Not many authors can lay claim to writing a book that fetches nearly $3,000 for a new copy. #-ad_banner-#Then again, not many authors have $1.3 billion in the bank either.  Seth Klarman, founder of Boston-based Baupost Group, has more than a few professional and philanthropic accomplishments to be proud of. His book, “Margin of Safety: Risk-Averse Investing Strategies for the Thoughtful Investor,” is a classic in the world of investing literature and has become one of the most expensive and hard-to-find books of its kind. With about $26 billion in assets under management, Klarman generated positive returns last… Read More

Not many authors can lay claim to writing a book that fetches nearly $3,000 for a new copy. #-ad_banner-#Then again, not many authors have $1.3 billion in the bank either.  Seth Klarman, founder of Boston-based Baupost Group, has more than a few professional and philanthropic accomplishments to be proud of. His book, “Margin of Safety: Risk-Averse Investing Strategies for the Thoughtful Investor,” is a classic in the world of investing literature and has become one of the most expensive and hard-to-find books of its kind. With about $26 billion in assets under management, Klarman generated positive returns last year that earned him $350 million. An in-depth scan of his current portfolio, outlined in his first-quarter Form 13F filing, has revealed some energy-focused high-yielders that are worth a closer look from growth and income investors alike. Alon USA Partners (NYSE: ALDW ) Alon USA Partners (NYSE: ALDW) is the king of the hill in terms of dividend yield for Klarman’s portfolio, with a current annual yield of 14.6%. The downstream oil company markets its products in self-branded convenience stores primarily in southern U.S. states like Texas and Arizona. With a market cap just north of $1 billion, Alon is a smaller player among refiners. Its Texas-based refinery… Read More

Yesterday, I mentioned how bond investors are being ripped off. More importantly, I made the case that if you’re invested in long-term bond funds right now, you could be setting yourself up for double-digit losses in less than a year’s time. So if long-term bond funds are risky, and we are given a pittance in exchange for our hard-earned dollars in short-term bonds, where are income investors to turn? #-ad_banner-#An investment with a dividend yield over 3% would be nice for starters — beating the 2.6% yield that the 10-year Treasury currently offers, without locking up your money for the… Read More

Yesterday, I mentioned how bond investors are being ripped off. More importantly, I made the case that if you’re invested in long-term bond funds right now, you could be setting yourself up for double-digit losses in less than a year’s time. So if long-term bond funds are risky, and we are given a pittance in exchange for our hard-earned dollars in short-term bonds, where are income investors to turn? #-ad_banner-#An investment with a dividend yield over 3% would be nice for starters — beating the 2.6% yield that the 10-year Treasury currently offers, without locking up your money for the next 10 years. But why stop with a 3% yield? How about something that would give us an income raise every year, even through market corrections and recessions? How about an investment with a fair amount of safety, but something that’s beaten the S&P 500 index over the long haul — even doubling the market’s performance? Believe it or not, investments like this do exist. In fact, the good folks at Standard & Poor’s put this select group of stocks into a class of their own. They’re called the “Dividend Aristocrats.” You may have heard of Dividend Aristocrats before. Here’s… Read More

Five years after the start of the Great Recession, many investors are still afraid of the stock market. As of May 28, more than $2.59 trillion sat in “safe” money investments like cash, bonds and treasuries, according to a report by the Investment Company Institute. The problem with short-term securities is obvious. An investment in a 1-year Treasury bill that’s paying 0.1% would take roughly 720 years to double. Even if it were paying 2%, it would take more than three decades just to double your money. #-ad_banner-#Now, of course, doubling your money isn’t the goal with treasuries. The idea… Read More

Five years after the start of the Great Recession, many investors are still afraid of the stock market. As of May 28, more than $2.59 trillion sat in “safe” money investments like cash, bonds and treasuries, according to a report by the Investment Company Institute. The problem with short-term securities is obvious. An investment in a 1-year Treasury bill that’s paying 0.1% would take roughly 720 years to double. Even if it were paying 2%, it would take more than three decades just to double your money. #-ad_banner-#Now, of course, doubling your money isn’t the goal with treasuries. The idea most investors have in mind when they park their money in treasuries is to put it somewhere safe, at least until a better investment opportunity comes along. But many investors still want to get paid to wait, as they rightfully should. So, in an effort to earn higher yields, many turn to another supposedly “safe” investment… One that could quickly turn out to be a “portfolio killer.” That portfolio killer is long-term bond funds. You see, as investors search for higher yields with “safe” investments like treasuries and bonds, they often end up putting their money into mutual funds and… Read More

Best Buy (NYSE: BBY) has been one of the toughest retailers to own over the past few years — but investors who bought BBY when there was “blood in the streets” are still up over 100%. #-ad_banner-#The key issue for Best Buy is that it’s quickly losing market share to Amazon.com (Nasdaq: AMZN). This is not unlike the majority of brick-and-mortar retailers in the U.S.  For instance, consider office-supply giant Staples (Nasdaq: SPLS), which, like Best Buy, is down about 25% this year. Staples’ problems have been twofold: The rise of e-commerce competition and the lingering… Read More

