Day: September 26, 2024

Legendary investor Ken Fisher has a message for retirees and those planning for retirement – the allure of “capital preservation” might be setting you up for financial disappointment.

Fisher, known for his no-nonsense approach to investing, argued in a New York Post opinion report issued on Monday that the concept of capital preservation – often touted as a haven for retirement savings – is fundamentally at odds with the growth needed to sustain a comfortable retirement.

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“Growth and true capital preservation can’t coexist in the short run,” Fisher explained. He said that what many consider “safe” investing strategies often fail to keep pace with inflation, potentially eroding purchasing power over time.

The center of Fisher’s argument lies in the role of market volatility. While many investors view volatility as a threat, Fisher sees it as essential for long-term growth. He said that historically, U.S. stocks have risen in 63.1% of calendar months and 73.5% of calendar years from 1925 to 2023.

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“Eliminate the [downside] and the [upside] also disappears,” Fisher said. He argues that attempts to completely avoid market fluctuations typically result in ultralow returns, barely outpacing – or even trailing behind – inflation.

The investor aimed at financial products promising growth and capital preservation, calling them “phony.”

“Investment strategies promising both growth and capital preservation are phony baloney,” Fisher opined. “Yet so many vendors in varied forms – especially in rocky times like this summer’s – claim otherwise, peddling poor products destined to disappoint.

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He warns investors to be particularly wary of insurance-like “buffered” funds and any product claiming “upside with no downside.”

Instead, the investor is advocating for a clear-eyed approach to retirement investing. He urges investors to understand that short-term volatility is the price of admission for long-term growth. For those who can’t stomach market ups and downs, he suggests reevaluating financial goals, savings rates and future spending plans.

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The veteran investor’s advice comes when many retirees grapple with economic uncertainty and market turbulence. While the desire for stability is understandable, Fisher’s message is clear – playing it too safe could cost you big in the long run.

As retirement horizons lengthen and the cost of living continues to rise, Fisher’s perspective offers the insight that there are no guarantees and that pursuing growth often requires embracing, rather than avoiding, market volatility.

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This article Why Ken Fisher Says ‘Capital Preservation’ Could Cost You Big In Retirement originally appeared on Benzinga.com

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It’s tempting to gravitate toward dividend stocks that pay huge dividends. Take Walgreens Boots Alliance (NASDAQ: WBA) for example. The pharmacy chain’s dividend yields over 11% at its current share price. In other words, investors get double-digit investment returns before factoring in any potential share price movement.

However, there is never a free lunch in the stock market. It’s rarely so easy.

Peek behind the curtains and you’ll will find a litany of issues at Walgreens that have created such a high dividend yield. This is a warning sign of a yield trap.

Here are three problems facing Walgreens and why dividend-hungry investors may want to look elsewhere.

1. Junk-status financials may trigger a dividend cut

Many consumers may already be familiar with Walgreens Boots Alliance. The company has a sprawling network of pharmacies across America, Europe, and Latin America under the Walgreens and Boots brands. The traditional pharmacy model worked wonders for years; companies like Walgreens would fill prescriptions and use the foot traffic to sell groceries and other goods to help boost their profit margins.

Unfortunately, the digital age has begun impacting this business model, and Walgreens has sought to evolve with the times by using mergers and acquisitions to grow larger and diversify its business model. It merged with Boots Alliance in 2014 to expand its store footprint and then acquired VillageMD in 2021 to enter primary care services.

It hasn’t turned out well; the company has struggled under a massive debt load, and cash flow has dried up significantly. In July, S&P Global downgraded Walgreens’ credit to BB, a sub-investment-grade rating (junk status). The company is now scrambling to clean up its financials and it may sell its VillageMD business. Walgreens slashed the dividend nearly in half in early 2024, so don’t be shocked if it happens again: It still costs Walgreens over $200 million quarterly.

2. The S&P 500 could soon drop the company

How likely is it that another cut is on the way? The chances seem pretty high. Don’t underestimate the stigma attached to junk status financials. Walgreens is still a member of the S&P 500 index, a badge of honor that will probably be hard to get back once lost.

