Key Points

References

Stock option lists

st-stock-options-210118-screener_results.xlsx

Key Concepts

Stable companies in unstable times for bull credit put spreads

https://www.fidelity.com/insights/investing-ideas/stocks-tumultuous-times

Verizon VZ
Kimberly-Clark KMB
Hormel Foods HRL
Walmart WMT
Novo Nordisk NVO
Consolidated Edison ED
Walgreens Boot Alliance WBA

ATT

190817 - coming breakout from 35 to 40 ?

https://finance.yahoo.com/news/looks-2-big-catalysts-place-091657707.html

The breakout bull thesis in AT&T stock rests on two big catalysts. The first of those catalysts is the forthcoming widespread roll-out of 5G connectivity.

210209 - ATT unlikely to grow revenues, margins will be under pressure

1. entertainment group will generate profit but remain a poor investment return after COVID

2. wireless losing share on 5G to TMobile so long-term cash flows expected to decline continuously

3. Other areas may have growth but not enough to offset cash flow generation declines in 2 main businesses:  security, business networking services, FirstNet

4. dividend growth may remain relatively flat.  IF cash flows fail greatly, expect future cut down the road if buybacks don't solve problem

5. significant risk for PE compression to levels similar to Verizon leading to greater capital losses

Why might private companies choose a SPAC over an IPO?

https://www.fidelity.com/learning-center/trading-investing/SPACs?ccsource=email_weekly_AT

Due in part to the SPAC voting rule change, and other market forces, SPACs have become an increasingly popular alternative to IPOs. According to a recent Investor Bulletin from the SEC on SPACs, "Certain market participants believe that, through a SPAC transaction, a private company can become a publicly traded company with more certainty as to pricing and control over deal terms as compared to traditional IPOs."

More specifically, some of the reasons a private company might choose to go public via a SPAC versus an IPO include:

• Circumventing the IPO process. An IPO can be time intensive and carry significant costs. A SPAC is already public and, consequently, it can allow a company to quickly access public markets.

• Flexibility of SPACs. Instead of raising funds through an IPO as a private company, a SPAC can be an alternative for those companies that are highly leveraged (i.e., the company has a relatively significant amount of debt as a percentage of its total financing). A highly leveraged company may have difficulty raising funds in an IPO.

• Private company shareholder benefits. Founders and other major shareholders who want to sell some of their ownership position upon going public can sell a higher percentage in a reverse merger than they might be able to with an initial public offering. Also, these founders and shareholders can avoid lock-up periods (a predetermined amount of time that a shareholder cannot sell their shares) that can be associated with an IPO.

An important distinction to note here is the different valuation approaches with SPACs and IPOs. According to the SEC, "Unlike the traditional IPO process, where a private operating company sells its securities in a manner in which the company and its offered securities are valued through market-based price discovery, [SPAC managers] are solely responsible for deciding how to value the private operating company and how much the SPAC will pay for it."

Potential Value Opportunities

Some strong dividend companies

190905

https://seekingalpha.com/article/4287265-goldman-sachs-recommends-10-high-yield-stocks-6-actually-worth-buying-today?li_source=LI&li_medium=liftigniter-widget

But high-yield stocks are also trading at their most undervalued levels relative to low-yield stocks in 40 years. That's a VERY good reason to buy undervalued quality high-yield stocks today.

Of Goldman's 10 picks (T, KSS, ADM, VLO, CFG, ABBV, ETN, STX, SGP, and EVRG) KSS and STX don't make my quality cut-off.

VLO and EVRG are more than 20% overvalued, meaning T, ADM, ABBV, ETN, CFG, and SPG are reasonable to very strong buys today.

There are superior alternatives to T and CFG, including TU, WFC, BNS, TD, and CFR. This means I would personally only recommend buying ADM, ABBV, ETN, and SPG today.

ET - Energy Transfer

Energy Transfer LP provides energy-related services. The company owns and operates natural gas transportation pipeline, and natural gas storage facilities in Texas and Oklahoma; and approximately 20,090 miles of interstate natural gas pipeline. It also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users. In addition, the company owns and operates natural gas gathering pipelines, processing plant, and treating and conditioning facilitie

ET-24Q1-Energy Transfer Reports Strong First Quarter 2024 Results.pdf.  link

2024 Q1 results

• $.32 per share for 2024 Q1

• operating volumes increased > 11% yoy

• increasing NG pipeline capacity

• expect yoy EBITDA up 3%

• new debt issues rated BBB

• debt ratio stable at 62%

• dividend very safe now

• current dividend rate 8.25%

ARCC - Ares Captial Corp 

ARCC is a BDC specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. 

