My friend, B, who is usually two or three steps ahead of other investors in his ability to identify stocks in SECTORs that have potential has now completed sold out his positions in BDC stocks except SAR, GAIN and NGPC. He was the one who originally alerted me to invest in BDCs a while ago but now he retreated from them and moved into DRY BULK shipping stocks. Incidentally, according to him, he had already made 60K this year and therefore he sold most of his stocks to protect his profit. Since he retired when he was only 47 years old and had only worked 14 years in his whole life, therefore anything he said regarding investing was worthy of my attention.
Do not misunderstand me, I still believe some of the BDCs are good stocks to hold for long term especially if they can maintain their dividend payouts. I like FSC, PSEC and PNNT. However, many of them are now being traded above their NAVs. FSC is selling with about a 32% premium, PSEC with a 18% premium and PNNT with 15%. Therefore, the higher they go, the less their upside potentials will become and the more likely their prices will drop in the event of a market correction which will definitely come some time this year. With the prediction of a $5 per gallon gas price and the likelyhood of more states going to default, it will almost definitely accelerate the arrival of this market correction. Please do not kill the messenger who brings you the bad news or prediction of bad news.
The only BDCs that I know which are still trading below their NAVs are: GAIN, GLAD, MCGC, NGPC and SAR. It is possible that they may have more upside potential than the rest of the BDCs. However, you must exervice due diligence in doing your own homework before you invest in any of them because there were always reasons for their currently depressed prices.
Therefore, I understand everybody's excitement with the BDCs and it is very possible that they may still continue to prosper this year and early next year if interest rate can maintain LOW. Unfortunately, with the current looks of things, INFLATION has already arrived, just how bad it will be or how fast it will accelerate, that will be the question. I had already shifted a significant portion of my DRY POWDER into the ENGERGY sectors and was duly rewareded with some of the stocks such as MRO and CVX. GLTA! J
Nice post..thanks for sharing your thoughts. With the exception of ACAS which may surprise to the upside I agree that big gains in BDCs won't happen anytime soon. I took a lot of profits off my BDC board and like you put them into energy. My biggest score was in ARCC, and the profits are now in crude oil MLPs like PAA and MMP and a natural gas MLP processor,MWE. I still retain positions in PNNT,TCAP,ARCC etc albeit smaller than before.