Earning Sinker

Investors,

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

ETF Channel

I’m not sure why XRT is the most heavily shorted ETF but I do have a few ideas.

1. 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.

2. There was pent-up demand in 2021 from lack of shopping in 2020 that will likely not occur in 2022.

3. 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 

Want to invest like me? Click this Alpha Link for priority access*

*See important disclosures  

Actionable News

• 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)

Earnings

• 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)

Notable Movers

• 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.

Best Comment

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

Best Memes

Retired at 30 @hoodoptions69

I'm looking for people interested in turning $100 into $5000. This is not a pyramid scheme. We will be selling crack.

Politician Stock Tracker @politicalstocks

Cathie Wood Begins Shorting Ark Innovation

thestonkmarket.comCathie Wood Begins Shorting Ark Innovation - The Stonk MarketIn an unprecedented move, legendary stock picker Cathie Wood, stated she has began to short her own ETF, Ark Innovation.

zerohedge @zerohedge

1-800-Flowers Sinks By Most Ever Amid Worse-Than-Feared Report folks shifting to 1-800-Flamethrowers

Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page.  All statements and expressions herein are the sole opinion of the author or paid advertiser.

Alpha Letter is a publisher of financial information, not an investment advisor.  We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.  

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME.  THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION.  INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.  

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable.  They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.  Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein.  The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities).  To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.

alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis