Momentum is now positive in the market, and the "reopening trade" continues to generate a lot of buzz. Everyone's talking about opening bars. Happy hours. The hotels where they'll shake off the hangover. But why not talk about a better place to do all three.
| | | | | | Great Stocks for 85 Cents on the Dollar |
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| Dear Reader,
Momentum is now positive in the market (based on the 5-13 Exponential Moving Average and a variety of other momentum indicators).
The "reopening trade" continues to generate a lot of buzz in the market.
Everyone's talking about opening bars. Happy hours. The hotels where they'll shake off the hangover.
But why not talk about a better place to do all three. On a boat.
The story I'm following on reopening today came from the CDC. The largest cruise stocks are pushing the CDC to let them start leaving U.S. ports within the next few weeks. This would be BIG news for the cruise industry.
Right now, cruise stocks are running higher. And if you missed out on their recent pop and their substantial dividends, I have another idea.
Try this trade instead.
Looking at Closed-End Funds
You might not know much about Closed-End Funds. They are the stepchild of mutual funds and exchange-traded funds.
There are two major differences between closed-end funds and these other assets.
First, they trade on major exchanges like any other stock.
Second, there are a finite number of shares in the fund (which consists of an extensive portfolio of stocks and bonds).
Third, they trade on the whims of the market and never peg to their net asset value (The real value of the portfolio).
Closed-end funds can trade at a premium or discount to their Net Asset Value.
If the fund trades at $11, and the NAV is $10, the fund trades at a 10% premium.
If the stock trades at $9 and the NAV is $10, the fund trades at a 10% discount.
Why would a fund trade at a discount? There isn't a primary reason. You could say that maybe the owners of these funds panicked. Perhaps they had too much wine the day before they sell off. Typically, these funds are misunderstood. When optimism is high, these funds can overheat. And when selloffs in the market happen, they can fall off a cliff.
When they trade at steep discounts, they can create incredible buying opportunities… and powerful dividend streams.
Even better, activist investors like Bulldog Advisors can come along, buy up large chunks of the fund, force the fund manager to either buy back stock, increase the dividend, or close the fund and narrow the gap between the share price and the NAV.
That can be a massive win for investors.
Well, today, please take a look at this closed-end fund.
Political Tailwinds Meets Discount Meets Dividend
So, what is interesting to me about the cruise stocks?
How about a potential win, win, win.
Let's go a piece at a time. We already know that the Biden Administration has been proactive on global relations. With all the chatter about the Olympics, he is currently under pressure to resume political ties with Cuba. This would permit travel at a time that Cuba is doing more to privatize its economy. We're not going to get into politics. We know that some policy changes are coming.
The Herzfeld Caribbean Basin Fund is a collection of stocks that would do very well if the U.S. and Cuba normalized relations. But even if they don't engage for a while, it has an incredible number of stocks that would benefit from the reopening of the U.S. economy and the expected infrastructure stimulus.
The fund is 13% weighted in MasTec (MTZ), a leading infrastructure and renewable energy construction giant.
It has big stakes in Royal Caribbean Group (RCL) and Norwegian Cruise Line Holdings (NCLH).
And it's even got some of my other favorite sectors piped in. I'm talking about home construction in Lennar Corp. (LEN), banking in First Bancorp (FBNC), and agriculture in Fresh Del Monte Produce (FDP).
Right now, this fund is trading at a discount of 15.5% to its Net Asset Value. So, you're buying a basket of stocks at 84.5 cents on the dollar.
And, it has an incredible distribution rate that is maintained through the worst of the pandemic.
Yield: 10.1%.
At just north of $6, this is a cheap way to potentially play the recovery and a misunderstood asset class that can pay off big dividends (pun intended).
Enjoy the rest of your day,
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| | | Garrett Baldwin P.S. We've built Haven Investment Letter for investors and traders like you. So, please share your feedback. I'd love to know if you've been successful, what questions you have, and what areas of research you'd like us to pursue. I spend the bulk of my day researching the markets and looking for unusual investment plays outside the mainstream. Please send your thoughts by replying to this email. |
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