What’s Oxford Income’s “Collect a 145% Return From ‘Infinite Energy’” Tease About?

My favorite kind of ads are the ones that throw in some archeology and a secret historical treasure… I guess I’m just a dime-store novel kind of guy at heart.

And this week we’ve got just that from Marc Lichtenfeld, who’s peddling his Oxford Income Letter ($49, renews at $79/yr) with headlines about a secret Mayan energy source. Irresistible, right?

Here’s a little taste of the intro, just to get your blood moving:

“INFINITE ENERGY

“Material found at Mayan dig site ‘could be a veritable GOLD mine.'”

And we get a photo of an aerial scan of an ancient Mayan site…

“It maps out the area far south of the ancient city of Teotihuacan… deep in a remote Central American rainforest.

“To reach it, you’ll have to slash through brush for three days… crossing steep mountain passes as howler monkeys zigzag in the dense canopy overhead­­ and venomous snakes slither underfoot.

“But buried beneath the ruins of the ancient Mayan temple at 17.2° N, 89.8° W, lies an even more extraordinary discovery lost for more than 16 centuries.”

Better than a Dan Brown thriller, right? What could this mysterious secret be? More from Lichtenfeld…

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“Geologists discovered that the Mayas used an energy source that can power millions of homes… today.

“I’m talking about a virtually limitless supply of energy that I like to call ‘Infinite Energy.'”

OMIGOD this sounds AWESOME! And from the order form…

“In my briefing ‘Collect a 145% Return From ‘Infinite Energy” I reveal the company that is essentially doing what the Mayas did 16 centuries ago…

“In fact, it’s taken the Mayas’ idea for fuel and turned it into the “Infinite Energy” Solution.

“It’s more plentiful than fossil fuels…

“More reliable than wind and solar…

“Safer than nuclear…

“And a heck of a lot cheaper to obtain than all of them… in fact, it’s cheaper than free!

“This company actually gets paid billions to take it…

“Eliminating the waste we don’t want… and producing the energy we need.”

Oh, for crying out loud.

Sorry, this is just another “waste to energy” pitch. So that means either burning trash to generate electricity, or using methane from landfills as a fuel. Which is a viable business and a meaningful part of the waste management industry, but calling it an Ancient Mayan Secret is going a bit far. If you want to have the full experience of getting sucked into that, you can see the original ad here.

To be fair, after we get been sucked in by the first half of the thrilling story, Lichtenfeld does actually spill the beans and let us know that he’s talking about energy from burning trash…

“It turns out that 1,600 years ago, the Mayas had already solved two of our BIGGEST modern-day problems in one fell swoop…

“Energy production and waste disposal.

“Essentially, when the Mayas were done with an object – be it a tool, piece of clothing or even a structure – they would burn it.

“The Mayas harnessed the energy this produced to cook their dinners and help power religious ceremonies.

“In other words, they found a way to utilize their waste and turn it into useful energy… which is truly the holy grail of energy production.”

But at this point, well, they’ve turned the attention-getting “Mayan secrets” story into a pretty compelling “big income from dividends” story, so we’ll continue through and review the details to figure out what he’s talking about.

We get the usual litany of “huge payouts” with little stock photos of happy people attached:

“On January 3, 2020, Veronica A. banked $9,504…

“Tyler S. got more.

“He collected more than $27,000.

“Shawn J. just banked a staggering $103,562…

“all of these are examples of the kind of money that can be made…

“On just a SINGLE dividend payout!

“This isn’t taking into account capital gains or the other THREE dividend payouts investors will receive this year.”

And the lawyers must have made him put this in, I haven’t noticed this important disclaimer in similarly-worded ads from the Agora copywriters in the past:

“As company insiders with exclusive insights into the company’s fundamentals and upcoming endeavors, Veronica, Tyler and Shawn invested an above-average amount of money in the company.”

I bet they didn’t ‘invest” an above-average amount, by the way, I would wager that most of the insiders he cites like this (and there are a dozen or so, I just pulled a few examples) are granted shares as part of their compensation… and do more selling than buying. That’s true of almost every public company, so it doesn’t mean they’re evil, but don’t jump in assuming that there’s an “insider buying” signal here.

