J. Reeves, editor, The Palm Beach Daily: Disturbing headlines dominate the news today, Teeka… But you’re a master at filtering out news-cycle “noise.” What’s the No. 1 legitimate concern investors should be aware of today?
Teeka Tiwari, editor, The Palm Beach Letter: The No.1 concern is the damage central bankers are doing to currencies. Every country is trying to devalue its currency so it has an edge in exports. This is hurting the buying power of paper money.
Just look at what’s happening to the euro and pound. Over the last three years, the euro is down 26% and the pound is down 25%. You can blame this drop directly on historically low interest rates. (The pound was dropping like a stone long before the United Kingdom’s “Brexit” vote to leave the European Union.)
Consumers have lost real buying power. The way to protect yourself from a similar drop in the United States is to own chaos hedges like gold (which is up 26% this year) and high-quality stocks. (The S&P 500 is up almost 7% this year.)
J.R.: Today it feels like “everything” is expensive. Stocks, bonds, and real estate are all at (or near) all-time highs. Where do you see “green shoots” of value in the markets today?
Teeka: There is always value in the markets… you just have to know where to look.
For instance, back in the late 1990s, the stock market was grossly overvalued, BUT commodity stocks were insanely cheap. No one was interested. So the value was there, but no one wanted to hear about it.
The same is true now. We have pockets of extreme value in biotech stocks (but the market is finally waking up to it). We hold two top-tier biotech stocks in the PBL portfolio that are still screaming buys. One pays over a 2% dividend, has zero net debt, $32 billion in revenue, 50% profit margins, a 99.77% return on assets, and a price-to-earnings ratio (P/E) of just 7.
But guess what? Nobody wants to hear about it… and that’s our opportunity.
Another really cheap area is the rail sector. PBRG founder Tom Dyson and I found a gem of a rail stock that pays almost a 3% dividend, is having the best year of its existence, has hardly any debt, and is trading at just four times earnings. (Palm Beach Letter subscribers should watch out for this idea in an upcoming issue…)
The takeaway here is the deals are still out there, but you’ve got to put in some serious work to find them—like we do.
J.R.: Teeka, you told me one of your major goals with The Palm Beach Letter is to provide “income in an ‘incomeless’ world.” Where should investors look to earn safe, high yields today?
Teeka: We’re having tremendous success in closed-end funds (CEFs). They’re like mutual funds with one key difference… they only issue shares once (unlike mutual funds, which issue new shares as investors come into the funds).
We’ve been focusing on income funds that are trading at discounts to their net asset value (NAV) and have high insider ownership. This strategy is really paying off. It lets us acquire the assets inside the fund at discounts of 90 cents on the dollar—or more. Over the last few months, we bought two closed-end income funds that were yielding 10% and 11%.
Since then, both CEFs have appreciated quite nicely. One is up 4.4% and the other is up more than 5%. Assuming those gains stay intact, our readers will make absolute returns of 14.4% and 16%, respectively. But, of course, we’re holding them for the high income they provide…
I’d say that’s a great start to delivering on our promise of finding income in an incomeless world.
J.R.: Let’s talk technology… New, disruptive technologies are emerging so fast today. For example, ride-sharing titan Uber is demolishing the global taxicab industry. What are your favorite potential sectors/companies to short today?
Teeka: I think automated driving could pose a long-term threat to the profit margins of automakers. People spend a lot of money for leather seats, prestigious brands, and fast cars. As cars start becoming autonomous, people won’t need to own a car. You will have ubiquitous, autonomous taxi services that you can order through your phone.
Owning your own car will seem like an old-fashioned concept to future generations.
Rather than shorting, I prefer buying into companies that will help shape this new future. To make sure we’re safe, I focus on companies that have a strong core business, so we are not relying on just one outcome.
This is a form of “asymmetric betting” (i.e., risking $1 in losses for $5, $10, $20, or more in gains). That’s because if the new business never materializes, we don’t lose anything. The core business is already strong and profitable.
An example of this is PBL holding NVIDIA Corp. (NVDA).
NVIDIA has a great core business and a rational balance sheet. With or without automated driving, it’s a stock I wanted to own for our subscribers. The asymmetric side of the story was the “robot brains” it builds. These are the chips that do the “thinking” that makes automated driving a reality.
As it happens, the demand for these “robot brains” has been huge.
The stock is up 87% since the beginning of the year… And it’s just getting started.
J.R.: Okay, put your speculator hat on now: Where do you see the best places to make “asymmetric bets”—where you risk $1 to make $5, $10, $100—today?
Teeka: There’s no doubt: Gold-mining shares and cryptocurrencies. Absolute fortunes will be made in these two asset classes.
Gold-mining shares are a place where you can turn $1,000 into $20,000 or more. But I think the asymmetric gains in cryptocurrencies will be even bigger…
I’m in the process of interviewing several cryptocurrency multimillionaires. One of them was an early adopter of bitcoin. He bought in at 2 cents per bitcoin. Today, bitcoin is at $573 per coin. So, every $1,000 invested at 2 cents is now worth $28.65 million.
My team and I are currently investigating a new cryptocurrency that’s trading at about 4 cents. It has a lot in common with bitcoin, but also has some major improvements.
A lot of the bitcoin millionaires are quietly buying up this cryptocurrency. I’m really excited about bringing this idea to my Palm Beach Confidential subscribers.
J.R.: Incredible info and insight, Teeka. Thanks for sharing.