As tech stocks continue to get crushed, my portfolio of handpicked value stocks has continued to outperform on a relative and absolute basis. In fact, in the first month of January, one company I own announced a $12 dollar per share special dividend. And another company just announced the potential liquidation of their core business.
I take comfort in these volatile times by continuing to use a value approach when investing in any business. Key items I look for in a potential business are:
The ability to generate strong attractive free cash flow throughout the business cycle.
Trading at a significant discount to the implied forward free cash flows (I like purchasing companies that can generate their entire enterprise value in cash flows in 2-3 years).
Trading below liquidation value of all of their assets should my analysis on future free cash flows be wrong.
I like to invest in companies that no one else likes. I am a contrarian. I go against the grain and use my anti-establishment views to make money on Wall Street.
If you have been following my newsletter for a while, you will know I am a big bull on retail stocks. One thing that I noticed the other day is that the $XRT ETF is the most heavily shorted ETF in existence. For those who don’t know, the $XRT is an EFT that invests primarily in, you got it, retail stocks
I’m not sure why XRT is the most heavily shorted ETF but I do have a few ideas.
2022 will lapping a year when a lot of people got free money from the government. This free money isn’t getting helicoptered down from the Fed this year and will result in a lack of demand for retail companies.
There was pent-up demand in 2021 from lack of shopping in 2020 that will likely not occur in 2022.
Supply chain costs have added additional headwinds to merchandise margins, which will compress future free cash flows.
I have loaded up on beaten down retailers and plan to continue to invest heavy should additional volatility continue. I’m not sure when these names will re-rate, but the key to successful investing is patience. Know what you own and in 2-3 years an undervalued equity becomes more fairly valued.
Looking at the chart above that shows the XRT retail ETF is the most heavily shorted ETF is a great contrarian indicator. I’ve made a lot of money doing the opposite of what Wall Street bets on. And I plan on making a lot of money in the future being the black sheep on the street.
Market Volatility Is up 74% Since Last Month— What Now?
Well, every financial advisor on the planet would tell you to diversify. After the 2008 financial crisis, many ultra-high-net-worth individuals invested in alternative assets to protect themselves from market corrections”.
And recent data shows history is repeating itself. 73% of ultra-high-net-worth Americans surveyed by UBS are buying art to diversify their portfolios. And you know what? I do too.
Here are a few reasons why:
According to CitiGroup, art has a low correlation to the stock market
Real assets like art typically appreciate well on average when inflation is high
Blue-chip Art prices outpaced the S&P 500 by 164% from 1995-2021.
Luckily I didn't have to spend $150 million at auction to add art to my portfolio. Thanks to Masterworks, I invested in several multimillion-dollar paintings at a fraction of the usual cost. Clearly, I really believe in this revolutionary platform.
This is Their Track Record:
Total AUM over $400 million
Over 325,000 users on the platform
Got a net IRR of 30%+ in 2020 and 2021 from selling two paintings
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U.S. Steel posts mixed Q4, authorizes new $500M stock buyback in addition to the previously announced $300M authorization. (Seeking Alpha)
Unit Corp looks to sell Anadarko, Gulf Coast gas assets for $1 bln. (Reuters)
Biogen to sell stake in Samsung Bioepis for more than $2 billion. (GlobeNewswire)
Smart Sand announces the opening of the Waynesburg Terminal and will begin delivering sand and growing their presence in the Marcellus Basin. (Yahoo Finance)
Macerich declares dividend of $0.15/share quarterly dividend with a forward yield of 3.67%. (Macerich Announcement)
Global Partners acquires Connecticut’s Wheels retail fuel and convenience stores (Seeking Alpha)
Apparel stocks gain after Levi Strauss starts off earnings season with a strong report. Levi reported better than expected earnings and raised overall confidence that inflation costs can be offset through sales leverage and higher pricing. (Seeking Alpha)
Boot Barn tops estimates as merchandise margins jump. In addition, the retailer posted a same store sales increase of 61% during the quarter in comparison in the 2019 tally, comprised of an increase in retail store same store of 59.1% and an increase in ecommerce same store sales growth of 69.3%. (Seeking Alpha)
1-800-FLOWERS.COM, Inc (FLWS) dropped 30% yesterday after their outlook fell sharply following short of consensus. Management blamed the drop on significant headwinds including increasing costs for seasonal labor and ongoing supply-chain disruptions due to the resurgence of the COVID pandemic.
Scott’s Liquid Gold (SLGD) fell 17% yesterday on zero news.
Manufactured Housing Properties (MHPC) fell 11.23% yesterday on zero news.
Pennsylvania Real Estate Investment Trust (PEI) fell 12% yesterday on zero news.
The company is currently generating 1.6 billion in free cash flow annually. Combined with cash on hand they will be debt free by end of Q1. This is the key now. Debt removal will catapult the company at higher valuation than any met coal producer as its by far the biggest. Costs are effectively irrelevant when cash margins per ton are 175 USD (a lower cost producer will have a 160 USD margin). What matters is production capacity. And Alpha produces 55% more coal than Arch. I firmly believe their valuation will be higher. Regardless of the rally I cannot find better value in the broader commodity space. And for a commodity with zero capacity investment. Supplies are fixed. Demand is booming. Stay with your investment till at least 90 USD. Or at least ask yourselves where else will you find a debt free company trading for 1 x earnings with a diversified asset base (12 mines) all in a tier 1 jurisdiction. — Comment regarding AMR on Seeking Alpha
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The star fund manager who runs the popular Ark Invest family of exchange-traded funds will foray into private companies with a new investment strategy that focuses on illiquid securities and limits investor exits in times of volatility, a Feb. 3 filing by the firm with the U.S. Securities and Exchange Commission revealed.
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