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June 12, 2024

Jones Soda JSDA Turning Around

I've covered a lot of small and micro-cap value stocks over the years. Some would be deep values for many years and never manage to attain steady growth and profitability. I try and keep track of ones that I always felt had a chance if management improved the business. One stock that has been depressed for many years is Jones Soda (JSDA). It trades on the OTC exchange, however, it is different than the majority of stocks trading OTC or pink sheet. The major exchanges in the U.S. are the Nasdaq, New York Stock Exchange and Amex.

Companies listed on the OTC/pink sheets can often be shell corporations and companies just frankly not worth owning. The listing requirements are different than the major exchanges. Jones Soda is a real company with substantial operations. They are headquartered in Seattle, WA but sell nationwide in grocery stores. I have seen their soda products on the shelf in my local grocery store here in North Carolina.

The company has always sold bottled soda drinks. They now have a fountain soda business for restaurants and customers. The more interesting developments lately have been their move into cannabis infused drinks in 2022 and craft alcohol mixers. The cannabis is under the Mary Jones brand in California and Washington. These products include 10mg and 100mg cannabis-infused soda.

There has been a push on the national level to get closer to decriminalizing marijuana just in the past year. A new federal rule announced in May will reclassify marijuana as a less-dangerous, Schedule III drug.

The trend also has been for more states to legalize marijuana and cannabis. The Florida Supreme Court made a ballot initiative earlier this year to legalize recreational marijuana in Florida. It could be on the ballot in November.

Cannabis is legal in some form, for either recreational or medical use, in more than 40 states. The fact Jones Soda is only selling their cannabis drinks in two states and Canada leaves a lot of opportunity for growth.

They say in the annual report they are planning to expand into other states. The cannabis drinks are a highly competitive market but the outlook is sure a lot better than the soda product line which they have had for years. The U.S. is 81% of their sales and Canada 19%. As of March this year they had 27 employees,15 are employed in sales and marketing.

Valuations

The company has a market cap of $40 million as of today June 12th. Trailing twelve month sales are $17 million.

The company is trading for roughly 2.3 times sales. Sales in the most recent quarter were up 29% year over year. This is a fair price for a company like this. Small companies can really grow sales fast. I think this valuation is more undervalued considering the new markets they are now in.

Gross margin improved by a nice 8% from proactive pricing adjustments, supply chain optimization, and increased sales of Mary Jones brand revenue which generally have higher margins. The company hasn't had positive free cash flow or positive earnings for a long time if ever. I see the entry into the cannabis and craft mixer drinks as a big turning point that will bring much more positive developments than prior years.

They also made some great new hires in key roles. A new CEO David Knight is joining at the end of this month! The current CEO is retiring. Mr. Knight worked at Pepsi as a vice president of marketing Gatorade and was vice president of marketing at Quaker Oats.

In March Eric Bittner joined Jones as its new Chief Operating Officer, bringing 20 years of leadership in the beverage industry to lead the company's operations. He most recently led turnarounds at Roar Organic's and Fever Tree, where he served as the SVP of North American Manufacturing. Additionally, he has held supply chain leadership positions at Keurig Dr. Pepper, Niagara Bottling, and PepsiCo.

Mary Money was named Director of New Product Development and Commercialization at Jones. Money is a highly experienced R&D scientist, with over 30 years of experience in Food and Beverage. She has worked for PepsiCo and ConAgra Foods. These are some amazing hires for a company this size and they look very lucky to have grabbed these from Pepsico together.

Final Thoughts

Usually when I look at companies this small they are at a deep value to assets on the balance sheet. Jones, however is not a deep value but the balance sheet sports a 2.36 current ratio which is an adequate ratio. Current ratio of 2 or higher shows a high likelihood of a company in general being able to pay it's short-term bills. The Company believes its cash on hand, projected cash generated from product sales and funds received from the committed revolving credit facility are sufficient to fund the Company's operations for a period of at least 12 months. The company in my opinion is in one of the best positions it's been in as long as I've known about it. Technically, the price action has gotten momentum and the stock is up significantly this year and after their most recent quarter. It's currently in a bullish triangle pattern. I'd like to see the stock hit $.41 a share to make sure the momentum is still going to continue before buying the next couple months.











I don't currently own any shares. I may buy JSDA shares in the future. Stocks trading for less than $1 a share can be incredibly volatile and the prices can drop significantly without news or any events. If I buy it I will use limit buy orders and not a market order.

