Mark Skousen’s Forecasts & Strategies (offered at $77, probably renews at $249, 30-day trial period), is one of the longer-running newsletters out there these days, and once or twice a year one of their promos catches our eye — this one about a “Biden Disaster Plan” got a lot of questions from readers, so it moves to the top of the list.

I’ll just throw out a small reminder here before we get started, since I’m sure some of you love Joe Biden and some loathe him. The reminder? That’s the point, that’s why he’s the focus of the ad. Using a polarizing political figure in your headlines and promos is one of the oldest ploys to get attention, and it has been at the heart of the investment newsletter business since the 1970s (and just like the 1970s, politicians ALL seem to be pretty polarizing now).

Yes, Skousen has painted himself for decades as a heroic Austrian School economist and free market thinker, and he has a real life on that side where he also teaches and writes books, he is an academic economist… but when it comes to pitching newsletters, he’s a salesman — and the best way to sell something is to build a connection with your mark and convince him that you’re on the same side.

In the investment newsletter business, which skews conservative-to-libertarian and mines a relatively older and conservative demographic (most letters are targeting relatively affluent people in their 50s and 60s, the people who are most likely to have investable cash and be worried about retirement), making a connection and getting your attention often means either lionizing conservative heroes or blaming liberal fools. We’re going to see more and more of that as we head into election season, I expect.

And, not coincidentally, we’re also probably going to see more and more “fear” marketing from the newsletters. Greed works better than fear when you’re selling investment ideas, generally speaking, but when markets are in turmoil there’s also a rich vein of “end of the world” fear to be mined by newsletter copywriters — and it often does best in the years after a crisis or a bear market, particularly with people who are close to retirement and therefore especially sensitive about the market. Those “death of the dollar” and “end of America” stories sucked up a lot of the attention in newsletter world in the years coming out of the 2008-2009 crisis, so it may be time to steel yourself for their re-emergence.

That’s not to say they’re not right sometimes… sometimes politicians are bozos, sometimes the world is scary… but being right is not the point — the point is that a newsletter copywriter has three or four seconds to get your attention and convince you to read their ad or listen to their “presentation,” and these days that often means one of their headline words is going to be “Trump” or “Biden,” usually in an effort to raise your blood pressure. So the caveat, especially with any teaser pitch that focuses on politics or politicians, is that if you find yourself quickly in agreement with the promoter, nodding your head and thinking to yourself, “that’s what I’ve been saying!”, watch out for your wallet.

I can see we’ve lost half the audience now, and I’ve squandered the few seconds I was granted… sorry about that. We’ll get back on track now…

So what’s Skousen pitching? The intro to his “presentation” interview with publisher Roger Michalski sums it up pretty well:

“The Biden Disaster Plan

“A Disastrous Energy Crisis… Runaway Inflation… Global Shortages…

“The Next Two Years Will Be Hard…

“But Three Investments are Set to 10X Through the Chaos.”

And there’s plenty of that “fear” marketing to get us revved up…

“… according to… Dr. Mark Skousen, the next two years are only going to get worse.

“In the coming months… he says we will see even more shortages. Prices will rise even faster. And global economic chaos will reign.

“There’s no getting past it.

“This is going to be a tough time for many Americans.

“The money you’ve worked and saved for over so many years is going to be eaten away by inflation.

“Many businesses will go under.

“And the stock market will get beat up of course.

“Certain stocks will completely collapse as a result… ruining unprepared investors.

“But Dr. Skousen says that other stocks will thrive precisely because of the Biden disaster that’s unfolding.

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“He says investors who recognize this situation… and put in place a ‘Biden Disaster Plan’… are going to do very well indeed.”

So what is it that Skousen thinks we should do? He breaks it out into a few categories… the first is energy-related, with oil prices spiking this year thanks to the Russian invasion of Ukraine, the push toward “green” energy, and, at least partly because of “green” initiatives, the oil industry’s pessimism about future prices and regulations. Here’s what the presentation goes into on that point:

“The American Energy Company with 10X Potential

“Roger: …isn’t Biden’s attack on energy bad for the U.S. energy industry?”

“Mark: It is bad for companies that are trying to develop new oil production… like the poor folks who were trying to bring the Keystone XL pipeline online.

“But for the energy businesses already operating existing wells and pipelines…

“The ones Biden can’t stop…

“The current situation is actually increasing profits at record rates.”

So which company is it that he calls “America’s #1 Energy Stock?” Some more clues:

“I have one company in particular that has the potential to 10X as the Biden disaster unfolds.

“Consider some of these facts…

“The company set 17 financial and operating records last year.

“Because of the rising prices in the oil and gas markets, the company saw record margins in three of its four business segments.

“Revenue increased 50% last year… A total jump of $13 billion.

“And the yield this company pays out is enormous… almost 10% per year.

“And they have increased their dividend every single year since the company IPO’d in 1998.”

OK, so that’s a REALLY big company. If a 50% jump in revenue meant growing by $13 billion, then we’re talking about a firm with annual revenue in the $40 billion neighborhood. If it also pays a dividend yield of “almost 10% per year,” then it’s very likely a midstream pipeline company — there are a few producing oil and gas companies who pay yields that are close to 10% these days, but they’re either very small or they’re foreign companies.

Which means we’re pretty much narrowed down to a couple of the leading North American pipeline/midstream companies, with the best candidates being Enbridge (ENB), Enterprise Products Parnters (EPD) and Plains All American Pipeline (PAA).

And we get a few more clues…

“The company operates pipelines, processing plants, storage operations, import/export terminals, and more all across America.

“They run over 50,000 miles of natural gas, crude oil, and other pipelines from oil rich regions in Texas and Louisiana to states as far reaching as Wyoming, Wisconsin, and New York.

“The company maintains 260 million barrels of refined oil storage. And 14 billion cubic feet of natural gas storage….

“And here’s the thing… the next few years are likely to be the best ever for the company.

“They made a new acquisition that gives them direct access to “one of the most economic and prolific drilling regions in the United States.”

“They now have the rights to 1,750 new miles of pipeline….”

OK, so the Thinkolator sez that’s definitely Enterprise Products Partners (EPD), which is one of the stronger and more diversified of the midstream companies in the US — they have one of the largest pipeline and storage networks, as well as some shipping terminals for exporting refined products, and they’ve grown their quarterly distributions to unitholders every year for more than two decades. They just bought Navitas Midstream back in January, which did indeed add 1,750 miles of pipeline and some other facilities, largely concentrated on the very busy Permian Basin area of West Texas. And, yes, they did grow their revenues by almost exactly 50% to hit $40.8 billion in 2021 (though that 50% number is based off of the very weak year in 2020, of course — their compound average revenue growth rate for the past five years is about 7%).

Right now, the distribution yield for EPD is quite a bit below 10% — today it’s at 7.4%. The dividend has grown for a long time, so it’s now 50% higher than it was a decade ago, but the growth in any given year hasn’t generally been dramatic. They have a pretty conservative reputation in the master limited partnership space, so they’re not the most aggressive or debt-burdened company out there, and their cash flow covers the distribution yield with a nice buffer (“distributable cash flow” was more than 150% of the dividend recently), so it’s probably still one of the more stable MLP options.

I personally don’t own any individual partnerships, I prefer the Alerian MLP ETF (AMLP) for a similar yield, some diversification, and the ability to avoid K-1 partnership forms at tax time, but if you want to own individual MLPs, this is a pretty steady one. They will collapse when oil prices collapse, like in 2020, but in the past they’ve always bounced back — almost all pipeline MLP share prices are pretty reactive to oil prices, even though their business is fee-based (they’re more like toll roads than oil companies), so they tend to be pretty good opportunities at times when oil prices have fallen.

If that kind of income is attractive to you, just note that partnerships are a little bit different than corporations — MLPs have unitholders, not shareholders, and pay out distributions, not dividends, to those unitholders, and the tax reporting is a little different (you get a K-1, not a 1099, and sometimes it comes late in tax reporting season). Sort of like a REIT, they are able to avoid corporate taxes as long as they pay out all (or almost all) of their income to unitholders, for whom it then becomes regular income and is taxed at the shareholder level.

Also like many REITs, they try to appeal to income-focused investors, and they pay out a lot more than they have to — their “distributable cash flow” is a lot higher than their “taxable earnings” would be, because pipelines and other capital-intensive assets have huge depreciation charges. Public pipeline partnerships generally don’t hold on to all of that “depreciation” cash and use it to refresh or replace their assets as they age, like a conservative private company might, they distribute most of that cash to shareholders and raise new capital when they want to add new assets. That means much of the distribution is often “return of capital” and is therefore not taxed as income — it just reduces the cost basis of the unitholder. People love getting what feels like “income” without having to pay income tax on it, so that’s part of the appeal of an MLP — they allow you to collect distributions but defer taxes on some of that payment for a lifetime (assuming you never sell the shares). That might eventually begin to change, a few of the big MLPs have converted to corporations in the past several years, mostly because lower corporate tax rates took away some of the relative advantage of the MLP structure, but EPD and most of the other very large MLPs don’t seem inclined to get rid of the partnership structure right now.

Skousen also indicates that EPD is a beneficiary of the current natural gas crisis in Europe…

“As Europe moves away from buying natural gas from Russia, they need a new source of energy.

“And it’s the United States that is filling the void.

“The U.S. has now become the largest exporter of liquid natural gas to the European continent.

“And this company specifically is gearing up to launch an offshore exporting terminal that would be the first in the United States to serve the largest supertankers.”

That’s sort of true — the offshore exporting terminal that Enterprise is trying to build would serve the largest tankers, but those are oil tankers and this would be an oil export terminal, not liquefied natural gas. Enterprise is also involved in LNG projects indirectly, with pipelines that move gas from producing areas to LNG companies for liquefaction and export, but they’re not the most direct play on liquefied natural gas export. That would probably be Cheniere Energy Partners (CQP), which owns the Sabine Pass LNG terminal and some associated pipelines… and the LNG business has tended to be very long-term and slow-moving, so changing dramatically to export a lot more LNG, or increase the contract prices, might take years.

Skousen has touted EPD in the past, as well, and he pitched it as having a “perfect dividend chart” and being a strong play on the fact that the controversial Keystone XL pipeline was doomed way back in 2014, and that was a fairly appealing pitch back, then, too, but there’s not much evidence that he is great at timing the best time to pitch this stock. Here’s what the chart of EPD looks like since he pitched the same investment back in November of 2014 — that’s the total return of EPD in purple, including those high dividends, and the total return of the S&P 500 in orange.

So… what else is part of the “Biden Disaster Plan?”

Stage two of the disaster is “runaway inflation” from the pandemic stimulus, here’s how Skousen puts it:

“Stage Two of the Biden Disaster.

“Runaway inflation is forcing the Fed to raise rates much faster than expected.

“And this is going to slam the brakes on business across the country and again hurt many stocks….

“The first thing I suggest is that people be very careful with real estate investments like REITs.

“Rising rates are going to hurt those businesses… especially if they are highly leveraged.

“I also suggest people watch out for companies that aren’t profitable.

“Companies that don’t turn a profit require cheap capital to continue growing.

“If it’s not available, the whole thing could come to a grinding halt.

“However, there is one investment that I believe is perfect for a rising interest rate environment. It’s one of my 10X opportunities I’m recommending to my followers now.”

And he runs through a somewhat odd circular argument here, saying that companies who are desperate for money will no longer get it from the Feds, so they’ll have to turn to others…

“For years now, main street businesses have depended on borrowing money from the government to survive.

“But now, the Fed has no choice but to turn off the spigot.

“The cheap money will no longer be flowing.

“So instead, businesses that want to raise money will have to turn somewhere else.

“They’ll need to turn to venture capital.

“And so the second investment I’m recommending is a venture capital investment that, even during low-interest rate environments, has been one of the best places investors could put their money.”

So which “venture” investment is this? More clues…

“This venture capital firm has grown remarkably consistently over the last three presidencies.

“Whether during the Obama years… under Trump… or now Biden… it’s gone virtually straight up.

“$10,000 invested at the beginning of Obama’s administration would be worth $124,600 today….

“Its dividend is almost five times bigger than the average S&P stock….

“This company has helped over 200 small American businesses grow.

“They invest in shooting ranges… power equipment manufacturers… drilling operations… agricultural firms… lumber yards… medical device companies… and much more.

“These are the types of businesses that our country depends on.”

