In Thursday’s Afternoon Edition, I told you all about my friend Porter Stansberry and the new strategy he’s been researching that shows investors how to make money in distressed corporate bonds.
Today, Porter agreed to let me share with you some of the details of his recent research, which shows the big opportunity for investors in energy companies.
Before I do that, if you haven’t yet read Thursday’s issue, do so now. It will give you a great understanding of why corporate bonds are such good investment vehicles.
You’ll also learn why the binary nature of bonds makes them much safer than stocks. And, you’ll find out why Porter’s research is so spot-on, and how his team of experts in the distressed debt field are able to identify such great opportunities for investors.
One of the biggest opportunities Porter and his colleagues have come across in a long time are corporate bonds in the energy sector.
One of Porter’s recent corporate bond picks is a company called Natural Resource Partners (NRP).
NRP is coal company. As you know, coal has been one of the most-hated assets on earth — which gave the Stansberry team a chance to buy these bonds really cheap.
As Porter told me:
Most people don’t know this, but more than 30% of U.S. electricity still runs on coal. And in the coal industry, NRP is our favorite play. Management has been wisely diversifying away from coal, but it’s still the biggest driver of company profits.
What his research team also likes about NRP is that it owns coal fields in all the major U.S. fields that were amassed at "blood in the streets" prices over the past 40 years. And, they only bought when coal was hated.
But here’s the best part — NRP doesn’t operate any mines.
The company simply leases the land and some equipment to mining companies who assume all the environmental, operational and labor risks … AND pick up the tab for property taxes to boot!
According to NRP Chairman Corby Robertson, his main job is to go to the mailbox to pick up checks.
Here’s an actual quote from Robertson:
This is a very good situation for NRP, and it’s an even better situation for bondholders in this energy-sector winner.
Porter also told me that what’s typical in this sector is for a miner is to make 10% gross margins. (More recently, margins have been negative.) However, NRP’s business model racks up margins in the 70%+ range.
This is what makes owning bonds of companies like NRP so attractive.
So, just how attractive are we talking here?
Well, Porter recently recommended buying an NRP bond that matures in 2018, at a price of $675. (Remember, as long as the company remains in business, each of these bonds will be paid off at $1,000 at maturity.)
Also, at the time of his recommendation, Porter’s subscribers were set to receive two interest payments a year, totaling 13.5% per year.
As of this writing, Porter let me know that the price of the NRP bonds had already soared by 23% since his original recommendation.
Moreover, he expects to easily make 100% by the time the bond matures in 2018, counting interest and capital gains.
A 100% gain is really good, especially when it comes without the risks associated with owning the underlying equity.
Want another example?
OK, how about a company called Forum Energy (FET)?
Forum supplies oilfield equipment. And even as oil explorers and producers cut back, Porter’s team recommended Forum because it has maintained exceptionally strong cash flow.
It still generates $100 million in free cash flow per year … plenty to pay the interest on the 5-year bonds that the company had issued.
According to Porter:
The Forum Energy bonds we recommended have returned 33% in roughly five months … plus they provide investors two interest payments each year totaling 8.6% … and they are scheduled to maintain these payments over the next five years, through 2021.
Not bad, especially when you realize you got these gains without any of the risks of the stock market.
"Not bad" is a definite understatement here. And that’s why I am so happy that I got to share some of the research Porter gave me on this new corporate bond investment strategy.
If you are now as intrigued as I am about the opportunity to make big money in corporate bonds, and via a near-unbeatable combination of returns and safety, then I want you to take a look at Porter’s research for yourself.
Simply click here for all the details on the opportunities Porter and his team of experts are finding in distressed corporate debt.
If you’d like to weigh in on any of the issue we cover in the Afternoon Edition, please don’t hesitate to do so. Let me know what you think by leaving me a comment on our website or by sending me an e-mail.
Janet Yellen gave the markets a heads-up from Jackson Hole, Wyo., that things are getting better economically. More importantly, she noted that "gradual increases in the Federal Funds rate will be appropriate" and that the case for an increase "has strengthened in recent months."
To drive the point home, Fed Vice Chairman Stanley Fischer said Yellen’s remarks were "consistent" with a potential rate hike in September and perhaps even one more hike before year-end.
Stocks turned negative after the news, and the Dow dipped some 100 points by 2:30 p.m. Eastern. However, the Industrials halved their losses by day’s end, closing just 0.3% lower.
Elsewhere in the news …
• Another 8% dividend hike from Altria (MO). The company raised its dividend 8.7% last year. With today’s announcement, this works out to a quarterly payment of 61 cents per share, which will be paid on Oct. 11 to shareholders of record as of Sept. 15.
• Sears (SHLD) is looking to sell its Kenmore appliance, DieHard auto parts and Craftsman tool brands, after reporting a dismal Q2 that saw it revenue shrink 8.8%. The company also plans to borrow some $300 million from Eddie Lampert’s hedge fund, which is the second-largest shareholder in the company.
• The U.S. Food and Drug Administration recommended that all blood donations be screened for the Zika virus.
• The Nasdaq spent the day in the green, recovering slightly after biotechs got hammered this week on heated drug-pricing discussions. Eagle Bulk Shipping (EGLE) led the way with a 30% surge on no apparent news.
• TerraForm Power (TERP), a beloved name in Nilus Mattive’s Superstar Trader service, jumped 6%, on rumors of a Chinese clean energy firm possibly buying SunEdison’s (SUNE) stake in the company. Nilus’ subscribers were just able to bank a nice instant cash payment on this stock. See how they are doing it.
Good Luck and Happy Investing,
Uncommon Wisdom Daily