or index-based rates, interstate pipeline companies may establish rates by obtaining authority to charge market-based rates in competitive markets or by negotiation with unaffiliated shippers. Approximately 60% of Magellan’s refined products pipeline system’s markets are either subject to regulations by the related state or approved for market-based rates by the FERC. In addition, most of the tariffs on Magellan’s crude oil pipelines are established by negotiated rates that generally provide for annual adjustments in line with changes in the FERC index, subject to certain modifications.”

Numerous other large cap MLPs and corporate pipeline companies have issued press releases to state that their business results will not be affected by the FERC ruling. It appears that few pipelines have rates set using the “cost of service” rules.

Related: A High-Yield Stock That’s Better at 15% Than One at 20%

In the bigger picture, MLP values have been falling since late January. Over the same period companies in the sector reported 2017 fourth quarter results that were very positive. MLP fundamentals have been improving for several quarters, and the trend will continue as North American oil and gas production continues to grow.

15 MLPs in the Alerian MLP Infrastructure Index raised distributions and the other 10 kept them level. There were no reductions. This combination of falling market values against strong fundamentals reminds me very much of the bottom of the last bear market which occurred in March 2009. At that time, it seemed that nothing would stop the market decline. In hindsight that point in time was when stocks reached what I politely call “stupidly cheap” prices. Currently quality MLPs look “stupidly cheap.”

Here are the bear market charts of the SPDR S&P 500 ETF (NYSE: SPY) for the 2007 to 2009 bear market compared to the Alerian MLP ETF (NYSE: AMLP) bear market which started in February 2017. If MLPs form a bottom here, the pattern points to significant gains over the next few years.

If you own quality MLPs that have fallen in value, it is a good time to add more to your positions. In my Dividend Hunter newsletter, my primary MLP recommendation is the InfraCap MLP ETF (NYSE: AMZA). This ETF pays monthly dividends which benefit from option selling by the fund managers. After the big FERC fueled drop, AMZA yields over 17%.

 

Author: Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments, and 30 Day Dividends, a specialty income service that takes advantage of opportunities for relatively fast, attractive profits around potential dividend payouts.

Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.


Source: Investors Alley