Skousen calls this one, “America’s #1 Small Business Investment” … so what is it? Thinkolator sez this is again, a Business Development Company (BDC) that Mark Skousen has been promoting for about ten years: Main Street Capital (MAIN).

And in case you’re curious, this was indeed also part of Skousen’s ad back in 2014 that I mentioned above, when he was also teasing EPD… at the time he called MAIN “The Best Company Money Can Buy Right Now,” and it was, at least, average. Here’s that same chart from above, with the addition of MAIN’s total return (in blue):

Main Street Capital is one of the more successful BDCs we’ve covered over the past 15 years here at Stock Gumshoe — these are also income-focused investments, not unlike REITs or MLPs, and they similarly get a tax break for paying out their cash flow to shareholders through high dividends. Instead of owning property or pipelines, though, they’re really like miniature investment banks — they generally focus on midsize companies, those that are too small to attract Wall Street or issue bonds, but need growth capital. MAIN lends them money, and also generally gets a little equity exposure in addition to the loan, and makes money on that spread between what their capital costs them and what they can earn from their loans to (and investments in) small businesses.

Part of the challenge for BDCs like MAIN, during times of economic turmoil, is that they’re essentially small business banks, and small businesses are often more fragile than big companies. Like any lender, if their customers can’t pay back the loans… the lender is in trouble. MAIN does seem to me to be a relatively steady BDC, so they’ve probably handled their risk reasonably well and not gotten over-extended with customers who might falter during the next recession, but they also weren’t really very established during the last real recession so it’s hard to know how they’ll do in the next one. They had their IPO in late 2007, just before the market fell apart (MAIN dropped 30-40% when things bottomed out in early 2009, but a lot of the larger BDCs did much worse).

It’s also not entirely clear to me what the impact on MAIN’s margins might be of rising interest rates — they do have some access to low-cost leverage from the government, which offers low-cost fixed-rate capital in order to support small business, but we’ve also never really seen what the performance of a BDC looks like during a time of rising interest rates (they were technically created in 1980, as a way to boost growth by making more capital available to small businesses, but even 20 years later there were only four publicly traded BDCs, the industry has mostly been built in the past two decades). The good news on that front is that a fair chunk of their debt is locked in at a cost of 3% or so for at least a few years, so if rising rates mean they get to raise borrowing costs for their customers, it might be a tailwind… we just need to remember that if rates soar and the economy shrinks, some of their borrowers are very likely to get into trouble.

This one is often a favorite with income-focused investors, partly because they pay their dividend monthly instead of quarterly, and have consistently increased it for years (recently the dividend growth has been about 5%, and they often also pay a supplemental dividend). You can see their investor presentation here, it does a pretty good job of summing up their strategy as well as the recent performance.

Their next quarterly update will be on August 4, so the story could change a bit, but in the first quarter they did not seem at all worried about their portfolio companies, and their net asset value per share was reported as $25.89. Some of that is going to be based on the assessed value of equity in their partner companies, and it wouldn’t be surprising if those equity values fell during a tough economic period (when publicly-traded companies lose value, generally private company values move lower as well), so it might be a little tough to pay $42 for MAIN today, that’s a 50%+ premium to NAV for the shares… but, to be fair, MAIN has mostly traded at a pretty stiff premium to its NAV over the past decade.

And the third stock that Skousen is pitching is a play on the “shortages” crisis that has bedeviled the economy — he mentions far more severe problems like fertilizer and grains, where supply problems are acute and directly associated with the war in Ukraine, but we’ve also certainly all heard the phrase “supply chain” more in the past two years than in the previous two decades. Supplies of almost everything are clogged up, largely as a result of the pandemic shutdowns in what had become an increasingly interdependent world, but he focuses on semiconductors…

There is one company that I believe is going to 10X as a result of the global chip crisis.

“You have to start by thinking about how businesses react in these sort of situations.

“When nearly every major corporation worldwide MUST HAVE a single product – in this case computer chips – and those products are in short supply…

“They all go into hyper-competitive mode.

“The CEOs fight and claw with everything they’ve got to get the chips they need.

“And for the few companies that provide these chips… it’s about as great an opportunity as you can get….

“And I’ve found the single company in the best position to profit.”

So… who is it? No surprise, it’s a company that makes chips…

“It’s a semiconductor and transistor company that provides all things electronic.

“And I do mean everything.

