Most of the time, I simply blog about the investments I’ve made after the fact. Usually I report the new investment purchases (or sales) as part of my regular monthly updates. In the past, I haven’t shared my “investing ideas” currently under consideration.
This is about to change.
When I see bloggers posting about their favorite investing ideas, I generally enjoy those posts — so I figured “Why Not? If I enjoy those investing posts, other people might as well!” This is the concept behind today’s post, and the reason why I’m giving it a shot.
Please consider this post an experiment — if you like the concept, please let me know in the comments. If you hate it, please let me know in the comments as well. If I get enough positive interest, I’ll keep doing more of these posts in the future.
So, without further adieu — here are my favorite investing ideas for February 2018!
LyondellBasell (Symbol: LYB) is a global manufacturer of plastics, chemicals, and fuels. They’re headquartered in London, but have operations all over the globe. They produce a huge variety of chemicals and polymers that get used in daily life. The chemicals business is a “slow growth” industry but has historically grown slightly faster than GDP. This consistent growth looks set to continue over the next 5 years.
The stock has recently fallen from it’s 52-week high to currently around $110/share. The shares are starting to look attractive again. At the current price, the stock trades at a PE of 8.97 and has a dividend yield of 3.36%. Earnings are a little inflated because of recent tax-reform changes.
Technically the company is headquartered overseas, but the dividends are fully qualified for lower dividend tax rates.
I first purchased share in LYB over a year ago, and it’s been a good ride. I’ve been consistently impressed by how well the company is managed. It’s not a rocket ship investment, but earns good returns on capital. The company has opportunities to grow, and rewards shareholders adequately. If share prices fall further, I’m interested in picking up more shares.
Wells Fargo Advantage Multi-Sector Income Fund
The Wells Fargo Multi-Sector Income Fund (Symbol: ERC) is a closed-end “income fund” that pays monthly dividends. Currently the fund sports a 9.9% dividend yield. The fund generates this impressive yield using 27% leverage to invest in corporate bonds, foreign government bonds, bank loan securities, and foreign bonds.
Leveraged investing isn’t something I would normally consider doing myself, but in this case the fund is very well diversified. Borrowing at 2% and then lending it 8% makes a certain amount of sense if the leverage is reasonable, and the investments are diversified. Similar to a bank.
The fund currently trades at a 7.76% discount to NAV. Probably this is because the fund distributes slightly more cash than it earns, causing NAV to slowly sink. Real returns are probably closer to 6% if I account for the return of capital over time. The expense ratio is 1.22% plus a 0.55% interest expense, for a total expense ratio of 1.77%.
While the expense ratio is pretty high, I’m looking to replace some lost income from recent preferred share redemptions. High yields are hard to find right now. Perhaps a leveraged income fund like this one could be a way to do it.
Bank Of Nova Scotia
Speaking of banks, the Bank Of Nova Scotia (Symbol: BNS) is one idea brought to my attention by fellow blogger Tawcan. This bank sounds like just a little Canadian bank, but roughly 50% of its earnings actually come from Central and South America. It also has a small banking presence in Asia. Surprise, it’s a global banking operation!
Slow and steady growth in the Central/South American region is set to continue. As far as the Canadian operations go, I can’t say I’m very optimistic about the Canadian real estate market. Recent legislation changes have slowed the property market in Canada, but that’s probably a good thing. Real estate prices have been inflated in major cities for some time.
This bank is so well diversified I believe it could survive a Canadian real estate market crash. Earnings per share growth is slow but consistent, at 4-5% annually. The stock trades at a PE of 11.76.
Currently the stock yields 4.22%, and dividends would not be qualified for holders in the United States. This one would be best to hold in a tax advantaged account.
Like any foreign currency investment, there is a certain amount of currency risk here. If the Canadian dollar falls, this would affect earnings negatively when converted into USD. Conversely, if the Canadian dollar rises it can have the opposite effect.
This doesn’t sound like a huge deal over the long term, but it can have a rather large effect on shareholder returns held in USD accounts. I personally experienced this with my former investment in Telus (a Canadian mobile phone company). The currency swings were enough to make that investment something of a failure.
Southwest Airlines (Symbol: LUV) is another stock I currently own, but may pick up more shares on current weakness. Southwest is one of the big 3 U.S. airlines, and is arguably the best run of those 3 airlines. They’re know for low prices, and a friendly corporate culture.
Recently Southwest has begun expanding to international destinations and new states like Hawaii. Air travel is basically a mature industry, so growth is expected to be very slow (in the 3-4% range). Couple that with considerable share buybacks, and EPS is could grow at roughly 5-6% annually.
The stock has a PE of 9.84 and a dividend yield of 0.99%. It’s not a big dividend payer, but has significant room for dividend growth. The stock has a payout ratio of <10%.
In late 2017, Southwest’s share price rose like crazy on the assumed benefits of U.S. tax reform. At the time, I questioned the logic behind such price increases. It appears the market has now come to its senses. Prices have declined back to the $55-$57 range, which is fairly attractive.
If the U.S finally heads into that long awaited recession, air travel would typically decline and depress Southwest’s share price. That might be a good opportunity to pick up more shares.
AeroCap Holdings (Symbol: AER) is an aircraft leasing company headquartered in Ireland. Their assets consist of aircraft like Boeing 737’s and Airbus aircraft which they then lease to airlines around the world. Many airlines choose to lease their aircraft instead of purchasing them directly. Believe it or not, this is a huge global industry with GE and AeroCap being the two most dominant players.
Like most investments on this list, AeroCap isn’t a fast grower. Revenues have been roughly flat over the past 3 years.
I consider this investment to be more of a defensive play. The stock is very cheap, currently trading at a PE of 7.61 and a price to book value of 0.94. AeroCap does not currently pay a dividend.
Shareholders are rewarded by the company mainly with share buybacks. These are accretive to earnings when share prices happen to be below book value. As long as this happy mathematical opportunity continues, I would expect share prices to continue to rise.
I’m undecided about this investment idea. While the share price is expected to rise in the short term, longer term success in aircraft leasing industry means AeroCap must to maintain or grow their market share. It’s a competitive industry, and I see no evidence that suggests this is happening.
While I do currently own shares in a couple of these companies, I’m not endorsing or advising anyone purchase these investments. These are merely investing ideas that I’m considering.
Please consider this post as “entertainment only”, and not a recommendation to purchase. Do your own investing research, or (if you have one) consult with your financial advisor.
I hope you enjoyed this look into some of my current investing ideas. I do realize that not all of my readers are going to be interested in this kind of post, and that’s totally OK. Just let me know in the comments.
That’s the beauty of investing of course — there is no right or wrong way to go about it. We can all take different approaches and still find success.
What other investments are you considering in 2018?