There are plenty of other clues we can feed to the Thinkolator, too:

“… this company has taken ‘Infinite Energy,’ applied modern science to it and patented it… a total of 14 times…..

“Morgan Stanley alone is investing $15.9 million in it.

“BlackRock put up a massive $123.7 million.

“Chai Trust Company owns nearly a quarter of a billion dollars’ worth of stock. It believes so strongly in it that this company makes up 19% of its entire portfolio….

“But there may not be much time to get in while this company is cheap. It’s currently trading for less than $20.”

The ad is dated “March 2020,” though we haven’t seen it before (and given our choked email boxes, it feels like we see almost everything), and it pitches this as a $20 stock… but the emails I’m getting this week call it an $8 stock, so maybe they just didn’t do a perfect job of updating the spiel. This is what the “Buy Energy NOW” pitch from Lichtenfeld read in the email I received this morning:

“Right now, one company is trading around $8 per share – and has one of the best stories I’ve ever come across.

“Its patented technology is inspired by artifacts found 16 feet beneath a 1,600-year-old Mayan temple.

“This technology could be used to power the utilities, appliances and smart gadgets you use every day.

“The best part is… you could claim a return as high as 145% on the little-known company championing this strange technology.”

So who is it? There’s a ton more hype in the spiel, but I’ll throw in just one more clue that might get you over the edge to yelling out the answer yourself…

“Investor Sam Z. owns shares of it.

“He started one of the largest real estate companies in the world, but realized that the current energy situation couldn’t keep up…

“But once he discovered the company I am recommending today, he knew it was the solution.

“He’s invested about $600 million in the company”

So yes, the Thinkolator sez that this is definitely Covanta Holding (CVA), the largest “pure play” waste-to-energy company in the world… which last saw $20 a share about five years ago, but was still over $15 earlier this year… and is indeed now down at about $8 a share.

That “Sam Z.” is Sam Zell, who remains the Chair of Covanta in addition to sitting atop his gigantic real estate empire — and he has been in that position for a long time, he has been on the Board for more than 20 years (since before they changed the name, it was previously Ogden Corporation). Zell helped to reorganize and restructure the company, and briefly served as CEO when Covanta finally came out of bankruptcy in 2004 (when it was acquired by Zell’s shell company, called Danielson). It’s a very convoluted story, so forgive me if I mixed up the order of that — but yes, he invested heavily in Covanta and remains its largest shareholder. The estimates a dozen years or so ago were that Zell had put about $600 million into Covanta, though he also sold some decent chunks at times and the current ~10% holding would be worth substantially less than that. He has continued to be granted shares each year as part of his compensation as chair, but neither he nor his trust have made big changes to the Covanta holding in recent years.

That’s also the “Chai Trust” connection, by the way — Chai Trust does come up as the largest shareholder in Covanta, with 9.85% of the outstanding shares, but that’s really just Sam Zell’s family office.

And yes, those are real people that Lichtenfeld cites as getting those big dividend payments — though as copywriters like to do, they changed the names. “Tyler S.” is actually Timothy Simpson, Covanta’s General Counsel, and as of January he reportedly owned 111,727 shares… which with the 25 cent/share quarterly dividend would have gotten him a check for $27,931.75 on the January dividend payment date.

In case you’re curious, the other numbers match well — though they also indicate that although it’s being circulated heavily now and touted with the current $8 share price, the heart of this ad was put together probably in February, when the price was in the teens. Shawn J. is actually Stephen Jones, President and CEO, and his 324,249 shares as of January, along with 90,000 held in his wife’s trust, would have brought him a dividend payment of exactly $103,562 in January (he would have gotten more with the April dividend, in case you’re wondering he got another stock award in March so his holdings are up near 600,000 shares now). “Veronica A.” is actually Virginia Angilello, Covanta’s Chief Human Resources Officer… you get the idea.