Best Buy (NYSE: BBY) has been one of the toughest retailers to own over the past few years — but investors who bought BBY when there was “blood in the streets” are still up over 100%. #-ad_banner-#The key issue for Best Buy is that it’s quickly losing market share to Amazon.com (Nasdaq: AMZN). This is not unlike the majority of brick-and-mortar retailers in the U.S.  For instance, consider office-supply giant Staples (Nasdaq: SPLS), which, like Best Buy, is down about 25% this year. Staples’ problems have been twofold: The rise of e-commerce competition and the lingering economic downturn have both weighed on its sales.  Staples missed fiscal first-quarter earnings expectations by 14%, which drove its stock down further. But after being beaten up for the past couple of years, Staples could be a turnaround story trading in deep value territory.  Shares of Best Buy went on a tear last year after the company announced a number of initiatives to transform it into an omni-channel (retail and online) leader. Trouble is, Best Buy has yet to live up to its turnaround promise and has continued to lack a strong e-commerce presence. As a result, Best Buy’s stock… Read More

The build-out of energy pipelines and infrastructure continues to be one of the most underestimated plays in the market. Companies in the oil and gas transportation industry are spending billions of dollars every year to increase storage capacity and stretch pipelines across the country.  #-ad_banner-#Most of these companies are structured as tax-efficient master limited partnerships (MLPs), which are one of my favorite investment vehicles and account for nearly 15% of my personal portfolio.  However, the huge increase in capital expenditures over the past few years has limited distributions, even amid historic energy production and pipeline volume. But the… Read More

The build-out of energy pipelines and infrastructure continues to be one of the most underestimated plays in the market. Companies in the oil and gas transportation industry are spending billions of dollars every year to increase storage capacity and stretch pipelines across the country.  #-ad_banner-#Most of these companies are structured as tax-efficient master limited partnerships (MLPs), which are one of my favorite investment vehicles and account for nearly 15% of my personal portfolio.  However, the huge increase in capital expenditures over the past few years has limited distributions, even amid historic energy production and pipeline volume. But the build-out and spending won’t last forever.  Once the infrastructure is in place, it will last for decades with regular maintenance — and these companies could see their distributable cash flow jump. Many of these partnerships already pay yields above 5%, but one of my favorite pays a whopping 7%.  Not only does it pay a higher yield, but the market is currently mispricing shares — and insiders are increasing their own stake in the parent company.  Short-Term Disconnect, Long-Term Gains Kinder Morgan (NYSE: KMI) owns the general partner and incentive distribution rights of Kinder Morgan Energy Partners (NYSE: KMP)… Read More

The 30-year U.S. Treasury Bond is quite possibly the worst investment option out there right now… even your Uncle Dave’s coin and baseball card collection might offer better long-term returns. Let’s forget for a moment about the Fed’s tapering of Quantitative Easing, which has already placed upward pressure on interest rates (and thus downward pressure on bond prices). And let’s forget that the longer a bond’s duration, the greater its sensitivity to interest rate movements. So with every basis point uptick, nothing will feel the pain more acutely than the 30-year “long bond.” Let’s even forget that Uncle Sam’s credit… Read More

The 30-year U.S. Treasury Bond is quite possibly the worst investment option out there right now… even your Uncle Dave’s coin and baseball card collection might offer better long-term returns. Let’s forget for a moment about the Fed’s tapering of Quantitative Easing, which has already placed upward pressure on interest rates (and thus downward pressure on bond prices). And let’s forget that the longer a bond’s duration, the greater its sensitivity to interest rate movements. So with every basis point uptick, nothing will feel the pain more acutely than the 30-year “long bond.” Let’s even forget that Uncle Sam’s credit rating has already been downgraded by at least one ratings agency. #-ad_banner-#Even if interest rates don’t rise and Congress miraculously balances the budget — a best-case scenario — you’re still tying up your capital for the next three decades at a paltry rate of around 3.5%. But here’s the kicker: when your principal is finally repaid in the distant future, those dollars will have lost much of their purchasing power. Just ask anyone who bought one of these bonds back in 1983. Maybe they loaned the government $30,000, enough money to buy three average new cars at the time. Now,… Read More

Investing in specific markets or regions has always been about one thing: the trade-off for higher returns in emerging markets and lower risk in developed markets.  #-ad_banner-#Emerging markets like the BRIC nations — Brazil, Russia, India and China — have long promised high rates of economic growth and soaring stock values. Unfortunately, as any emerging-markets investor during the past couple of years can tell you, these markets are also likely to underperform spectacularly on fears of a debt bubble or geopolitical problems.  In contrast, developed markets like the United States and Europe offer relative peace of mind but… Read More

