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  1. Home
  2. / Investing
  3. / Stocks

When Seeking Real Returns, Don't Forget Supply, Demand and Scarcity

Here's why I still see energy and other essentials -- including coal and land -- as hot opportunities.
By JIM COLLINS
Aug 19, 2022 | 01:00 PM EDT
Stocks quotes in this article: ARKK, XOM, CVX, PBR, SREA, EQNR, AM, CORR-A, LAND, LANDO, LANDM, GOOD, GOODO, GOODN

My Thursday column was a statement of purpose for me. Felt good, I am not going to lie. My firm, Excelsior Capital Partners, and my clients and I, are invested in hydrocarbon names, because there has been chronic underinvestment in the sector, driven by ESG-lunacy and post-pandemic capital deprivation in the sector. We buy scarcity. Always.

But what else is scarce? Tangible assets. Land, food, air, water. I have to catch myself when I begin to sound like a hippie, but it is these elemental things that the world is short of now, not social media networks, websites, or self-driving electric cars that fly. Hydrocarbons definitely fit that definition of tangibility, as well. This week I have been onboarding some new real-return-seeking clients and this is what I have been buying for them.

In the hydrocarbon space, I have been casting the net wide to find names that are still undervalued after this year's energy rally. My flagship product, HOAX, has risen 48.1% since inception on Dec. 23, 2021. And that gain rises to 52.9% when reinvestment trades are included. HOAX's benchmark, Cathie Wood's leaky Ark fund (ARKK) has fallen a mere 54.3% since that same date. An outperformance greater than 100 percentage points feels pretty damn good, but it also points out the key difference in our inciting styles.

I am constantly moving and traveling the world -- South America again next week -- scouring the planet for investing ideas. Wood seems intent on scaring the citizens of that same planet with anti-scientific conspiracy theories about a melting planet that just don't hold up to scrutiny, nor do the names she owns in ARKK hold up to basic balance sheet analysis. 

So, this week, I have been adding to four hydrocarbon names that are outside the backbone of HOAX , the holy trinity of energy majors of Exxon (XOM) , Chevron (CVX) and Petroleo Brasileiro (PBR) . The coal names--ARCH and BTU--have gone stratospheric, also, which hasn't hurt HOAX's performance:

  • Antero Resources' pipeline-operating sibling, Antero Midstream (AM)
  • CorEnergy Infrastructure Trust (CORR-A) 7.376% preferred.
  • Norwegian major integrated play Equinor (EQNR)
  • An LNG export play with a fixed dividend, in this Sempra Energy (SREA) preferred.

I can't really do them justice in this short format, but I have mentioned them all individually in my Real Money column previously. All have tasty yields, with the yields on AM and CORR-A approaching double-digits. REAL returns rock.

In addition, this week, I onboarded what is to-date my largest client, and one who has significant energy exposure. So, outside the oil patch, where do I find value? In preferreds, and specifically in those preferreds issued by companies with solid assets.

So, via a sponsor with whom I am familiar, Gladstone Capital, I chose two preferreds from the Gladstone Land entity (LAND) . As the ticker symbol would imply, this company exists to own land, specifically U.S. farmland. That is as tangible as you can get, and with food inflation high, these entities are well positioned. So, for this new client, I chose two preferreds from sponsor Gladstone Land; (LANDO) and (LANDM) .

Just to diversify, although maintaining the same sponsor, I also added smaller positions in Gladstone's BDC entity, Gladstone Commercial. The common stock ticker there is (GOOD) , and the two securities I added are (GOODO) and (GOODN) .

The appeal of farmland, via LAND, is apparent, and I believe the middle-market companies that serve as GOOD's main investing targets will find Gladstone's equity and mezzanine funding much more attractive as the Fed continues to hike short rates.

So, if you want tickers, there are eight of them. All are names that I have bought this week. Next week? I will simply follow Ryan Cohen (whoever that is) and buy the cult "meme stonk" of the week. Hah! Everyone (hopefully) knows that I am kidding. My tactics may change but my philosophy never does. Buy companies with assets that generate real returns for you (and return them to you via dividends) and you will always generate economic value from your hard-earned dollars.

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TAGS: Investing | Stocks | Energy

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