November 21, 2023

EV Charging Stocks Short Thesis

I've been looking at a lot of potential sectors and stocks for short opportunities the past few months. I've been trading in and out of EV charging companies put options on stocks like Chargepoint CHPT, Blink BLNK and EVgo EVGO. The big picture on it is the EV market sentiment has readjusted to reality and peak EV hype is down now.

Another major factor is Tesla has a position in the EV charging space with their own charging stations and continue to get more major car manufacturers to sign on. This I believe was a big blow to these much smaller EV charging stocks that I mentioned. I don't see how these companies will compete with Tesla chargers if Tesla decides to try and corner the market. The stock prices continue to fall monthly making equity raises less and less helpful. Evgo EVGO was able to raise some capital recently. The cash burn is significant with them and BLNK. I recently added more BLNK puts and now have put options of various strikes as far out as January 21st.

The cracks are now starting to emerge in the industry as Chargepoint's CHPT CEO and CFO both announced their resignation on the same day as revenue forecast was slashed! Here is an article. Apparently, Chargepoint is "the leader" in this space which is sure something telling.

I got this graph from another account on Twitter that highlights cash burn at Chargepoint and EVgo. The recent overall stock market rally has caused minor rallies in BLNK and EVGO stocks that I see as better prices for long dated puts. There has been a turn in the press and I'm seeing negative press on these chargers. The Wallstreet Journal had an article a week ago on how the stations are not working.

















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Disclosure: I am long put options in CHPT BLNK EVGO and will continue to add more.

October 10, 2023

Global Equity Indices Now All Weaking

I've been tracking a few countries that have had very resiliant stock markets in the second half of this year. We all know the U.S. equity market has had a major pull-back. Well, up until a month or so ago for Vietnam or just this week in some there has been relative strength. Others include Turkey and UAE even with a declining U.S. market. Vietnam finally had a technical correction in the end of September and UAE and Turkey yesterday. Turkey is still near it's highs on the year however.

Vietnam is still one of my favorite long-term investment prospects with their superior GDP growth and forecasts. Below are the respective charts of these countries equity indices. First is the iShares MSCI Emerging Markets ETF (EEM) that is near lows on the year.












The Vietnam (VNM) pull-back was pretty forcefull off the highs in September.












UAE just had a big red day coinciding with the geopolitical events and conflict. I expect to see more short-term downside here.












Lastly, beginning to weaken Turkey (TUR). I see an opportunity for a short on this market with uptrend levels being broken and the fact it hasn't had a significant pull-back yet. Also, there is the proximity to the conflict that just started in the region that may be bringing some uncertainty to the market there.












I see a short setup or a long put options setup in Teva Pharma (TEVA) based in Israel. I noticed the IZRL ETF that is the Israel Pharma ETF took a large downside move and has downside momentum going off a big gap down.












There is also a very good short setup in (TKC) Turkcell a Turkey company that has just come off a clear bear flag and is making new lows.

August 20, 2023

Defensive Opportunities In A Continued Risk Off Quarter

I continue to see a risk off environment in equities that has spilled over to emerging markets. The consensus from American conglomerates on China demand and now Chinese data itself is pointing to significant economic contraction in China. The markets in Turkey (TUR), Vietnam (VNM) are holding strong. Vietnam continues to be my favorite opportunity in emerging markets over the long-term.

Last week Bitcoin saw increased selling and volatility. This just adds to the risk off sentiment as Bitcoin, one of the best performing assets this year is joining in on the selling. Below is the breakdown of the trend support currently in the works on Bitcoin. I alerted on the recent top for Bitcoin here on the blog in early 2022.













In light of this overall market weakness I see opportunity in pharmaceuticals with ETF's like VanEck Pharmaceutical ETF (PPH) and I-Shares Pharma ETF (IHE). The ETF's have recently broken out to new 52 week highs and shown relative strength in the market. I'm particularly bullish on the sector because breakthroughs in AI machine learning should improve drug development costs and increase speed of discovery and research.

I've done extensive research on the newest AI via large LLM's(large language models) and the promise of smaller ones. Drugs and biotech are some of the industries they will transform initially. They are the perfect fit for industries where scanning large language databases is key and processing large amounts of data is needed.

The pharma ETF PPH is coming up on a key support level.













Merger Arb Opportunities

There are opportunites in merger arbitrage with Spirit Airlines (SAVE) and I-Robot (IRBT). Spirit is trying to get an all cash deal done with Jetblue for $33.50 a share. Amazon has been in the works and shareholder approved to buy I-Robot for all cash or $51 a share too.

