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.

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.

Quality High Yield Dividend ETF's and Stocks

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.