• ARCC is the market leading BDC lender 

• flexible asset strategy should continue to adapt well to changing market conditions

• eps continues to grow 

• common dividend coverage is a goal 

• common dividend increases only when core earnings increase

• dividend coverage averages 125%,  rate about 8.2%, dividend growth averages 4% with low dividend risk

• AUM - Credit loans are 65% of assets, equity types most of the rest

OBDC - Blue Owl Development Corp

OBDC is a BDC that specializes in direct and fund of fund investments. The fund makes investments in senior secured, direct lending or unsecured loans, subordinated loans or mezzanine loans and also considers equity-related securities including warrants and preferred stocks also pursues preferred equity investments, first lien, unitranche, and second lien term loans and common equity investments. Within private equity, it seeks to invest in growth

• lender with 81% senior secured,  73% first lien investments, 97% floating rate debt investments

• 12% ROE rate given leverage

• risk is floating rate will impact future earnings as rates drop

• dividend is 10.3% but coverage is only 105% so the dividend is only moderately safe

• loans are 60%, equity investments are 40%

• avoids cyclical industries

RITM - Rithm

RITM is an asset manager focused on real estate, credit, and financial services. It operates through Origination and Servicing, Investment Portfolio, Mortgage Loans Receivable, and Asset Management segments. Its investment portfolio primarily comprises of mortgage servicing rights (MSR), and MSR financing receivables, title, appraisal and property preservation, excess MSRs, and services advance investments; real estate securities, call rights, SFR properties, and residential mortgage loans; consumer and business purpose loans; and asset management related investments. 

• Q1 eps = $.54 up from a loss in 2023

• dividend is 8.2% ( $1.00 dps ) with coverage now at 175% and dividend risk is moderate

• earnings vary highly with interest rates

• some mortgage loans and MBS with risk

NLY - Annaly Capital REIT

2024 Q1 results

Annaly Capital Management, Inc., a diversified capital manager, engages in mortgage finance. The company invests in agency mortgage-backed securities collateralized by residential mortgages; non-agency residential whole loans and securitized products within the residential and commercial markets; mortgage servicing rights; agency commercial mortgage-backed securities; to-be-announced forward contracts; residential mortgage loans; and agency or private label credit risk transfer securities. It has elected to be taxed as a real estate investment trust (REIT). As a REIT, it is not subject to federal income tax to the extent that it distributes its taxable income to its shareholders.

• dividend > 13% typically BUT stock price declines historically as income drops, stock issued to cover

• payout ratio ( now 100% ) was often too high in the past leading to stock issues that cut eps, dropped stock price

• bulk of assets in MBS  ( 85% ) with high variable default risk in commercial markets, many residential loans are agency backed  

• hi debt leverage - Economic leverage* of 5.6x, down from 5.7x in the fourth quarter

• rate risk when financing long-term loans with short-term debt ( bad in rising rate environment )

  • Financing costs increased modestly with average GAAP cost of interest-bearing liabilities of 5.40%, up 3 basis points quarter-over-quarter, and average economic cost of interest-bearing liabilities* of 3.78%, up 36 basis points quarter-over-quarter

  • buys hedges on rate risk

  • debt leverage used to pay for the hedges

  • Hedge ratio decreased from 106% to 97% given maturity of short-term swaps; new hedges were placed further out the yield curve

• eps driven by volumes, shares outstanding, income from net interest margin ( earned vs paid ) and leverage

• NLY Strategic model

  • Annaly’s Agency portfolio is made up of high quality and liquid securities, predominantly specified pools, TBAs and derivatives

  • Portfolio benefits from in-house proprietary analytics that identify emerging prepayment trends and a focus on durable cash flows

  • Diverse set of investment options within the Agency market, including Agency CMBS, provides complementary duration and return profiles to Agency MBS

  • Access to deep and varied financing sources, including traditional bilateral repo and proprietary broker-dealer repo

Open

Open

Tech Companies to Track for LT value

Google on search, AI services

Challenges to Google exist everywhere so the current PE is lower: bigger cloud competitors, open-source AI, EU and US lawsuits on search monopoly etc.

LT Google AI strategy does look solid with good architecture, innovation and an intelligent blend of commercial and open-source AI. The gemma LLMs are open-source and worth following along some other Google open-source AI innovations.

Oracle on cloud, AI app services

Oracle Stock Hits All-Time High Following Cloud Deals 250701

Oracle (ORCL) shares are edging higher in premarket trading after closing at an all-time high of $218.63 Monday as CEO Safra Catz touted what she called a "strong start" to fiscal 2026, with several lucrative cloud deals, "including one that is expected to contribute more than $30 billion in annual revenue starting in FY28."4 Analysts at Stifel reportedly raised their price target for Oracle stock to $250 per share from $180, pointing to Oracle's strong cloud growt

Meta on monetization of social media with AI

Meta has the largest social media platform presence now. Their negative is the lack of privacy which violates regulations in many countries and represents a risk. Making their apps compliant on privacy controls probably still provides an incredible growth platfrom for advertising and monetization beyond where they are today that will allow them to compete well with Amazon, Microsoft and Apple over time.

Potential Challenges

Candidate Solutions

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