Oil and Gas Energy

Apart from pharma I have seen relative strength in energy stocks. I have particularly been looking at oil and gas stocks as natural gas has pretty much been written off. I'm not particularly bullish on natural gas but the contrarian trade now is nat gas as harsh winter weather is likely not priced in. The best gas ETF is US 12 month Fund (UNL) at it holds long dated contracts and thus has less decay than ETF (UNG). Nobody is bullish on natural gas prices as the technicals have shown a bottom formation forming.

Some of the energy stocks I added to my watchlists were VAALCO (EGY),Helix Energy (HLX), Nextier Oilfield (NEX), KLX Energy (KLXE).

Solar Weakness Continues

Another industry that caught my attention was Solar. It caught my attention as a short opportunity as the weakness in solar continues as evidenced by the Invesco ETF (TAN). I noticed short selling technical setups in stocks like JKS and MAXN too.

I'm bullish on the prospects of breakthrough technology like quantum computing with the help of AI. The quantum computer ETF is Defiance Quantum ETF (QTUM). I also particulary like the quantum computing stock Rigetti Computing (RGTI) as they have one on the cloud.

I continue to believe the investment of our lifetimes going forward will be in artificial intelligence. The best plays on this are the actively managed Roundhill ETF (CHAT) and long established Global X AI ETF (BOTZ) and Robo Global ETF (ROBO).

One good speculative investment opportunity I saw was in the Nigeria country specific Nigeria ETF (NGE). Nigeria NGE has a trailing twelve month 16% dividend yield. 0.83% expense ratio. Politics might be a partial driver of the 28% YTD performance of Nigerian stocks.

"The Tinubu admin also formed a committee on fiscal policy and tax reforms headed by Taiwo Oyedele, signalling the possibility of critical tax reforms"... " Banking and oil gas stocks have been very strong drivers of market performance. Oil and Gas stocks have been on the rise since they took out fuel subsidy from the sector. Added with banking, they are the top two sectors.”

On specific stocks on the long side I see a buy setup in Payments Holdings (PAY) as it saw large buying volume after earnings and is consolidating in a flag now. It needs to hit 14.05 for a long trade. The company has strong revenue and earnings growth. They recently revised quarterly earnings forecasts to the upside. Next years earnings guidance has been raised to $.24 EPS vs previous $.14.













Full disclosure: I have been actively trading the PPH ETF, RGTI. I have puts on JKS, long BOTZ, CHAT. May long NGE in future.

August 5, 2023

Spok Holdings (SPOK): Healthcare IT Company With a 9% Dividend Yield



















Spok (SPOK) provides healthcare communication solutions in the United States, Europe, Canada, Australia, Asia, and the Middle East. They offer subscriptions to one and two-way messaging services, voicemail, and equipment loss or maintenance protection services. They serve over 2,200 health care facilities and 83% of their revenue is re-occurring in nature. The current market cap is $271 million with the stock price at $13.60 a share.

Valuation and Metrics

The trailing twelve month PE ratio is 8. Price to sales ratio is around 2. I find this to be a compelling valuation in the current market. Free cash flow has been positive since 2019, except for 2021 which was driven by unusually large capex.

The company has been profitable since the second quarter of 2022. In 2019 to 2021 net income was negative. I didn't look at any years before 2019. Return on equity has been trending upward the past few years. The current ROE is 13% for Q2 2023.

Strong Dividend History

From 2018 to 2021 the company payed $.50 in dividends per share. In 2022 the dividend was raised to $1.25 per share.

In the years prior to 2018 the company made a total of $467 million in dividend payments.

The current quarterly payments are $.3125 per share. With the stock at $13.60 a share the dividend yield is 9% well above the risk free rate.

In addition to shareholder friendly dividends the company also has a history of returning value through share repurchases. In 2018 and 2019 they spent a combined $40 million on sharebuybacks.

Industry Long-term Outlook

The prospects for health IT is strong.

Gobal healthcare information system market size was valued at USD 406.4 billion in 2022 and is expected to expand at a compound annual growth rate (CAGR) of 13.3% from 2023 to 2030. Rise in healthcare expenditure and advancements in its IT infrastructure are some of the primary drivers boosting the market. High demand for remote patient monitoring is also significantly driving its adoption rate.
source: https://www.grandviewresearch.com/industry-analysis/healthcare-information-system-market

Other sources share similar growth rates. While the company has not experienced rapidly growing sales the industry growth does provide good defensive stability. The nature of the business doesn't require large debt loads and margins are healthy and stable. This lends to the prospect of meeting future dividend payments.