Investors generally favor S&P 500 companies, and having that status attracts institutional investors, especially funds that track the S&P 500, which must own the stock if it’s in the index. A stock can enjoy a boost from buyers when it’s added and could see additional selling pressure if removed.

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Walgreens is already trading near multidecade lows, and the deteriorating financials only increase the chances that the index will remove Walgreens. The S&P 500 rebalances quarterly, and Walgreens lost its spot in the Dow Jones Industrial Average earlier this year.

3. Consumer health trends working against Walgreens

Walgreens must turn itself around to avoid all these negative consequences. However, doing so will require more than shedding debt. Walgreens must have a viable long-term business model. Unfortunately, the traditional pharmacy model is becoming dated; that’s why Walgreens set out on this acquisition spree in the first place.

Today, pharmaceutical drugs are starting to bypass retail pharmacies. Telehealth companies like Hims & Hers are enjoying rampant growth, and e-commerce giant Amazon has pushed into healthcare via its online service, including prescription delivery.

Analysts are currently pessimistic about Walgreens’ growth outlook. Estimates call for negative long-term earnings growth and low-single-digit revenue growth:

Walgreens more closely resembles a company barely holding on than a comeback story in motion. Dividends require healthy businesses to sustain them, and Walgreens isn’t there. Investors should avoid Walgreens stock and look for more durable dividend opportunities elsewhere.

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Warren Buffett isn’t the only one who likes the energy sector. Alongside Berkshire Hathaway’s BRK.A BRK.B huge purchases of Occidental Petroleum OXY shares, insiders at energy companies have been buying large amounts of stock for weeks and selling very little. Vickers Insider Weekly has singled out the energy sector as an insider favorite in four of the past five weeks, as of Sept. 16.

Buffett plus insiders is a powerful signal. Buffett likes Occidental Petroleum’s prodigious cash flow and extensive holdings in the U.S. Southwest’s Permian Basin, which helps make it a low-cost producer. But why are insiders buying?

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In the big picture, it’s because energy-stock prices are seriously lagging. But the weakness won’t last forever. “Longer term, this is an industry that is going to grow,” says Hennessy Energy Transition Investor HNRGX portfolio manager Ben Cook. “There will be supportive commodity prices and good earnings and cash flow in the right companies. That’s attractive and the management teams know it. The insiders recognize there is good opportunity.”

Here’s how out-of-favor the energy sector is:

Unjustified discounts

These steep discounts seem odd for a half-dozen reasons, say energy-investing experts.

Energy companies have become much more shareholder-friendly in the past few years, Cook says. They have better capital-spending discipline, which creates strong free cash flow. They are returning much of that cash to shareholders via dividends and buybacks. “The insiders are saying, ‘I am willing to take the downside risk because the investment merit of these stocks has improved,’” Cook adds.

Plus, oil CL00 BRN00 prices will likely go higher from here. One reason is that the Middle East could be on the brink of a wider war. Yet oil has not budged in response. “The risk of geopolitical disruption is not priced into oil at all,” Cook says.

Global interest-rate cuts will help. Besides the Fed, central banks in Europe and Canada have been cutting rates to support growth. “That creates a healthy environment for energy demand,” says Cook. “A growing global economy and pursuit of higher quality of living in less-developed countries ultimately mean an increased need for energy.” Meanwhile, that capital discipline among U.S. producers keeps supply in check.

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Global demand for U.S. energy also will support domestic producers and services companies. Global demand will grow at least in line with world GDP growth of 1.5%-2%, Thummel says. “Fossil fuels are over 80% of the global energy supply, and that will not dramatically change over the next few decades.” Meanwhile, global inventories and the U.S. strategic reserve are below historical level.

Artificial intelligence (AI) requires a lot of computing power, which uses a lot of electricity. This demand will favor natural-gas (NG) producers, notes Thummel, since power plants use a lot of NG. Green at Penn Capital points out that the shares of electric power producers such as Vistra VST, NRG Energy NRG and Talen Energy TLN have taken off this year. “The vast majority of that power will be from natural gas,” Green says. “But you have had no recognition of this in the price of exploration and production stocks and the service companies that provide the drilling rigs.”

