With the NBA Draft set to kick off Thursday night in Brooklyn, the pecking order has been established.
As a proud Duke alum and rabid Blue Devils basketball fan, I am all but certain that Duke's Zion Williamson will be taken by the New Orleans Pelicans with the first pick in the draft, and I have been impressed with the manner in which he has handled the attention. The amount of attention is ridiculous for someone who won't even turn 19 until July, though, and it has had the effect of overshadowing other talented players.
If you have not seen this now-viral picture of the The Republic of Georgia's Goga Bitadze -- a top prospect in his own right -- looking forlorn as the media swarm Zion at the next table, you should click the link. It is hilarious. So, as the market brushes up against an all-time high in Thursday's trading after the uber-dovish comments yesterday by Federal Reserve Chair Jerome Powell, I am trying to focus on stocks that have been overlooked in this mad rally.
I will call them "Goga stocks." As I have also mentioned in a recent Real Money column I have set up a new venture, Excelsior Capital Partners, a company that will focus on short ideas. With irrational exuberance reigning in the markets, that makes my job much less difficult. The economics of margin arrangements mean, though, that a fund must have longs to act as ballast against one's shorts. That's where the Goga stocks come into play. While I am hammering away at Beyond Meat (BYND) , Uber (UBER) , Facebook (FB) , Tesla (TSLA) and others, it will behoove me to generate some income in the long portion of my portfolio. That effectively increases the amount of leverage that can be used, so it is a virtuous endeavor.
So, here are a few Goga stocks to watch. I own some already, and my Portfolio Guru separately managed accounts, and I plan to initiate positions in all names mentioned for Excelsior in the next few weeks.
First, Newtek (NEWT) (current yield; 8.1%). Barry Sloane's business development company is perfectly positioned to ride the wave of liquidity unleashed by the Fed. NEWT has performed well this year, up nearly 30%, but its relatively small size (market cap of $436 million) puts it solidly in the Goga category. This company should be much larger.
Evolution Petroleum (EPM) (5.9%), as I have mentioned, is a very safe play in the otherwise risky exploration & production space. EPM's only productive asset is a non-operated working interest in Denbury Resources' Delhi Field in Louisiana, a CO2 recovery play. Costs of purchased CO2 actually decline when oil prices do, so this play is naturally hedged.
So, Denbury (DNR) , whose stock has been hammered this year, is attractive, but from a different level of its capital structure as the company pays no common dividend. Denbury is in the midst of a debt exchange, which pushes out maturities and gives the company breathing room, but the bond market hates E&Ps, perhaps even more than the stock market does. Denbury's 4.625% notes due July of 2023 are trading at an amazing 51 cents on the dollar and yielding 24.203%. The market is completely miscalculating Denbury's risk, and that enormous yield will backstop a large short position in Beyond Meat, the risk of which the market is miscalculating in the other direction.
General Motors' (GM) 4.1% yield is safe. That's the key. I don't see much upside in any auto original equipment manufacturer at this point the economic cycle, but GM's divvy is much safer than Ford's (F) . Those payments will allow me to offset my short on Tesla as Musk's house of cards inevitably collapses.
PetroChina (PTR) (4.67% yield) is another safe dividend from a company that is largely unaffected by the trade war with China. The U.S. does not import oil from China. It's a non-factor, but PTR's yield is both tasty and necessary for my new trading strategy.
I will have more Goga stocks in my next Real Money column.
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