So what’s the story of Covanta? In recent years, it’s been mostly a fairly steady but very slow revenue growth story, with highly uneven earnings and, as is common with utility-like companies, quite a bit of debt. Investors over the past five years or so have mostly been attracted by the dividend, which has been steady at $1 per year and gave shareholders roughly a 6% yield… but with the collapse in the shares this year, that yield suddenly got dramatically fatter, so if you buy CVA today, just going from the info you might find in Yahoo Finance or on your broker’s info screen, you’re probably expecting a 12% yield, which is pretty interesting.

But wait! That’s only if you don’t read the press releases. Covanta did pay their regular quarterly dividend of 25 cents in March, but then in mid-April they announced that they were “Adjusting Dividend Payout to Balance Capital Allocation Objectives” … with the heart of the matter being that they’re taking “proactive cost initiatives” thanks to the COVID-19 impact on their business, and, more importantly, the detail being that they are “Revising dividend payment to $0.32 per share annualized, retaining $90 million annually.”

Sam Zell included a quote in that press release, too:

“Covanta is a resilient company with critical infrastructure assets that provide essential services under long-term contracts. The Board believes that the Company’s operating and growth strategies, along with a robust ongoing return of capital, represent the best path for maximizing long-term value for our shareholders. In assessing capital policy, we believe that a more balanced allocation of internally-generated capital among near-term shareholder returns, growth investments, and accelerated balance sheet improvement is more appropriate, both in the current uncertain environment and over the long-term. The Board will continue to review this policy to ensure the business is optimally capitalized and has sufficient capital to grow, while maintaining meaningful distributions to shareholders.”

So they didn’t use words like “slash” or even “cut,” but that’s the gist — the dividend drops by 68%, so if you buy now at $8 a share you’re not getting that juicy 12% yield… you’re getting a far more pedestrian 4% yield, the lowest dividend yield CVA has traded at since 2015. It is, to be fair, much more sustainable than that $1 per share dividend, which ate up a lot of CVA’s cash flow, and it will make things a little more flexible for them, but I imagine it will continue to cut into the appeal for investors who were holding on for that high dividend payout but have to have been disappointed with the total return CVA has provided over the past five years, especially when compared to their closest peers in the garbage business. Here’s what CVA’s shareholder return has looked like (that’s them in blue at the bottom), compared to the peers I could think of (big guys Republic Services (RSG, red) and Waste Management (WM, orange), and smaller Casella Waste Systems (CWST, green):

CVA Total Return Price Chart

There’s a really interesting summary of Covanta’s growth struggles here from Morningstar — it’s fairly old now, from 2018, but provides a good overview of what the challenges have been… though they were also positive about the company and saw some potential for growth to pick up, largely through international expansion. (For what it’s worth, Morningstar recently dropped their “fair value” price for CVA to $12, it had been near the market price in the teens for a few years.)

We’ve had Covanta flash past the windows here at Stock Gumshoe a few times, even way back in 2007 when we were young (Porter Stansberry was teasing the stock that time around, back before the merger with Veolia that expanded the company’s scope in 2009).

I’m not sure what to think of them today, it is absolutely a beaten-down and contrarian play, both because it produces energy in competition with (now cheap) natural gas and because waste volumes are shrinking as less business is being done… and the business is probably more stable than they’re being given credit for with the latest beat-down… but it’s been a long and disappointing ride for a stock that has provided returns that are dramatically worse than its near-peers, and you’d have to dig deeper than I have to find strong reasons why the stock might “bounce back” after this.

By the gist of Lichtenfeld’s ad with that “under $20” share price comment, it seems likely that he recommended it to subscribers earlier this year and presumably finds it even more appealing now after the share price has been cut in half (and the dividend cut by 2/3), so he had the copywriters turn that recommendation into a teaser pitch… but this is the first I’m hearing of the stock from him, so that’s just a guess.

I won’t be buying or selling Covanta today, but that doesn’t mean you can’t — it is, after all, your money. Have any thoughts on this trash burning firm? Think it’s appealing now after the drop, or still too weak to consider? Let us know with a comment below.


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Miranda Girl

You are right. It is Covanta (NYSE: CVA)