How To Buy Your Favorite Stocks At 14% Off (With Yields Up To 7%)
Contrarian Outlook | Aug 06, 2018 06:34AM ET
If you’ve read the headlines about tech’s woeful slump in the past couple weeks, you might think stocks are out of favor.
You’d be wrong—and this chart proves it:
Forget the Headlines: Stocks Are Rolling
After February’s gut-wrenching plunge, the S&P 500 has more than recovered and is up 6.2% year to date. If this trend continues, we’re looking at a 12.4% return on the year.
But look at the orange line above—that’s the tech-benchmark PowerShares QQQ Trust Series 1 (NASDAQ:QQQ), which is up 13.2% year to date, even after this latest correction in tech. That adds up to a monstrous 26.4% return for 2018 if that trend continues.
And I see these trends continuing, for both the market as a whole and for tech, as investors come back to this beleaguered sector.
Economic Strength Won’t Be Denied
There are a couple reasons why I see stocks generally finishing up strong this year—and a little further on I’ll show you 2 great ways to pick up your favorite household names (and those of a certain Warren E. Buffett, too) at double-digit discounts.
Oh, and you’ll pocket cash dividends up to 7% while you do.
But first, back to where this incredible market run is headed from here.
One reason it’s set to continue is that last week’s report that US GDP rose a stunning 4.1% annualized in the second quarter is driving a lot of economists to raise their expectations for the full year, with 3% growth becoming increasingly expected.
This growth is largely thanks to two things: a stronger American consumer and increasingly profitable American companies.
Americans Go Back to Work …
A tighter job market means initial jobless claims have been falling at a steady rate over the last year, cutting the unemployment rate from 4.4% to 4%. That’s helping sales soar.
So far in the second quarter, 73% of S&P 500 companies are reporting sales above expectations, according to FactSet. That’s also boosting stocks’ earnings across all sectors.
Get The News You Want
… Sending Profits Soaring
In normal times, a widespread earnings bonanza like this would be impressive. But expectations were already high. Going into the second quarter’s earnings season, analysts forecasted a 21.3% profit increase from a year ago; so far, earnings for S&P 500 companies have risen by just that: 21.3%.
And the good times aren’t going to stop anytime soon—companies have boosted expectations for next quarter, and analysts have boosted their expectations, too. Now all of 2018 is expected to provide a 20% jump in earnings, far above the S&P 500’s still-impressive 6.2% price gain.
That’s another way of saying that stocks are actually cheaper in relation to forecast earnings than they were at the start of the year, despite their price gains—and that points to more upside around the corner.
Like Rewinding the Clock 1 Year
If you’ve been sitting on the sidelines watching this earnings surge, you might feel disheartened. But don’t worry, you’re not too late.
Because I want to show you 2 little-known funds—closed-end funds (CEFs) to be specific—that let you get into this strong stock market at a discount. Think of it as being able to buy today at prices we saw a year ago.
So let’s get going, starting with…
CEF Pick No. 1: Buy Like Buffett for 14% Off
Looking to get into the Oracle of Omaha’s favorite stocks—including his own company, Berkshire Hathaway (NYSE:BRKa)—at a big discount?
You can do just that with the Boulder Growth and Income Closed Fund (NYSE:BIF), a value-investing CEF that puts a third of its assets in Berkshire while allocating much of the rest to Buffett’s top picks, like JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Caterpillar (NYSE:CAT).
By using Buffett’s value-investing approach, BIF has provided these returns to investors in the last year:
The Master’s Strategy Delivers Nice Gains for BIF Holders
And here’s the best part—BIF is far cheaper than it should be.
Thanks to a quirk in the CEF structure, BIF trades for less than the net asset value (NAV) of its portfolio. In fact, it’s trading at a 13.9% discount to that NAV, which means you can buy every dollar of the shares BIF holds for about 86 cents if you buy BIF directly—where you’d get no discount if you bought those shares on the open market.
