2021 is and has been a volatile and challenging year.
- Grow stocks (risk on trades) peaked in February and March and then as money rotated to value stocks (risk off trades), prices collapsed.
- Commodities drew money as Inflation became a mantra.
- Now we are hearing a changing narrative that Inflation will become deflation as demographics (aging baby boomers) and the fall in purchasing power of the US-dollar slows the economy.
2022 will be at least as unpredictable, challenging and volatile as was 2021.
Until we see a trend that is longer lasting, this newsletter (LivingOffTheMarket) will be slow to introduce new stock ideas. We are really comfortable where we are at now with our positions. The one new area I would like to talk about that we have not focused on, are income (dividend) ideas. Defensive – yes, but really attractive values as well. We expect appreciation from these but not at the rate or volatility factor as stocks we are looking for doubles or triples in price. More on income ideas after a recap.
So, we really like Blockchain and Crypto because it is the fastest growing industry humans have introduced to the world. This type of growth and profits can out run inflation and deflation. There are still fast growing highly profitable ideas that personally I consider excellent values. Galaxy Digital (BRPHF)* at 5 to 6 times trailing earnings. Soluna Holdings (SLNH) will have a year of growth like I have not seen in in my life as an investor/speculator. “If” the market places a high valuation on the growth coming, we could see 4 to 8 fold appreciation in the common stock. Management needs to execute. I would like to say that there is a reason management has a monthly public disclosure. Yes, they are a highly transparent company. Yes, Management owns a hefty stake in the company. But consider this. They are changing and growing so fast they have new updates ever four to five weeks. Who have you owned that has done this? No stock I have ever owned. Yes, there is always risk and bumps in the road to overcome. For now, I want to hold tight to this stock. No Fear, Uncertainty or Doubt (FUD) from LOTM. That does not mean we be correct in our beliefs.
Commodities – Gold and Natural Gas. Gold wins in Inflationary times and deflationary times. Nat Gas – we are not even close to replacing fossil fuels. As wind and solar use has grown over the last 15 years, so has the use of fossil fuels. That is not replacing alternative energy! Want to stay warm in winter and cool in summer? Run an all-electric world? We are not going to do this without Nat gas for decades no matter what anyone says.
Battery Metals – we are moving to an all-digital all electric world. We are not doing this without an increase in production of battery metals and fossil fuels. IRMA (Initiative for Responsible Mining Assurance) kicks in in 2025 that increases cost and access to the mining industry.
Digital Payments – Blockchain/Crypto – digital payments – all-electric world – increase in Battery metals are all interconnected. Market up or market down, this is a decade or two decade long trend.
PLAN: Add to the best value with the fastest growth companies when the opportunity presents itself. Focusing on your core holdings through Dollar-cost-averaging is the best tactic in this environment. Everyone want the single simple reason to buy a company. This is not how the world works when managing a stock position. Dollar-cost-averaging combined with Tax management is the suggest methodology in position management. Through a combination of technical Analysis, Fundamental analysis, Behavioral analysis dollar-cost averaging and tax management, nearly every positive cash flow and growing revenue can be a profitable investment.
Ok – So some Income stocks. In this low interest rate environment, there has suddenly become a fear of rising rates. That has created a sell-off in some dividend paying companies.
We would like to mention three. Basically, you know two very well and may own them. The third might be a new name. this third name is very interesting but far less predictable than the first two names.
- Soluna Holdings Preferred (SLNHP)* $18.85 on the current price, the annual dividend is 11.75%. It is paid monthly at $0.1875 per share. It is cumulative, meaning should they miss a payment, it is still owed to you. The Preferred stock has no end-date, but Soluna can call the shares away from you after August 2026. I’m thinking the price is down at this time because they are issuing more shares of the preferred stock. FUD concerning how many shares will be issued – is the current cash flow enough to pay the dividend? This next year should calm FUD on the cash flow being big enough to support the monthly expense of the dividend. In fact, the next Jan 17th update should be quite positive conversation on the health and growth rate of Soluna holdings.
- The second one is Anteros Midstream (AM)* $9.55 this name has been in our conversation for a long time. At the current price, the dividend is 9.4%, paid at a rate of $0.225 per quarter. The company reduced the dividend from $1.20 annually (I believe in 2020) to the current rate and said they are only reducing the rate to pay for a growth phase not because of hardship and following the expansion, expects to increase the dividend from the reduced rate of $0.2275 per quarter. A position of strength for the company not weakness.
- The third company with an attractive dividend is Cross Timbers Royalty Trust (CRT)* $11.64. It is a monthly dividend payor who just declared its January payment at $0.137. If this was a stable payout, the rate annualized is 14%. This is an oil and gas royalty trust. The dividend is never constant. It literally rises and falls monthly based on the prior month’s oil & gas price and production volume. Personally, and professionally, I am leaning towards the falling value of the US dollar and the inflation theme. Oil and Gas would be beneficiaries of inflation and a falling US$.
It is strongly suggested you start small in your share positions and be willing to dollar cost average into these positions over time for the best pricing and yields.
NOTE: the price CRT sold oil and gas for in November is at a lower price today. This suggest February dividend will not be what was declared in Jan 2022 payout.
Currently at LOTM, we are consolidating our ownership to companies we like, core holdings and adding some place holders. Place holders are a source of cash for buying future risk-on positions. LOTM uses dividend payors, gold and silver and hard sell-offs on core positions as Place Holder positions. Some others use cash as a Place Holder. It is a matter of personal preference.
For an environmental view and how we deal with it, it is a highly personal perspective. I would like to clarify my position. It is relevant, since it impacts my investing comments, perspective and actions. I am all in for an all-green environment but the building of an all green environment will take three to four decades at a minimum. We have to deal with a globally aging and declining population as well. Perhaps deflation or hyper-inflation. Each country and region has variables in these areas. Unless we expand the sourcing and use of minerals and fossil fuels to build the all-green future, the all-green future will not happen. This is a realist perspective. Repeating what was said previously: As wind and solar use has grown over the last 15 years, so has the use of fossil fuels.
Happy Holidays and Merry Christmas.
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