I just constructed a new portfolio for an international client. For a number of reasons I can't disclose, I was limited to U.S. equities on a long-only basis. So, no preferreds, no ETFs, no hedging with call options, etc. A few colors were removed from my palette, but Portfolio Guru LLC is all about adapting to individual client circumstances. I construct each portfolio based on the individual needs of the client, and the restrictions from my newest charge were not terribly onerous.
The broad U.S. market indices are clearly overvalued, earnings have been underwhelming -- thanks, Apple (AAPL) -- interest rates don't reflect the true risk of borrowing money, and the recent plunge in commodity prices is disturbing. Other than that, I'm pretty sanguine these days! But, hey, I had a job to do, so I did it.
I certainly don't see much near-term upside for this market, so I leaned heavily on my income-investing principles in the construction of his portfolio. We'll beat a flat market because of the portfolio's yield of about 5%, and we should substantially outperform a declining market due to the portfolio's low risk profile.
So, against that backdrop, I gave my new client a Sweet 16 of U.S. stocks. Owing to space constraints, I'll discuss eight today and eight in tomorrow's column. Here they are:
Barrick Gold (ABX): Oh my God, did I really buy a gold stock? When something hits a 25-year low, you have to at least take a look. ABX's 2.7% yield fits in well and there is upside when/if gold prices recover.
DHT Holdings (DHT): Low crude prices benefit oil shippers more than any other sector, and DHT's fleet of VLCC tankers is perfectly positioned. Current yield is 6.79%, and DHT management announced Wednesday that the company will return at least 60% of ordinary net income to shareholders via dividends, so there's upside to that payout.
Dupont Fabros Technology (DFT): Data center REITs are such a good idea and DFT's three biggest tenants --Facebook (FB), Microsoft (MSFT) and Yahoo! (YHOO) -- are unlikely to go out of business. Yield: 5.57%.
Goodrich Petroleum (GDP): Oil prices will recover. GDP has options to increase liquidity, including sale of its Eagle Ford assets and potential joint venture in its core Tuscaloosa Marine Shale play.
Magnum Hunter Resources (MHR): I would say ditto to GDP, but contrary to the market's perception, MHR doesn't drill for much oil; production is more than 90% natural gas, on which I'm bullish. Impending sale of 45% stake in Eureka Hunter pipeline will address liquidity concerns with finality.
MannKind (MNKD): MNKD's Afrezza inhalable insulin delivery system is truly a game-changer in the diabetes treatment space. But Afrezza seemed to hit the market with a thud after its launch in February, and the stock crashed down to $3.46 after initial sales results disappointed. It was a case of "too soon" as this was always going to be a gradual, methodical rollout, and there is just no way marketing partner Sanofi (SNY) is going to let Afrezza die on the vine.
Newtek Business Services (NEWT): Newtek recently underwent the transition to a business development company and still needs to distribute excess retained income. I expect an announcement on special dividend timing/size in the very near future. In the meantime, the regular dividend yield of 9.97% is tasty.
Second Sight Medical Products (EYES): Huge news Wednesday as Argus II was implanted in a patient with age-related macular degeneration for the first time. I defy you to watch this video and not buy the stock.