Technical Analysis

The stock price has been uptrending since the summer of 2022. It formed a base and recently broke out to a new 52 week high on earnings.













It has good short-term technicals with a clean bull flag on the daily chart highlighted in red.
















If you like this keep it simple analysis be sure to subscribe to my free Substack where I do analysis on deep value stocks trading below net tangible and net current asset value.





Full disclosure: I have no position at the time of writing. I many take a long position in the future.

July 30, 2023

More Fast Growing Technology Companies

Yalla Group (YALA) is a middle eastern social networking and entertainment platform primarily in the Middle East and North Africa region. It's a $872 million company and a fast grower. The previous 5 year sales compound annual growth rate was 24%. The trailing twelve month gross margin was 62%. Trailing twelve month net profit margin is roughly 18%.

They have been free cash flow positive for the last four years. In 2022 free cash flow came in at a robust $103 million. 2021 had $142 mil in free cash flow, 2020 saw $64 mil.

Yalla is trading at 12 times earnings with forward growth forecasted significantly higher.

The price action is resembling the overall Chinese stock market. It just broke over a resistance level.

The technicals combined with valuation, fundamentals and recent strength in China make this a good long watch.















Nerdy, Inc. (NRDY) an $811 million company in the online education industry that utilizes AI. The companies CEO is the founder. Revenue is forecasted to grow 29%. Earnings are estimated to turn to profitablity next year.

On the balance sheet current ratio is 3. The largest mutual fund holder is Franklin Strategic Series-Franklin Small Cap Growth Fund. Goldman Sachs, Vanguard Group and Blackrock all hold over 2% of the stock each.

June 13, 2023

Undervalued Tech Stocks

datacenter with servers








The Nasdaq 100 is up 30% so far this year. It's not easy to find large-cap growing tech companies that haven't already seen significant stock accumulation.

I have been scanning the sector regularly to find attractive longer term opportunities. I remember the early 2000's very well and how accelerating revenue growth in E-commerce propelled so many stocks higher and higher.

The demand for computer power to fuel the growth of AI and large language models is here. Whether you believe it is all hype or the next paradigm of computers like me as personal computers were in the 80s and internet was in the 90s AI is getting investment.

Everyone complains that Nvidia(NVDA) is too expensive at 30 times sales. Here is some historical context on what large companies can do in a bull market.

In the 2003-2007 market Baidu (BIDU) had a price to sales ratio of 30 in spring 2010 and share price of $60. It still ran to $145 at its peak in 12' with a P/S of 44! that's a 100% return after it was at 30 times earnings. I'm not saying Nvidia will grow like that but another 25% return doesn't seem impossible.

In 2015 Alibaba BABA had a price to sales of 16 and the stock still went from $80 to $200 in 2018.

I've been looking at a lot of robotics companies, semi's, silicon miners and IT infrastructer stocks large and small. I've been tweeting about many such stocks for a couple months on Twitter. One such stock, STRC I made a substack article on. Subscribe to my Substack here to catch all my newest deep value net-net ideas.

One recent dive I did was Nauticus Robotics (KITT). It is in the ocean sensory robotics business.

-4.8 Current ratio

-+230% to +440% forward revenue growth,

-36% rev growth this current year

-EPS loss narrowing 6 quarters straight

-no dilution

-risk, only 2 customers

Another interesting thing I stumbled on was that Boston Dynamics a world leader in robotics is owned by Hyundai Motor (HYMTF). They bought the company in 2020 for $1 billion. I'm sure the current market value is much higher now in this AI frenzy.

ARB IOT Group ticker symbol (ARBB) an Asia based smart home technology company IPO'd in April of this year. There appears to be no analysts on it so it was hard to find guidance. I did see some very good growth. There was 2,200% revenue growth in a six month period in 2022. Quarterly earnings growth was 158% per Finviz.com. The balance sheet has a 3.9 current ratio. I need to do some more research but it appears it may be below net current asset value too. The float is only 1.2 million.

Another lower float one I found was IBEX (IBEX). Earnings guidance has been steadily raised over the past few months. Earnings are expected to grow 11% next year. The forward PE ratio is 9.6.

Some of my favorite datacenter stocks are Bel Fuse (BELFB), MongoDB (MDB), Vertiv Holdings (VRT) and a cloud company I like is Zscaler (ZS).