Investing in specific markets or regions has always been about one thing: the trade-off for higher returns in emerging markets and lower risk in developed markets.  #-ad_banner-#Emerging markets like the BRIC nations — Brazil, Russia, India and China — have long promised high rates of economic growth and soaring stock values. Unfortunately, as any emerging-markets investor during the past couple of years can tell you, these markets are also likely to underperform spectacularly on fears of a debt bubble or geopolitical problems.  In contrast, developed markets like the United States and Europe offer relative peace of mind but weaker returns over the long run. An investment in the iShares MSCI EAFE (NYSE: EFA), an exchange-traded fund invested in developed markets, over the past 10 years would have exposed you to just three-quarters the volatility of the iShares Emerging Markets Fund (NYSE: EEM) — but yielded a compound annualized return of just 7%.  However, there’s a way to combine the rapid growth of emerging markets and the safety of developed markets — and you can find it in one country.  This year marks the country’s 23rd consecutive year of economic growth. This country’s stable political backdrop and investor-friendly environment… Read More

As you might deduce from reading my work here at StreetAuthority, I’m a bit of a cheapskate.  #-ad_banner-#For example, I don’t buy new cars. I hate the idea of the instant, $5,000 depreciation you experience the minute you drive a new car off of the lot.  As a result, I’m more attuned to used-car valuations. Naturally, late-model brands with a history of dependability have higher, more stable resale values — but the same isn’t always true for stocks. Take tobacco giant Altria Group (NYSE: MO). Over the past five years, the company’s net income has grown… Read More

As you might deduce from reading my work here at StreetAuthority, I’m a bit of a cheapskate.  #-ad_banner-#For example, I don’t buy new cars. I hate the idea of the instant, $5,000 depreciation you experience the minute you drive a new car off of the lot.  As a result, I’m more attuned to used-car valuations. Naturally, late-model brands with a history of dependability have higher, more stable resale values — but the same isn’t always true for stocks. Take tobacco giant Altria Group (NYSE: MO). Over the past five years, the company’s net income has grown at an average annual rate of around 7%. Not setting the woods on fire, but very predictable and consistent. Shareholders have been well rewarded: Not including dividends, the stock has returned an average of 47% a year over the past five years. Investors are willing to pay up for that consistency.  Going back to my car example: I had a Subaru that I bought used. It was a great car. I could set my watch to it. But what amazed me is how little I paid for it — and how little I got for it… Read More

With almost no fanfare, high-yield bonds (also known as junk bonds) hit a major milestone this week.  #-ad_banner-#The average junk bond saw its after-market yield dip below 5%. That’s down from 5.67% at the start of the year, and just a tick above the all-time low of 4.96%, set in 2013. A deep look at why these yields are plunging suggests you’d be wise to book profits in such bonds right now, as the factors that are driving them may not last much longer. To be sure, virtually every type of bond is in rally mode. Spanish bonds, for example,… Read More

With almost no fanfare, high-yield bonds (also known as junk bonds) hit a major milestone this week.  #-ad_banner-#The average junk bond saw its after-market yield dip below 5%. That’s down from 5.67% at the start of the year, and just a tick above the all-time low of 4.96%, set in 2013. A deep look at why these yields are plunging suggests you’d be wise to book profits in such bonds right now, as the factors that are driving them may not last much longer. To be sure, virtually every type of bond is in rally mode. Spanish bonds, for example, which still carry a considerable amount of economic risk, have seen their yields fall from 7.5% two years ago to a recent 3.6%. Similar bond rallies are taking place all across the globe. David Woo, who follows the global bond market, suspects China may have a hand in all this. That country’s move to rein in the issuance of credit has led excess Chinese capital to rotate into U.S. government bonds. And that bond buying has led to liquidity pouring into many other types of bonds. Bonds typically rally when economic conditions weaken, but Woo notes that a range of… Read More

There are several ways to define value, but our favorites typically offer juicy income streams or a deep wellspring of net assets that are actually worth more than the share price. It’s nice to find stocks that offer high dividend yields or trade below book value, but one group of stocks checks both boxes. Value squared, if you will. I’m talking about the mREITs (mortgage real estate investment trusts), which buy mortgages at a discount to their face value. You already know the sector is cheap when you see these kinds of dividend yields. And the view sharpens once… Read More

There are several ways to define value, but our favorites typically offer juicy income streams or a deep wellspring of net assets that are actually worth more than the share price. It’s nice to find stocks that offer high dividend yields or trade below book value, but one group of stocks checks both boxes. Value squared, if you will. I’m talking about the mREITs (mortgage real estate investment trusts), which buy mortgages at a discount to their face value. You already know the sector is cheap when you see these kinds of dividend yields. And the view sharpens once you look at their balance sheets. Every one of these mREITs trades for less than tangible book value. #-ad_banner-#As a quick recap, these mREITs borrow low-rate, short-term debt and use the funds to buy bonds consisting of pools of mortgages guaranteed by government-sponsored giants Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC). They also use leverage to amplify their profits. The borrow-to-buy strategy worked like a charm in the years after the Great Recession, as mortgage bonds sold at very low prices on fears of a further housing slump. As the housing market has stabilized, the mortgage… Read More