“Stocks with the Power to Multiply Your Money AND ALSO Pay You 9% Dividend Yields”

Checking out Mike Larson's "Major Energy Recos" for Weiss' Energy Stock Alert

By Travis Johnson, Stock Gumshoe, September 4, 2014

Mike Larson runs an investment advisory called Energy Stock Alert for Weiss Research, and he’s lately been swamping our email box with promises that his “Major energy recos” are imminent — with the promise that he’s looking for stocks with large yields that also have the potential to double or more in value.

So that sounds lovely, right? It is, at least, a respite from the waves of pundits predicting economic collapse, and I don’t think I’ve written about this particular letter before — so I thought we’d take a look.

(As an aside… do you want to sound smart? Want to build up a newsletter service? Step one: Predict that something terrible is about to happen “in the next couple years.” Doesn’t matter if you’re right or not, or if you miss out on great market gains while you wait for the next bear market (or worse) to come, but people perceive it as prescient and wise and “contrarian” because we’re hard-wired to fear risk, particularly so if we happen to be retirees or near-retirees with a strong memory of the 2001 and 2008 crashes).

The last time I wrote about a piece from Larson was when he was teasing an “almost perfect” stock for his Safe Money Report (which also often warns of crisis), that was in a Friday File piece for the Irregulars back in May that I’ve just opened up for anyone else to read if you’re interested — it was, like today’s piece, a teaser about a high yield stock, though I also went off on a bit of a rant about fearmongering and diversification.

The stock he teased then, Ferrellgas, has a yield just under 8% now and has done OK since May — so what’s he teasing now that has a higher payout? Here’s how he gets us excited:

“This little-known stock pays you an 8.5% dividend yield AND ALSO gives you the potential to more than DOUBLE your money….

“Do you know who’s earning some of the greatest profits in this domestic energy boom?

“Answer: The companies that are getting rich TRANSPORTING all of this new energy to market!

“Think of it: What good is a barrel of oil or a cubic foot of natural gas at the wellhead? It can’t fuel your car. It can’t heat your home. It can’t help to power factories or grease the wheels of commerce.

“It can only do all of that once it’s brought to market through the shipping and refining process.

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“And the business of getting oil and gas from Point A to Point B isn’t just huge here in America โ€” it’s global!”

So… another transport company (Ferrellgas was sort of a midstream/transport company too — mostly in propane). More details?

“This company owns and charters a fleet of 70 large ships and other vessels. Those include 24 container vessels, 19 large crude oil tankers, 14 drybulk ships, six offshore supply vessels, and assorted other oil drilling rigs and ships.

“It generates cash flow from the chartering of those vessels to an assortment of oil drillers, shipping firms, and other customers โ€” and pays out handsome dividends with the proceeds. Its current dividend rate is 41 cents per quarter, good for a yield of around 8.5% at recent prices.

“Plus, net income is exploding: In the first quarter, the company reported net income of $40.7 million, or 44 cents per share, up from $18 million, or 20 cents per share, in the December quarter.

“At that rate of growth, investors will be lining up to buy this stock โ€” and to give you the opportunity to multiply your money many times over!”

That’s probably enough to feed the Thinkolator, and I suspect I’ve owned this company in the past, but let’s get a few more clues just to be certain:

“The firm recently delivered a large drilling rig under a new charter agreement, acquired nine container vessels and two dry bulk ships, and took other financing steps to help support ongoing growth. It now has a long-term charter backlog of around $5.1 billion, with an average remaining term of 5.7 years.”

And Larson apparently does not think of this as a “set and forget” investment — though frankly, most investment newsletters don’t do “set it and forget it” anyway … many folks won’t keep renewing a subscription, particularly an expensive one, just to hear “sit tight” every month… here’s what he says:

“I expect this stock to be so volatile right now, I can NOT, in all good conscience, recommend it in a monthly publication.
I must recommend it to members of my Energy Stock Alert service where I can follow it for you daily if need be.”

“Follow it for you daily,” by the way, runs at a $597 annual “list price” for the subscription (“on sale” for $297, naturally), Larson’s monthly newsletter, Safe Money Report, is more like $100 a year.

So what’s this volatile high-yielder? Thinkolator sez he’s recommending: Ship Finance Limited (SFL), a company created by billionaire viking raider John Fredriksen a decade or so ago as a financial engineering partner for his large shipping company Frontline (FRO) — essentially, instead of FRO taking on more debt to expand he sold some of its vessels to SFL, which then leased them back to FRO at below market rates so both sides could book a profit. I think SFL was actually initially created as a spinout of Frontline, which I owned way back then, but I’m not certain — like other financing companies they have grown through equity offerings and through additional borrowings.