I currently own Nvidia through ETFs and am long KITT and STRC. I may buy or sell any of these stocks in the future. Here is an AI generated image of a modern datacenter.

modern datacenter

April 21, 2023

AI Wars Are Beginning In Tech: How To Invest In Artificial Intelligence

taking stock in AI companies












Hello loyal readers! Grab a cup of hot coffee or fresh tea. I have a good one for you today!

My goal is to find the best investment opportunities in artificial intelligence and robotics. After researching the technology in-depth I strongly believe this is the best growth industry opportunity to invest in since the 1990's internet boom. We are still early too! I will continue to put my ideas on the blog here, my Substack and my Twitter/X account going forward.



Microsoft recently made a large investment in OpenAI and has already incorporated AI chat technology into it's search engine Bing. We are continuing to see investment as Inflection AI just secured a massive $1.3 billion funding from major investors including Bill Gates.

If you are brand new to AI technology let me give you some quick background on it. Sam Altman and Illya Sutskever used computers to make a "neural network" that was modeled after the human brain. The computers use high powered "GPU's" graphics cards to process the information.

Deep learning has been going on since the early 2000's but it took major breakthroughs in compute to get us to ChatGPT-3 and 4. Previously, the computers were just not powerful enough. Scientists were also not sold on the concept of scaling up neural nets. This all changed in the last 5 years as computer tech advanced. The increased size of the neural nets combined with increased compute brought breakthroughs leading to ChatGPT.

These vast neural nets are called LLM's (large language models). They use NLP (natural language processing) to retrieve info and generate it. So instead of using code to communicate with the computer you can use words. These massive LLM's are being trained on the internet and thousands of books.

If you haven't checked out the future of chat search I recommend going to Bing.com and clicking the chat icon at the top and using the interactive chat bot which utilizes the ChatGPT technology from OpenAI ChatGPT.

Ask Microsoft Copilot to find your results like you would in Google or Safari. It is incredible and free. The difference vs traditional search is you can talk to it like a person and use more detail. Don't be afraid to test it's limits. It's a streamlined chat style search without the ads, unworthy results in Google's top 10, pop-ups, paywalls or wasted time scrolling multiple results pages.

Microsoft and OpenAI are adding things regularly. You can have it write stories, poems or even articles. They now have an AI image creator too. OpenAI is regularly adding features and plug-ins to ChatGPT-4 if you want to pay for the subscription.

I remember the early days of the internet well in the mid and late 90s. The first time I surfed the web it was with Yahoo search at my dads office because we didn't have it at home yet. I am getting the same vibe using AI powered search now.

AI Is Here To Stay

I think some people maybe even Wallstreet are jaded about AI tech from the over-hype of the recent metaverse and web3 and lack of real-world wide scale implementation. Trust me AI and LLM's(Large Language Models) is legitimate and is going to be revolutionary. How revolutionary? I believe AI technology is someday going to be more revolutionary to mankind than the internet, especially if AGI or something like ASI (artificial superintelligence) or any thing near a singularity is reached.

We still are not experts on what goes on in the brain. What exactly would it take to push AI to a level rivaling human creativity? Human innovation only comes from "learning" and experience after all. If we accelerate the learning as resesrchers are doing as I'm writing this how soon could major scientific breakthroughs occur?

It is already creative and solving problems. these models are still the early versions and are being improved. Eventually, from what I am hearing they could take an Albert Einstein, Sir Isaac Newton, and Nicola Tesla bot and have them theorize on advanced physics. This novice version we have with ChatGPT when you use AutoGPT can perform jokes and I'm hearing even a full comedy skit with a hook and final punchline like great comedians do.

Some people are afraid of advancing this technology that has given a massive technological breakthrough already for the average person. It can proof-read writing, fix spelling and grammar and make sentence structure more consice. It can write articles on any subject. It can write a business plan and do web development coding. Think of it like an assistant for your work or hobbies with the entire knowledge of the internet by your side.

There are crucial externalities like potential slowing investment and the overall economy that could slow down the growth of this technology. If things continue as they are going the research I got from using the Bing AI chatbot(now Copilot) paints a very prosperous picture for growth.

Future Growth

"According to Statista, the market for artificial intelligence (AI) is expected to show strong growth in the coming decade. Its value of nearly 100 billion U.S. dollars is expected to grow twentyfold by 2030, up to nearly two trillion U.S. dollars. These figures are regularly being updated by big banks and analysts as the demand for Nvidia GPUs remains robust.