Plus, since BIF is diversified across dozens of strong large-cap companies, you get diversification on top of a share of the Buffett-style investing method that made the man famous.
And I haven’t even gotten to the best part: dividends.
An Income Stream You Can Count On
BIF, like many closed-end funds, pays out an attractive dividend to shareholders. Right now, BIF’s yield is 3.5%, or roughly double that of the S&P 500.
The fund can pay those dividends because of its strong portfolio. Since BIF has earned much more than 3.5% on its investments on an annualized basis, it’s able to maintain those payouts without being forced to sell stocks from its portfolio to do so.
And BIF isn’t even the highest-yielding CEF out there, which leads me to the next fund I want to show you now.
CEF No. 2: A 7.4% Dividend and Market-Beating Performance
Many CEFs pay 7% or more, and some of them even beat the S&P 500 while doing it. Take, for instance, the Nuveen Core Equity Alpha Closed Fund (NYSE:JCE), which trades at a small (1%) discount to NAV and currently pays out a 7.4% dividend to shareholders.
That is not a typo. JCE’s dividend is over 4 times bigger than that of the S&P 500!
And JCE has managed to pay this out while crushing the market. Over the last decade, this fund’s return has been nearly double that of the S&P 500:
JCE Crushes the Index
With market outperformance and a superior dividend yield, who wouldn’t want to get into JCE?
Yet a lot of investors bypass this fund, simply because they don’t know it (and CEFs generally) exist. Since JCE only has about $250 million in assets under management, it’s too small to warrant being aggressively advertised like ETFs, which make up over $4 trillion in clients’ money.
That means these smaller CEFs are one of Wall Street’s best-kept secrets—and a corner of the market I cover exclusively in service . Because JCE, BIF and many other CEFs provide market-busting incomes and market outperformance that are impossible to find in the ETF world.
And now that stocks look set to soar even further from their current levels, it’s a great time to compound your profits with a discounted fund like BIF or JCE.
My Top-Secret Bonus Pick: Buy NOW for 8.5% Dividends and 276%+ Gains
JCE and BIF are both strong funds, but I held off till the end to tell you about my very best CEF pick now, which has all the tools to lead the market (and JCE and BIF) higher in the critical 6 months to come!
The best part is that this unsung pick pays you a sky-high 8.5% dividend today—nearly 5 times as much as that of your typical S&P 500 stock and more than twice as much as BIF. So a big part of the total return you haul in from this fund will be in cash.
And how has my top CEF pick performed in the long haul?
Answer: This off-the radar biotech champ has obliterated the S&P 500 in the last decade:
A Market Dominator
Best of all, my top pick trades at a 5% discount to NAV, which may not sound like much, but it’s traded at nice discounts in the past—as recently as last September, which points to some nice upside ahead.
To sum up, here’s what you’re getting in this 5% “markdown sale”:
- All the stocks in this fund’s portfolio—rock-solid names with long histories of dividend growth, like Amgen (NASDAQ:AMGN) and Gilead Sciences (NASDAQ:GILD).
- Market-crushing outperformance, with 276% gains (and most of that return in cash) over the last decade.
- 1-click access to the top talent in biotech: this fund’s manager, with more than two decades of experience himself, hires doctors and researchers with “boots on the ground” expertise at finding the next breakthrough treatment.
I’ll give you all the details on this breakthrough income play when you click here .
And that’s still not all.
You see, this fund is part of a 5-fund “mini-portfolio” I crafted exclusively for members of my CEF Insider service. Now, for a limited time, I’ll show it to you at no cost.
Taken together, these 5 totally ignored CEFs will hand you a safe 8.2% yield now.
And thanks to their ridiculous discounts, my team and I have each one pegged for easy 20%+ price upside in the next 12 months.
Don’t miss out. CLICK HERE to get the names, ticker symbols, buy-under prices and my complete research on these 5 income (and growth!) plays now .
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."
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