Ship Finance, as a financing company, was designed to get more diversified by taking on other sale/leaseback partners beyond just FRO, which they have done (including some rigs from Seadrill, another Fredriksen company that I’ve owned for a long time), which in turn meant SFL could lever its own balance sheet up further by taking on more debt against a more diversified portfolio of rigs, crude carriers, container ships, bulk carriers and other assets that are operated by several different companies. And like mortgage REITs, they were able to get pretty good spreads — returns on their leased vessels and rigs have been considerably higher than their financing costs, and the heavy depreciation writeoffs that the company can take on their generally long-lived ships means that they can pay out substantially more in dividends than they actually book in profits (much like a MLP does).

I haven’t followed SFL closely in recent years, but they did just agree to sell a few of their older VLCCs that were under charter to Frontline so they are becoming less dependent on the challenging crude oil transport sector (their biggest customer by far, in revenue terms, is Seadrill — their jackup and floating rigs have lease rates far higher than the many container ships or crude carriers SFL owns). They carry a lot of debt, and their counterparties are companies like Seadrill and Frontline that carry even more debt, so there’s obviously some risk — but SFL has a much better looking balance sheet than many of the actual operators in shipping, so they have generally been less risky and less volatile than the shipping operators. That’s not necessarily saying a lot, because the dry bulk shippers and the crude oil tanker operators have been wild (and generally disappointing) investments since they maxed out about five years ago.

You can check out SFL’s latest quarterly presentation here — you’ll fairly quickly see that, like other companies that have John Fredriksen in their DNA, that they don’t so much care about “earnings” … they care about cash flow, and about how much of that cash flow they can send through to the shareholders in the form of dividends. That equals out to about an 8.5% yield at the current share price, and the dividend has gradually been increased since the financial crisis. They do carry a lot of debt, and will continue to take on debt as they finance acquisitions and newbuilding orders to grow the fleet, but they don’t have any worrying looking debt maturities until 2018 and a quick glance at their fleet indicates that most of their assets are on long-term contracts that should continue to outpace the cost of financing those assets.

So there you have it. Shipping is a debt-happy sector, and this is effectively a leveraged banker that knows the industry. I won’t be updating you about the stock with every up or down tick as Mike Larson implies he will, but it’s an interesting way to get a good cash dividend — particularly if you think we’ll see some recovery in dry bulk or crude shipping and if you’re not afraid of collapsing energy prices (if oil or the global economy hit some kind of crash, SFL will almost certainly come down in sympathy and in fear for the health of their counterparties, though the shares probably won’t fall as much as those of their customers). Sound like something you want in your portfolio? Let us know with a comment below.


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Allen BesenDave in Sunny FLwho nozeShyamadas BanerjiIANS Recent comment authors

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vivianlewis
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๐Ÿ‘166
vivianlewis

John Fredriksen is now a Briton who hangs around in Cyprus and is sober. but he used to be a Norwegian fighting drunk who hung around Copenhagen. He is a brilliant investor now that he is conscious most of the day. he has made a lot of money most of all for himself, but sometimes also for others. You do want to watch him closely if you buy into something he is willing to sell. We avoid most of the shipping stuff but we do own a smoked salmon stock from his stable of ventures, Marine Harvest. It stands to… Read more ยป

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biotechlong (btl)
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๐Ÿ‘2793

Vivian, your anecdote about John Frederiksen brings to mind the following story about “truth and sobriety” dynamics: It’s like the Captain who wrote in the ship’s log: “First mate was drunk today.” After sobering up, the mate went to the Captain and pleaded with him to strike out the record. “It was the first time in my life I’ve been drunk,” he pleaded, “and I promise never to do it again.” “In this log we write only the truth,” stormed the Captain. The next day it was the mate’s turn to keep the log, and in it he wrote: “Captain… Read more ยป

biotechlong (btl)
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๐Ÿ‘2793

Great article, Travis! The risk-reward ratio in this company is appealing with current low interest rates – but could turn to appalling in a major economic downturn. Nevertheless, with the shrinking worldwide fleet of serviceable merchant vessels, and the ongoing need to transport commodities point-to-point in the sea lanes, this company merits a serious look. The business model appears workable, and I like the fact that management recognizes the wisdom of diversifying its assets.

