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Hidden Value in Wall Street's Garage
- Categorized in: By George: Investment Profits Hidden in Everyday News
Don't be distracted by the media's relentless focus on stocks traded on the main floor of the NYSE. You'll find better deals out back in the market's garage sale.
The New York Stock Exchange is always changing and evolving - more so than just about any other major stock exchange around the world. And now that it's a public company - trading of course on the NYSE under the symbol NYX - it's not just about providing platforms for buying and selling stocks - but, supposedly, also about delivering returns for its investors.
This has led it to rapidly expand into a host of new ventures - including of course the series of acquisitions of other exchanges around the globe and the establishment of "off-exchange" exchanges such as so-called Dark Pool Liquidity platforms. This is where the preferred investors get to buy, sell and short shares amongst each other with nearly no disclosure or public awareness.
The rest of us mere mortals that aren't running hedge funds are of course left to trade in the more visible parts of the NYSE. This is where you see all of the business news reporters filming interviews with their endless lineup of talking heads.
But the main trading floor isn't where you'll find the best, most profitable deals on the exchange. Because, really, do you even remotely think that the likes of General Electric (GE), ExxonMobil (XOM) or Johnson & Johnson (JNJ) are going to be able to propel your portfolio and pay for your retirement - do you?
Where to Find Higher-Dividend, Better-Performing Stocks
Instead, while the glamour stocks get all of the attention on the main floor, I like to devote more time over in the NYSE annex - which, for the past several decades, has been referred to as "the garage."
This is where the stocks and other securities trade that don't have many followers or much trading volume. The specialists and marketmakers don't get the spotlights and video cameras in this part of the market. And that's great for you and me because here, in this dark and dingy corner of the NYSE, is where you'll tend to find the stocks that pay you to own them.
And then there's another dimly-lit area: the over the counter market. And the NYSE has plenty of increasing participation in this market. For whether in their operations in Dark Pool Liquidity, or just in electronic trading - the NYSE knows that the OTC market is where more and more of the trading activities are heading. It's part of NYSE's evolution and it needs to be a focus of yours.
That's because there are more and more OTC stocks and other securities that keep expanding the markets beyond what broadcast media stars on the main floor can or even want to tell you about.
One of the best parts of the OTC market isn't part of the NYSE - but rather has been developed by traders and marketmakers around the world. It's called the Pink Sheets.
This is the non-exchange for companies ranging from the newbies of the public market to century-old blue chips from major markets in Europe, Asia and beyond.
And like the NYSE garage, the pink sheets provide us with the perfect bazaar from which to seek out the right stocks that pay you to own them.
3 Great Stocks You Won't Find at the Top of the Big Board
Over the past week I've been kicking around these markets and found a few stocks that really grabbed my attention. They have core assets that generate lots of cash, and serve their investors a good cut of the profits with regular streams of big dividends.
I'll start with a company, Compass Diversified Holdings (CODI), that has a market capitalization of some 385 million. Not big but not micro either. It's traded on any given day over the past year with volume of around 188,000 shares - so the big guys aren't playing around with this stock or the company.
And the holders tend to be custodians for longer-term investors rather than hedge fund guys. And this also shows up in a very low level of short-interest - which confirms that this isn't a company that's likely to be whipped around to death by traders and speculators.
As its name implies - the company holds stuff. Specifically, it holds ownership in small set of operating companies in varied but basically solid businesses. They include a temporary and contract worker company, a medical device manufacturer, a research equipment purveyor and a couple other similarly boring but steady businesses.
And the holding company only buys into businesses without the need for heavy leverage, and in sectors where the businesses have control of their individual markets.
The outcome is steady cashflows and a very low level of debt - and lots of cash and cash-like assets on the books. Return on capital is running at over 13 percent - over 17 percent on the common equity.
And from those returns, investors get a nice fat cut - quarter after quarter, even during the past two years of economic and market hell. In fact dividend growth is running up over 50 percent in the past three years. Trading around 10.50 a share, it pays a yield of over 12.9 percent.
Next is a company with a name that regular readers will recognize - perhaps already investing in other parts of its operations. AllianceBernstein runs a number of investment funds including two of my favorite bond funds: the AllianceBernstein Global High Income Fund (AWF) and the AllianceBernstein National Municipal Income Fund (AFB) - both of which have been killing the market with average annual returns for the muni fund of over 5 percent (most Federal tax free), and nearly 14 percent for the global fund.
But while both of these funds are solid buys, I'm also suggesting that you might want to share in the success of the managers of these funds by getting a piece of AllianceBernstein itself. Because the more these and their affiliated funds perform and grow - the bigger the revenue flows will continue to be for the management company.
AllianceBernstein Holding LP (AB) is structured as a publicly traded partnership which in turn owns the shares of the operating fund company. This is a great means for individual investors to gain access to ready and rising cashflows while taking advantage of tax rules for partnerships that avoid the double-taxation of regular corporations.
The dividend flows vary by quarter as the funds pay their fees to the LP - but what counts is how they add up over the entire year and keep piling up year after year.
Right now that means you're buying into a dividend yield of over 10 percent - with more coming as AB's funds continue to perform and grow.
Last up in this eclectic garage sale is a real estate company. But I'm not writing about a commercial or residential deal that has to rely on some sort of economic upturn to make it work.
Instead, this company is structured as another tax-advantaged investment in the form of a REIT - focused on medical facilities.
And not just general hospitals but very targeted cost-saving surgical procedure centers and specialized care facilities. These are the sorts that will stay in demand with or without more government control of the medical markets. And in fact, the argument might well be made that these are the sorts of operations that are working to streamline healthcare services, thus trimming costs to insurers - be they private or Uncle Sam.
Medical Properties Trust (MPW) has seen its shares down last year with the move by the entire market to discount property companies. But since then, the realities of its holdings and its cashflows have been bringing it back strongly.
Dividend flows are ample and high at over 9 percent. Just the medicine your portfolio needs.
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