“Transistors, switches and chips used in smartphone chargers, battery packs, notebooks, desktops, data centers, graphic cards, game boxes, mobile devices, flat-panel TVs and displays, AC adapters, power supplies, motor control, power tools, electric vehicles, solar inverters and industrial welding.”

They sell to almost everyone, sales are soaring, and it’s cheap… here are the rest of the clues:

“The company beat sales expectations for four consecutive quarters.

“Net income is up… get this… an astounding 660% over the last 12 months alone.

“It’s gone from $58 million in profits to $442 million!

“The stock still trades at an absurdly low valuation.

“It’s trading right now at just four times earnings!”

So what’s this company that Skousen calls “America’s #1 Chip Crisis Stock?” Thinkolator sez this is Alpha & Omega Semiconductor (AOSL), which did indeed have its trailing four quarters of net income jump from $58 million in June of 2021 to $442 million in December of last year… though that’s almost entirely because of $399 million in “special income” in that quarter, the underlying business isn’t growing nearly that fast.

In case you’re curious about the accounting detail, that “special income” was largely from a joint venture that they call Chongqing JV — it used to be a controlled part of AOSL, they owned 51% and consolidated the results, but back in December they sold a small chunk, it’s not down to 42%, to let the joint venture raise outside capital. The fact that they sold parts of the business let them value the whole thing at $800 million, and it’s now treated as an equity investment, which means they “created” $399 million in value in December when the deal went through — it looked like “special income” for a minute, but it was really just registering the existence of something that is now sitting on their balance sheet as a long-term investment.

This is a US-based company, and they do have a foundry in Oregon, but it’s not necessarily a real play on a US foundry renaissance — they also use third-party foundries and contractors, have developed this Chongqing JV, and also have their own facility in Shanghai. The Oregon foundry was called Jireh Semiconductor, and like many legacy US foundry operations was economically marginal and in danger of being shut down when they bought it about ten years ago, for $26 million, so they do have some “insourcing” credibility, and who knows, maybe they’ll acquire other facilities in the future, but I expect that facility probably still does a pretty small portion of their manufacturing.

It is a pretty cheap stock, though, like a lot of relatively small chip companies. They have steadily grown the business over the past decade or so, but it has not typically been very profitable — but their last year of operating income, even if we ignore the $399 million in “special” income, has finally shown the promise of some real growth that they never showed in the previous 12 years. I don’t know if it’s the start of something impressive, or just a little boost from rising chip prices and soaring demand over the past year, but that’s why the PE ratio is way down in the single digits. And yes, they have been “beating” the revenue (and earnings) estimates every quarter for a couple years now.

Right now, Alpha & Omega has a market cap of about $1 billion at $37 per share, so about a third of their value is tied up in their junior ownership of the Chongqing JV, and analysts expect them to earn $4.46 per share in adjusted earnings, so the “real” PE is about 8 — if you want Skousen’s PE of below 4, then you have to believe the fiction that their JV spinoff counts as “earnings” and use the GAAP earnings number of $16 for this year (they’re on a June fiscal year, so that December joint venture sale’s non-cash impact on income is still in 2022 earnings), but that’s certainly not going to persist… analysts think they’ll have adjusted earnings of $5 next year, and that the GAAP number will drop back down below $4.

Worth a shot? Maybe, but it’s not really at four times earnings. And it’s not necessarily all that “American,” if your focus is on homegrown foundries. Which means it’s probably going to continue competing with other analog semiconductor companies, large and small — I don’t have any insight into whether their products are better or more competitive than others, but they do sound optimistic, they see revenue growth averaging at least 10% into the future, and they have been growing recently (though analysts expect June earnings to drop, so we’ll see how investors feel about that when earnings come out on August 10 — the forecast is a 9% drop this quarter). Their May Investor Presentation is here, if you’d like a little rundown on the current plans and performance.

Which means I’ll have to send it back to you, dear friends — think Skousen has found a good little chip company in Alpha & Omega to play the recent shortages? Do you believe that his longtime recommendations of Main Street Capital or Enterprise Products Partners are particularly attractive right now? Or is he just singing his favorite old tunes and giving the album a new title? Let us know with a comment below.

Disclosure: Among the investments mentioned above, I own shares of the Alerian MLP ETF. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.