The U.S. presidential election outcome will be OK for energy, no matter who wins. Democratic administrations are good for energy stocks because they often restrict supply, notes Green. Meanwhile, Donald Trump’s “drill baby drill” mantra might be irrelevant. “Trump won’t make energy companies drill like crazy because the investor base will not allow that,” Green says. Investors like the cash flow, dividends and share buybacks that come from capital spending discipline. “The only way they will drill more is if oil prices go up and their cash flow allows them to invest.”

Favored energy stocks to consider

Cook at Hennessy says oil-services giants Schlumberger SLB, Baker Hughes BKR and Halliburton HAL all have been disproportionately punished in the current energy-sector weakness. He favors quality energy companies with better balance sheets including Exxon Mobil XOM, Cheniere Energy LNG, EOG Resources EOG, NextEra Energy NEE and ConocoPhillips COP.

Thummel says Chevron CVX shares look excessively discounted because of overblown concerns about foreign investment, which he thinks will soon start paying off. He also singles out Diamondback Energy FANG in the belief that it could be an acquisition target as the consolidation among Permian Basin producers continues. “Diamondback is one of the last pure-play Permian producers with significant scale,” he says.

Energy stocks insiders are buying

Vickers Insider Weekly highlights bullish energy sector insider buying at: PBF Energy PBF; Texas Pacific Land TPL; Talos Energy TALO; Matador Resources MTDR; Comstock Resources CRK; Global Partners GLP; Hallador Energy HNRG; HighPeak Energy HPK; ProFrac Holding ACDC, and Granite Ridge Resources GRNT.

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Global shipping doesn’t dominate the headlines like Big Tech or AI, but it is a mission-critical link in the global commerce chain. This business sector has quietly been building fortunes for investors for centuries, and that trend continues today. That helps explain why Deutsche Bank analysts are enamored with a global shipping stock paying a double-digit dividend.

Global shipping, like real estate, is an industry that has numerous different sectors. Although the most recognizable global shipping sector may be the flow of finished goods from China to Europe and the Americas, transporting raw materials like iron ore and aluminum is also very lucrative. This is known as the “dry bulk” sector, and it’s paying investors big dividends because without it, global manufacturing would come to a halt.

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Deutsche Bank analysts have noticed and believe the dry-bulk sector is rising. Their data shows that shipping rates for the Capesize ships that handle dry bulk products have gone from $9,000/day to $28,000/day in the last twelve months. That’s an increase of over 300%, which translates into serious profits for investors in dry bulk shipping companies.

One of those companies is Star Bulk Carriers (Nasdaq: SBLK). This is a rapidly growing global shipping company that handles a full range of dry bulk products, which are broken down into two sections:

·      Major Bulk-(e.g. coal, grains, ore)

·      Minor Bulk-(e.g. sugar, cement)

Star Bulk Carriers was already a global leader in the field when it acquired competitor Eagle Bulk in the last quarter of 2023. This $2.1 billion transaction made Star Bulk Carriers the largest bulk shipping company on the Nasdaq. It also allowed Star Bulk to expand its fleet, which now includes 161 ships of various sizes.

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Star Bulk Carriers has a market cap of $2.46 billion, and it just reported blockbuster Q2 2024 earnings of $352.8 million. That was nearly a 50% improvement over the previous year, and the extra profits are leading to some impressive dividends. Star Bulk Carriers is paying a strong 12.8% dividend on its $21.86 share price. That means Star Bulk investors are set to earn $2.79/share for the upcoming quarter.

That’s a great return by any measure, and Star Bulk’s position as one of the largest operators in its sector indicates this company is primed for continued earnings. There is, of course, never a guarantee of future dividends, but it’s worth noting that Star Bulk Carriers has paid over $1.2 billion in investor dividends since 2021.

As always, remember that every business sector has risks, and global shipping is no different. Elevated fuel costs or a global economic slowdown could impact profits in the case of Star Bulk Carriers. With those caveats, Star Bulk Carriers has the potential to be a good dividend stock, and the fact that it’s available at an affordable share price doesn’t hurt either.

Wondering if your investments can get you to a $5,000,000 nest egg? Speak to a financial advisor today. SmartAsset’s free tool matches you up with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

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This article Deutsche Bank Loves This Stock Paying A Near 13% Dividend originally appeared on Benzinga.com