In 2021, worldwide investment into AI companies increased by 115% since 2020, marking the largest year-on-year growth in AI investment for at least two decades. Total AI investment reached $77.5 billion in 2021. The global AI market, valued at 142.3 billion U.S. dollars as of 2023, continues to grow driven by the influx of investments it receives. This is a rapidly growing market, looking to expand from billions to trillions of U.S. dollars in market size in the coming years.
"

Best AI Stocks To Buy

Google is behind Microsoft right now with AI search. Bing chatbot came to market first. Bard finally came out but isn't competitive on financial searches. Anecdotally, I've seen mixed feedback for Bard. Googles (GOOGL) main revenue segment is search ad revenue. Google has already been struggling with declining growth in many segments and missing earnings estimates the last four quarters. This new consumer technology is a huge loss for them right now. They are losing some searches to Bing every day now. Granted ChatGPT and Bing haven't moved the needle the real threat is there now. Microsoft being first to market may turn out to be a huge advantage as Samsung has been publicly contemplating dropping Google from their devices.

I expect all major tech companies like IBM, Apple(AAPL), Nvidia (NVDA), Google(GOOGL), Microsoft (MSFT), Adobe (ADBE), Nvidia (NVDA), Meta Platforms (META), Amazon(AMZN) among others to develop advanced AI for the consumer. I see all of these companies benefiting.

Many hardware and robotics companies will do well too as the hardware needs to be updated to handle AI The two popular AI ETFs are Robo Global Robotics and Automation Index ticker (ROBO) and Global X Robotics & Artificial Intelligence (BOTZ).These ETFs provide exposure to companies that develop, deploy or benefit from AI. BOTZ is more concentrated and has fewer companies in the holdings. This means it is less diversified than ROBO. That isn't necessarily a bad thing though because it means it has potential to have more price gain or loss.

The newcomer in AI ETFs is Roundhill Generative AI Technology (CHAT) it is an actively-managed fund designed to provide exposure to companies involved in the theme of generative artificial intelligence, and related technologies.

Internet security as an industry will do well in the future as well. As it gets harder to distinquish a bot from a human security will need to be enhanced. Very soon, if not already voice security will become compromised as bots copy our voices perfectly.

Cyber Security ETFs

The safest way to play the future security growth is with ETF's such as First Trust NASDAQ Cybersecurity (CIBR),ETFMG Prime Cyber Security ETF (HACK) or Global X Cybersecurity ETF (BUG). These sport expense ratios well below 1%. BUG has the highest average daily volume. There are other ETF's but the daily volume is much lower. It is not uncommon for specialized ETF's to fail to deliver because of declining low volume.

Entertainment Will Boom

I suspect as many creative and coding jobs become replaced by machine learning the entertainment and movie industry will benefit greatly two-fold. Firstly, they will be bringing amazing new visual and creative masterpieces to movies and various forms of entertainment. GPT is already creating comedy sets by comedians that have passed. Large movie companies will improve their margins and have bigger profits.

Many people including myself believe a recession of varying magnitudes could arrive shortly. This is not necessarilly a bad thing for movies overall. During the Great Depression, with the advent of new and impressive film technology, people escaped their daily lives by paying for entertainment. Even though unemployment was high people would pay to see the new technological advances in film at the time.

The 1930s are considered the golden era of Hollywood cinema. During this time, the movie industry thrived. Technological advances such as color and sound made movies truly extravagant. The breakthrough of synchronized sound occurred at the end of the 1920s and that of full color motion picture film in the 1930s. Two companies I see potentially benefiting greatly are Warner Bros. Discovery, Inc. (WBD), and The Walt Disney Company (DIS). Both are publicly traded on the stock market.

Some Major Tech Companies

Microsoft is currently in the process of acquiring Activision Blizzard (ATVI) making Microsoft the third largest video game company. My hunch is they will be incorporating GPT into video games bringing a new level to interactive gaming. Duckduckgo.com search is even adding A.I. functionality.

Adobe (ADBE) has benefited greatly this year from incorporating AI into their Firefly image creator software. They are one of the leading image generators in terms of realism. They have beaten their earnings estimates every quarter this year and hit record revenue. I see them continuing to see much success.

