Our Expert Recaps Big Winners From Last Year And Reveals 2 Top “Buys” In 2023
Around our house, the evenings are for laundry and washing dishes. Romantic, I know. But that’s par for the course when you have a baby.
I never knew a tiny human could go through so many bottles that need washing out — or clothes that get baby food (or worse) on them.
But if you want to keep ahead in life, sometimes you have to go back and pick up after yourself.
This week, I decided to do a little housekeeping and chat with our expert analyst Nathan Slaughter. We discussed some of his big winners from last year and what he thinks are top “buys” for 2023. Our conversation is below (my questions are in bold).
A few weeks ago, we talked about how the High-Yield Investing portfolio beat the market in 2022. I want to ask you specifically about your winners and losers. What worked?
Well, tactically, we continued pushing into real estate, a natural inflation hedge that is benefitting (in most cases) from strong leasing fundamentals.
Since adding the preferred shares of an aircraft leasing firm a few months ago, we’re already sitting on a nice gain. And casino landlord VICI (Nasdaq: VICI), a company I’ve written about before, has ridden Vegas tailwinds to a market-crushing 14% return over the past 12 months. (Bringing our total return to roughly 86%.)
Our midstream energy holdings performed admirably in 2022, all posting healthy returns in the 14% – 18% range. Two of them are longtime holdings, and we’re up by a total of 477% since 2005 and 265% since 2007, respectively.
Meanwhile, we dabbled in a quick-service restaurant (up 10% in 2022) and a shipping container play (18% return in 2022 and 69% overall). But the biggest winner by far is ConocoPhillips (NYSE: COP).
The global energy producer has delivered a whopping 63.5% gain while returning $9.8 billion in capital to investors through regular dividends, special distributions, and stock buybacks. That brings our total return to a staggering 354%…
That’s not to say that everything worked. Fed hikes have taken a bite out of a couple of our more rate-sensitive holdings. But these are the exceptions. The majority of our active holdings ran well ahead of the market last year.
We also closed out some major winners along the way (10 in the green out of 11 total), including a 94% gain from Global Ship Lease (NYSE: GSL), a 99% win Fidelity National Financial (NYSE: FNF), and an incredible152% from American Campus Communities (NYSE: ACC).
Not many people know that bonds had a terrible year in 2022. Is this an asset class worth looking at this year?
Far from being a safe harbor, the fixed-income seas were volatile and dangerous last year. Taxable investment-grade bonds (as measured by the Bloomberg U.S. Aggregate Bond Index) suffered a historic decline of 13%.
Source: Wall Street Journal
And that’s just raw index performance. Some bond-centric closed-end funds were walloped even harder due to their use of leverage. Investors reacted by withdrawing $237 billion in bond fund assets, the largest net outflow on record.
But I’m going to go out on a limb here and say that it wouldn’t surprise me for corporate bonds to be one of the top-performing asset classes this year.
Can you explain why?
Last year’s 13% drop doesn’t sound that bad. But in a world where a 3% dip is practically considered bear market territory, this is a 100-year drought. The only comparable slump in recent memory was in the early 1980s when the Fed waged a similar war against inflation.
In the bond world, 2022 was every bit as painful as 2008 was for stocks.
But in much the same way as stocks, bond market selloffs also give way to recovery – only the rebounds have been swifter. It took just 9 months for bonds to reach a new high following a beatdown in 2016, 5 months in 2003, and just 2 months in 1984.
As we all know, interest rates and bond prices move in opposite directions. In previous rate-tightening periods, capital losses were at least partially offset by coupon income (just as a 5% dividend can soften a 10% decline in a stock). But with the Fed funds rate locked near zero, we didn’t have that luxury this time.
Should we challenge all of our long-standing assumptions and rethink the relationship between stocks and bonds? Not really. I chalk up this freak occurrence to a common bubble burst clashing with a black swan event (namely the Covid pandemic, which stoked inflation and set events in motion).
So no, I wouldn’t tell conservative investors to start abandoning bonds. Quite the opposite — now is an opportune time to load up.
You recently made a case for copper and gave a few ideas for how to profit. Can you recap what’s going on?
Goldman Sachs predicts that “major restocking” in China could propel prices to $11,000 per ton over the next 12 months and $15,000 by 2025. Bank of America is even more bullish, sending a research note to clients suggesting that if sufficient scrap material can’t be recycled, a looming supply crunch could potentially drive prices to $20,000 per ton by 2025.
These research houses aren’t known for making fanciful projections. In fact, I’ve made the case that we’re in the early stages of the next commodity super-cycle.
You previously mentioned the major producers, but are there any other ways to profit?
Well, you could start hoarding physical supplies. Or speculate in the futures market. But there’s a better way. I gave the names of some of the larger producers in the article you referenced, but more aggressive investors might want to consider the junior metals producers.
That’s exactly what we’re doing over at Takeover Trader. These smaller miners typically trade with dirt-cheap valuations on the estimated potential copper equivalent (CuEq) in the ground. That’s an attractive discount relative to senior producers, which is fair considering they are in the early development stages and may not commence production (or generate the first dollar of revenue) for many years.
Sadly, many exhaust their funding before reaching the finish line. But there are always diamonds in the rough, intrepid explorers sitting on promising deposits with ample financial backing. These future stars can easily outrace their larger peers, especially when metals prices are cooperative — let alone surging into record territory.
Of course, most of these smaller fish get gobbled up long before they can cut the grand opening ribbon. Senior producers are always hunting for new sources capable of boosting production rates and replenishing their reserve bases, which explains why the mining sector has long been a hotbed of M&A activity.
So if you can identify one of those diamonds in the rough, chances are one of the bigger players has, too. And if you can get in before the crowd catches on, you could enjoy some serious gains.
Editor’s Note: Nathan and his team correctly predicted a new oil boom over at Takeover Trader — and their top pick is already up by 50%. But that could be just the beginning…
That’s because this company is sitting on top of the biggest finds he’s ever seen — and he thinks it has at least triple-digit upside from here.
By getting in now before the rumor mill picks up, investors have the chance to pocket triple-digit gains, practically overnight.