The most challenging -- and fun -- part of my job as an investment advisor is constructing a new portfolio. As I use a "fee-only" model, I never put my clients in funds or ETFs that have embedded expense ratios and up-front sales loads. No, I pick individual securities, and I am fortunate enough to be starting with new clients this week. So, the question anyone in finance is asked at cocktail parties "what are you buying" becomes the more time-sensitive "what are you buying NOW?" Building portfolios is not an easy task, especially since I try to keep my clients fully invested at all times.
So, what am I buying NOW? It's a mix of the securities I have written about for Real Money over the past few months, plus a few new ideas. Philosophically, the asset allocation is still the same: heavy on corporate fixed-income securities, mezzanine securities (preferred) pass-through securities (BDC-RICs, REITs) and a common stock component that is entirely composed of small-capitalization stocks.
It may look like a dog's breakfast, but actually this type of portfolio will produce steady returns in a flat-to-down market. I have no idea when the Trump Jump will end, but I know that equity valuations are currently at cycle-highs, and I need to beat that market. With a blended yield in the 6%-8% range, my portfolios have guaranteed returns that the S&P 500 -- current yield 1.94% -- sorely lacks.
So, in each of those buckets, here are some individual names I plan to buy this week and next.
Corporate Fixed Income:
As with stocks, I feel that energy offers the most return among fixed-income securities. My favorite name in the space remains Callon Petroleum's 10% Series A prefs (CPE-A) These prefs, astoundingly, still yield 9.46%. The oil bust has already happened. These are not risky securities and although there is call risk (first call date is 5/30/2018) there is no reason CPE-A should be yielding more than 4x the benchmark 10-year Treasury.
Pass-Throughs:
My favorite here remains Navios Maritime Midstream Partners (NAP) . NAP is a master limited partnership registered as C-Corp. and its 14.1% current yield more than adequately reflects the risk inherent in its fleet of 6 VLCC oil tankers. I also like the mortgage REITs (ARMOUR Residential REIT (ARR) ,Capstead Mort RE Rg (CMO) ) and certain BDC-RICs here, especially Newtek (NEWT)
Small stocks:
These are covered in my newsletter, MicroCap Guru. The biggest winner so far has been Navios Maritime (NM) . The preferreds put me easily on top of the Real Money Best Ideas list, but, today, I see much more upside in the common. It's nearly doubled since I featured it in MCG Issue 1 in August, but I'm still buying more.
ln a recent RM column I recommended purchase of three small energy names -- Evolution Petroleum (EPM) , Gastar Exploration (GST) and Torchlight Energy (TRCH) -- and I'm still buying all three at current prices.
Also, though I am certainly not an expert, I try to keep some exposure to medtech and biopharma. Gemphire Therapeutics (GEMP) has been a strong performer since I mentioned it in the MCG and in Real Money, but I think that one has a long way to run with recently raised capital being directed toward clinical trials.
A new name I have been adding is iCAD (ICAD) . The shares are still trading at less than half of their mid-2015 value and 2016 financial results showed a company in transition. I believe we are near the most lucrative of investing events for iCAD, the inflection point. I look for revenue growth to begin anew as we move through 2017 and for positive results for the stock from upcoming industry presentations and new data releases. I had a very smart PM with a background at a very large Boston-based fund manager describe iCAD to me as the "next Intuitive Surgical" and if ICAD performs anywhere near as well as ISRG has, it will truly be a winner for my clients and me.