I highly suspect having lived through the 90's that the long-term leader in this new tech will take time to emerge. I expect they will share market share significantly as I-phone people will use AI on their phones and Google people will use Bing or maybe Google or even another company not yet in our radar. The future will include deep learning A.I. advanced large language models (LLMs) are machine learning models that are very effective at performing language-related tasks such as translation, answering questions, chat and content summarization, as well as content and code making. They distill value from huge data sets and make that “learning” accessible out of the box.

I've also seen LLM's referred to as "life long learning machines" which is essentially what GPT does as it learns from your input and corrections. The feedback all companies can get from customers and clients from generative AI will be great for their marketing and profitablity. We are just in the beginning of seeing the benefits to large and mega companies. Imagine how big the impact will be when most small business owners are using AI in the future.

Final Thoughts

Finally, as far as stocks go I see the most obvious alpha in shorting the companies losing to this technology right now. I am long May Google puts so if the stock falls I see profit. I plan on continuing to long puts as the market is not aware of the changes happening with chatbot search.

It's hard to pick the sole long-term winner with new technology as every other technology breakthrough has shown. Few would have pegged Amazon a lowly book seller as becoming the giant it is as just one example. With this in mind, going the ETF route like ticker BOTZ or CHAT with diversification is the safest bet. Even a Nasdaq 100 fund or Invesco ETF like ticker symbol QQQ is heavily exposed to big tech which are all building AI.

I expect many industries will benefit from this technology becoming acessible to consumers. Right now Microsoft, Google's Bard and Snapchat are battling in the war for large LLM's. More newcomers are popping up rapidly. Now there is Perplexity for Android and conversational HeyPi an AI assistant. These are certainly exciting times.

I also write a free Substack on value stocks. Subscribe here for free value oriented stock ideas. I cover Ben Graham net current asset stocks, net tangible assets and net cash values.

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April 13, 2023

Quality High Yield Dividend ETF's and Stocks

how to invest in dividend stocks for high yield










How To Invest In Dividend Stocks For High Yield

With high inflation the search for yield protecting from inflation becomes more challenging. Everyone knows about bonds but I'd like to dive into some vehicles I believe have a good shot to beat the risk free rate.

Marc Lichtenfeld's book Get Rich with Dividends: A Proven System for Earning Double-Digit Returns really opened my eyes to the possible returns from the right dividend stocks. I had read of famous portfolio manager Peter Lynch's study on an all stock retirement portfolio beating any bond portfolio. I was just naturally inclined to view equities as riskier than bonds though.

I now conceptualize a diversified equity portfolio as equal or superior to bonds. Not that there is never a place for bonds but with smart stock selection I think there is edge in dividend stocks. I am going to touch on some interesting dividend ETF's and a stock with a stable history of dividends. I like to invest for quality and above average yield and steady returns.

The first high yield ETF we will look at also has the highest yield at a 19% dividend yield paid monthly. Cornerstone Strategic Value Fund (CLM) is a $1.6 billion closed end fund started in 1987 with diversified assets. By diversified I mean everything practically. From large-cap tech, healthcare, energy, MLP's, foreign equity, and other ETFs. Ten year total returns have been pretty much on par with the S&P 500 index. It underperformed the S&P by about 1%. CLM's management was smart to be overweight tech going into 2023.

Highland Global Allocation Fund (HGLB) is the next ETF with an 11% dividend yield payed monthly. 10 year returns were 5.3%. It is a discretionary fund designed to have low correlation to the U.S. equity market and they have done well with that objective. It holds an unconventional portfolio of equities and debt. One of it's largest holdings is communications company TerreStar Corp. via their stock and debt. They also have a variety of REIT's, MLP's, energy warrants, utilities, sovereign debt and preferred stock.

High Income Securities Fund (PCF) has a long track record having started in 1987 and sports an 11% dividend yield paid monthly. The share price has had very low volatility since it started and 10 year returns at 5%. It primarily invests in discounted closed end funds. It holds an extrememly diversified portfolio with 57% of assets in funds, 20% in preferred stocks and 16% in business develpment companies. It holds a whopping total of 45 closed end funds from global equity to corporate bonds. It also holds some RETI's and a steel company preferred Steel Partners. It has some minor allocattion in other sectors. Though the long-term returns are nothing overly impressive I like the share price stability over the years and consistent dividend.

Ternium S.A. (TX) is an $8 billion steel company that sells steel in many Latin American countries and the U.S. It has a 7% dividend yield and the stock has returned 13% over the last 10 years. Free cash flow has been stable and has even grown since 2019. Total shares outstanding has been unchanged at 1.9 million over the last 4 years. They have payed dividends since the 1990s and increased the dividend since the late 90s.