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Curious Mayhem
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Curious Mayhem

Curious about Cox’s latest on BAT cells and ECM regenerative technology.

caulker
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caulker

I have subscribed to several Weiss letters in the past and while they are interesting they were big losers for me. They almost always cry ”wolf” which can keep you out of advancing markets. I’m afraid when the big financial collapse comes no one will be listening to them anymore.

JW
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JW

caulker – I agree!!! When the market finally dips 30%+, Martin Weiss will be holding up his hands in victory saying “I told you so!!!” The only problem is that he’s been predicting a crash since the Dow was climbing back from 7000. What a joke.

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Larry
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Larry

I have owned SFL for the last 6 Quarters and am up 27%

dave
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dave

I have owned SFL for such a long time I don’t even remember what was so great about it when I bought it (years ago). I now own it for the dividend and it’s had a nice little run up in share price as well. I’m ashamed to say I haven’t really studied the econometrics of it lately, but it’s nice to see some one else taking an interest in it, although considering that interest is from Mr Weiss’s newsletter that might not be a good thing. I never had any luck with his advice…so maybe its time to bail… Read more ยป

Shyamadas Banerji
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Shyamadas Banerji

You mean the economics not the econometrics of course.

dave
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dave

I think Mr Weiss has been predicting a crash for the last 25 years or so…

arch1
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๐Ÿ‘7788

something like 3 hits out of last 29 crashes predicted? If you forecast a bad winter long enough you eventually may be correct.

Deborah G Flynn
Guest

OK I admit it I am a teaser junlie LOL Then I get my dose of reality from Travis and the good folks here. I am just not interested in this stock can’t say why./ I like SDRL at times like the bad boy in highschool I always want to go out with LOL>

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mwojnaro
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mwojnaro

Thanks Travis. SDRL has been on my list, for a while, so I wrote a naked put, bolstered by side lines cash, today, to pick up SDRL at 35. Time is in the next two weeks. If it doesn’t get exercised, rinse and repeat until it closes…. Think I’ll stalk SFL as well….

rkatz0
Member
๐Ÿ‘5

Thanks Travis, I should own a few stocks like this.

Solyom
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Solyom

SLF’s Fair Value by DCF is about 27->28 dollars. The chart looks fairly healthy as well.
Short term trend is bullish (9 days or less), mid term trend is bullish (26 days) and longer term trend is also bullish (>52days). Unlike many touted offerings this deserves going on the watch list. I wish its projected earning’s growth were better. I also worry that the Street thinks highly of it. (I always worry when I and the Street agree; I like a stock to be ignored by them). Worth a look see

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Quincy Adams
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Quincy Adams

Considering all things Norwegian, my Kroner are on Statoil, which near-term should be the go-to gas supplier to Europe when Darth Putin starts choking off the gas supply to them. The ADR also has a decent yield and the PE is below 10.

Bakermre
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Bakermre

I own both SDRL and STO; I believe when in doubt about oil stick with the reliable Norwegians. SDRL at $35 to $37 is about as rich as I expect them to get until the Ukraine crisis is settled. That seems to be the big risk here for now. It does look like that will come to a conclusion by early 2015. Alternatively, the price of crude oil is worry-some as more and more floods world markets. Despite turmoil, we may be in for a steady decline in crude prices well below $90. That will do serious damage to both… Read more ยป

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IANS
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IANS

SDRL and STO. There is a big difference between Oil transport stocks and Oil production stocks. More crude about will be bad news for producers and it will drop the price. However that does not adversly affect carriers. In fact a glut of crude which lowers prices is good for carriers: more oil is consumed at lower prices and the glut means some vessels get chartered as storage, both adding to demand for their vessels.

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who noze
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who noze

suggest you look at nm navios holding as one to buy

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Dave in Sunny FL
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Dave in Sunny FL

Thanks for the article, Travis. Really enjoy your pieces. Shipping stocks seem way too user-unfriendly for me. (Maybe I’ll look into them after I’ve made my first fortune, in understandable, recognizable, mega-caps.) Businessweek had a review of a book on this field a few months ago. It was a novel called The Shipping Man; Adventures in Ship Finance, written by Matthew McCleery. It was a good introduction to the field, but it just confirmed for me that I’ve got no business even thinking about putting my money into it.

Allen Besen
Guest

As for Larson: When I invested my hope (and money) in the market a few years ago, his LEAPS advisory was the first one I subscribed to. But he was wrong so often it would have been better to take the exact opposite position of what he proposed. The lesson: newsletter writers make confident presentations but their ability to actually make you money on their “Recos” is usually lacking.