Haymaker Friday Edition
Haymaker Friday Edition
In the Ring – September 29th, 2023
“It’s a strange world of language in which skating on thin ice can get you into hot water.” – Franklin P. Jones
“Folks, you can’t borrow 7.3% of GDP every year and get away with it; and most especially not when American society is plunging into a 100 million strong baby-boom retirement wave — accompanied by a shrinking work force and tax base…” -Former Reagan administration budget wizard, David Stockman
“When someone gets something for nothing, someone else gets nothing for something.” -From an anonymous source, but of great relevance to America’s current fiscal follies.
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Champions
(Please see the new Highlighted Stock section for our write-up on Devon Energy.)
The shares of one of the largest global producers of agricultural equipment that doesn’t rhyme with “Dear” have been soft lately, like so many other stocks. It is now trading in the low teens and sells for roughly seven times earnings, with a dividend yield poking above 3%.
Ag-related stocks were bid up sharply during the early stages of the Ukrainian war. Since then, investors in them have been on a bit of a starvation diet. Despite that, the long-term story for North American-focused ag plays remains very healthy, in my view. Patience is likely required and the market’s recent squishy price action suggests a slow, dollar-cost-averaging approach. This is particularly the case based on the recent shocking weakness in longer-term U.S. Treasury notes and bonds.
Champions List
- * Farm machinery stocks
- * Japanese yen
- * Blue-chip gold miners with high dividend yields
- * Gold & gold mining stocks, particularly junior gold miner ETFs
- * Select cyber security software stocks
- * Copper-producing stocks
- * Industrial sector ETFs
- * Defense industry (particularly those contracted to manufacture in-demand weapons systems)
- * Select financial stocks
- * S. Korean stock market
- For income:
- * A midstream energy infrastructure company that has eased about 13% from its recent peak.
- * A BB-rated bond from one of America’s former Nifty Fifty
- * BB-rated bonds from dominant media companies and healthy automakers with upgrade potential
- * BB-rated intermediate term bonds from companies on positive credit watch
- * Certain fixed-to-floating-rate preferred stocks
- * Emerging Market debt closed-end funds
- * BB-rated energy producer bonds due in five to ten years
- * Select energy mineral rights trusts
Highlighted Stock
Hopefully, this is good news for our readers who like to see company-specific research: Our compliance officer has given us the okay to highlight individual stocks and bonds. The caveat (there had to be one of those, right?) is that I’m not able to put out an explicit buy recommendation or place these under the Champions heading.
This week’s spotlight name is Devon Energy (DVN). Neither Evergreen nor I currently own this security, though we have in the past. Frankly, over the last year, it’s been a dog. It peaked at nearly 90 in the summer of 2022 and made essentially a double-top last fall. Since then, it’s been a downhill racer, sliding all the way to the mid-40s. In other words, it was basically cut in half. The culprit was a serious correction in oil prices combined with a vicious bear market in natural gas. This double-whammy caused earnings per share to tumble from $8.31 last year to an estimated $5.40. However, even at those greatly reduced profits, the shares trade for just 8.7 times earnings.
A conservative way to earn superior returns is to buy low P/E stocks on trough earnings. Often, especially with cyclical names like oil and gas producers, the P/E ratio is well above the market on depressed earnings. This reflects the rebound potential offered by these types of situations. My point is that it’s rare to find stocks trading at single-digit P/Es on what are, hopefully, bottom-of-the-cycle profits. …
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IMPORTANT DISCLOSURES
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and David Hay makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on David Hay’s beliefs, as well as certain assumptions regarding future events based on information available to David Hay on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized or that an investment strategy will be successful. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
David Hay shall have no responsibility for: (i) determining that any opinion, forecast, projection, risk assumption, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinion, forecast, projection, risk assumption, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinion, forecast, projection, risk assumption, or commentary discussed herein to any particular reader’s investment objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that David Hay has an advisory agreement, oral or otherwise, with any reader.
David Hay serves on the Investment Committee in his capacity as Co-Chief Investment Officer of Evergreen Gavekal (“Evergreen”), registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Evergreen in no way implies a certain level of skill or expertise or that the SEC has endorsed the firm or David Hay. Investment decisions for Evergreen clients are made by the Evergreen Investment Committee. Please note that while David Hay co-manages the investment program on behalf of Evergreen clients, this publication is not affiliated with Evergreen and do not necessarily reflect the views of the Investment Committee. The information herein reflects the personal views of David Hay as a seasoned investor in the financial markets and any recommendations noted may be materially different than the investment strategies that Evergreen manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
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