I believe these ideas can provide some high grade unconventional diversification to an income portfolio. I also highly recommend the Lichtenfeld for learning how to invest in high yield dividend stocks.

April 3, 2023

Gold and Miners Poised To Make a Big Run

Throughout history there have been many years and even decades when gold outperformed equities. The question I am going to ask is "is this time different?" I am particularly interested at looking at the 1970's when the U.S. had high inflation and low economic growth. The FED is tightening yet many economic indicators are slow to point to a full-blown recession. Inflation has been hard to tame for Jerome Powell thus far. Stagflation is a probable outcome in this economic scenario. There is also the increasing potential for geopolitical events as it relates to oil as there is tension between eastern and western nations.

So far, many parts of the economy have been unprecedently resilient to higher rates. Housing has been one of them as many people are buying from fear of missing out and moving to cheaper cities. The second period in history that saw gold outperfrom equities was 2000 to 2012. This was following a long secular expansion and tech bubble collapse. We now are at the end of a long expansion and crypto and Bitcoin bubble burst.

Gold also did well following the 2008 banking panic but I am particularly interested in the years when gold rose as stocks fell. These are the years in the 1970s and 2001 to 2003. So, I see a couple likely scenarios economically. The FED tightening causes a recession that is mild or severe. If it is mild I see a possibility of inflation sticking around like the 70s. If it is severe and there are major bank panics it will likely be resolved quickly as 1907 was with J.P. Morgan helping bail out Trust Company of America and the 2008 panic were. In 2008 much of the deflation came in less than one year as housing collapsed and banking products failed. The Government in 2008 was fairly quick to inject capital and launch QE in 2009. Gold benefited from that.

In 2009 I predicted the pivot point on gold and was bullish right before its historic run. I said, "This chart sends a powerful signal. It is saying that it is more than likely that gold the commodity will continue higher. Let me rephrase that. Very likely." I had noticed a triangle formation on the gold chart.



What Can We Learn From The Past?

Let's switch gears and go back to the 1970's. It was a period of much uncertainty politically and economically. The highlighted regions show two periods where stocks fell and gold rose. Even the entire decade had stocks losing to gold. Gold traded for $35 in 1971 and went to over $850 returning 2,300% in ten years.

Next let us view the 2001 recession and gold and stocks. We see yet again periods when gold rose as equity indices fell in 2001 to 2003. This was during the recession of 2001 when unemployment rose from 4% to 5.5%. Then Fed Chair Alan Greenspan kept interest rates historically low during his tenure.

2001 gold chart
















Here is a longer-term chart of equities and gold.

gold vs stocks
















The gold market is now signaling extreme strength as the daily chart is showing a very powerful consolidation pattern. It is a bullish triangle formation as you can see below. Gold miners are alreading breaking higher from this consolidation like Franco-Nevada (FNV). I am currently long the gold ETF GDX calls. Other liquid ETFs include VanEck Junior Gold Miners ETF GDXJ and SPDR Gold Trust GLD. GLD doesn't hold physcial reserves though. Sprott Physical Gold Trust PHYS is a gold etf that holds actual gold.

gold technical analysis chart GLD


























Final Thoughts

Everyone is scrambling to find cheap gold mining stocks. As gold is consolidating at levels near last years highs I see a good possiblity of different scenarios. Over many recent years gold has been a "risk on" trade. Meaning it usually will only rise when stocks and other assets do. There were a couple days during the most recent banking troubles, however, where gold and Bitcoin had positive days while equities fell. Currently, gold is surpassing Bitcoin in this potential "flight to safety."

I see it rising as it did in 2001 and 2009 if the FED ends up reacting to a recession with QE like 2009 or with another extreme loosening like in 2001. The odds are stacked that we are going to get a recession with historic FED tightening and yield curve inversion. The other scenario is a recession with elements of inflation sticking like the 1970 and even a weak U.S. Dollar.

Whether one sees it as a stagflationary safehaven or an inflation hedge on a declining stock market. I see gold as a historically wise investment vehicle at this time and for many years to come as we sort out this economic cycle. It may start making new highs very soon or it may take months before the momentum starts but I see gold moving higher over the next year. Increasing allocation to gold just makes sense.

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Full disclosure: I am long GDX call options currently and may take positions in stocks mentioned. I have no physcial gold holidings. I have approx. two dozen silver coins.

charts courtesy bullionvault.co.uk and stockcharts.com