WASHINGTON, November 16, 2016 – We’re back after a short, “clear-out-the-cobwebs” hiatus with a new column today, mainly to catch our readers up with where the Prudent Portfolio stands currently and where it’s likely to go.
Given the current chaos in the oil patch, we cut our small position in U.S. oil refiner Marathon Petroleum (MPC) for a miniscule profit, given that the winter quarter is looking somewhat less rosy for refiners.
On the other hand, at least for now, we’re continuing to hold a large position in slow-moving Tortoise Power and Energy Infrastructure (symbol: TPZ), a publicly traded closed-end fund (CEF) investing in a basket of mostly high-yielding master limited partnerships in the energy sector.
Although it’s highly rated by Morningstar, the shares are trading at a deep discount of nearly 11 percent—typical of CEFs in general—making TPZ shares a bargain on the face of it. Shares haven’t been doing so well lately, again due to the recent yo-yo action in the oil patch. On the other hand, shares are currently yielding around 7.5 percent. Better yet, this is a monthly dividend payer, something of a rarity in the current U.S. stock firmament.
For these reasons, we’re holding on to this one at the moment, even though our position is off about 3.25 percent at the moment.
Another energy stock we’re holding—much to our own surprise—is Extraction Oil and Gas (XOG). We picked up these IPO shares slightly over a month ago, watched them soar from the offering price of $19 per share to over $23 per share in minutes. But, unlike wealthy IPO flippers, our brokerage more or less coerces us little guys to hold IPO shares for 31 days; and, during the following 31 days, the shares slowly sank, as if the wind was going out of a balloon due to a slow leak.
We still had a slight profit in these shares on November 14 when our 31 days had more than expired. But, as we got ready to sell, someone lit these shares on fire again, so we’ve been holding, wondering where they’d go next. They hit a post-holding period peak yesterday, though they’re dropping back a bit today, so it’s hard to answer this question. But, currently at $21.62, off slightly on the day, XOG shares are still trading nearly 14 percent above the IPO price—still a decent profit in a very unpredictable market.
Do we sell today, or do we wait to see if we get another bounce tomorrow? Brokerages that helped underwrite the issue, or at least some of them, are now touting the stock, claiming it could climb to $30 plus in 2017. We trust nobody, however, so will just watch and wait a bit longer and, should XOG take another sudden turn south, we’ll exit ASAP. The stock really has no public track record at this point and, while the company seems to be in good shape, things can change, as they did in today’s wild trade in crude oil. We’ll keep you posted on this one. UPDATE: We sold XOG.
We picked up shares of Bank of America (BAC) last week, having missed the lower price we could have bought them for pre-election. But Trump’s victory has breathed deregulatory superpower juice back into the banking sector for the first time in years, a bit like Green Lantern freshly charging up his power ring. Bank stocks, including BAC, are down a bit today after their recent tear. But our BAC holdings are still up a good 5 percent as we write this, so we may end up purchasing more.
Also on our banking list for possible purchase are several regional banks with good-to-great prospects including Zion (ZION), Keycorp (KEY) and Regions Financial (RF). We’ll pick up at least one of these on any further weakness in the sector.
We may also pick up more shares of apartment rental REIT (real estate investment trust) Independence Realty (IRT). We’ve been in these shares once or twice before and have made pretty good money in terms of capital gains, not to mention the company’s currently competitive annual dividend of 0.72 center per share, payable monthly—a big plus in our book.
IRT shares had climbed well above $10 per share until late September. That is, until they decided to issue a batch of new shares, smashing the shares down below $8 in late October-early November. We waited for the shares to firm a bit and then started to climb in, and we’re looking to acquire a bit more of this one on further weakness.
The huge price drop after IRT’s surprise increase in share count was more than outsized, presenting a decent bargain in a high-yielding stock we’d thought had gotten away. Anyone who invests in REITs knows that at any given time, with scarcely a moment’s warning, a given REIT will come out with a big dump of new shares. Even so, the stock gets hit at least for a few days or weeks. Problem is that while dumping a lot of new shares on the market clearly decreases the value of existing shares, all that money is used to finance additional real estate investments, which, in turn, should result in even more income and more opportunity for capital appreciation.
That’s why selling shares of an otherwise decently performing REIT simply for creating more shares for investment purposes can be a very counterproductive mood. On the other hand, if you see this happening in a REIT you’ve been following—like IRT in this case—you wait for a few days to a couple weeks after the stock is hammered, and scoop some shares up at a bargain price.
That’s what we did here, and we may buy some more if these shares dip again.
That’s enough for today. We’ll likely be back again tomorrow, given how today’s action turns out.