A rising tide lifts all boats, as President John Kennedy said, and we’re seeing it now on Wall Street, as both the S&P 500 and the NASDAQ are near record high levels. The gains are broad-based and real, and reflect a growing optimism now that the election is behind us and a COVID-19 vaccine is in sight.
So let’s look back, all the way to 1973, when economist Burton Malkiel told us that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by the experts.” He was pointing out the effect of random forces on a large enough sample – and the stock market, with over 7,000 publicly traded equities, and even more thousands of active traders working daily, is definitely a large enough sample.
But that was before mathematician and code-breaker Jim Simons taught us all how to crunch the numbers. Simons recognized that people are not monkeys – and so have access to information that transcends random effects. He invented quantitative trading, and changed the investment landscape forever.
And back in the present, Simons revealed in his most recent 13F filings three new stock positions that bear a closer look. These are buy-rated stocks that boast at least a 5% dividend yield and go up from there. We used TipRanks database to find out what else makes these picks so compelling.
Plains GP Holdings (PAGP)
First up is Plains GP, an oil and gas midstream holding company. Plains controls assets in the oil and gas transport sector, where it moves the hydrocarbons from the well head production sites to the refineries, storage tank farms, and transport facilities. The company assets include nearly 19,000 miles of pipelines, 8,000 crude oil railroad tankers, nearly 2,500 trucks and tractor-trailers, and, on the rivers, 20 transport tugs and 50 barges. These assets move oil and gas into and out of 148 million barrels worth of storage capacity.
PAGP took a hard hit earlier this year from declines in the price of both oil and gas, and from reduced demand during the pandemic-inspired economic shutdowns. By Q2, revenue was down by more than half, to $3.23 billion. The Q3 top line shows the beginning of a recovery, with revenues coming in at $5.83 billion. Q3 EPS was flat sequentially, at 9 cents.
The company’s stock price, as might be expected from the financial performance, has failed to gain much traction since it fell last winter at the start of the corona crisis. Shares in PAGP are down 52% so far this year.
The low share price, however, presents investors with an opportunity. Clearly, Jim Simons would agree. His fund staked a position in PAGP by buying 1,045,521 shares of the stock. The holding is worth $8.44 million at the current share price.
Plains GP has kept up its commitment to the dividend. The company cut the payment from 36 cents per share to 18 cents for the April payment, but has kept it at that level since then. The cut kept the yield from exploding as share price fell, and kept the payment affordable at current income levels. The current payment annualizes to 72 cents per common share, and gives a yield of 8.3%.
Raymond James analyst Justin Jenkins likes Plains for its ability to generate cash. He writes, “PAGP's cash flow profile has actually improved this year. While 2021 will see more headwinds to EBITDA than 2020, lower capex and cost-cutting measures implemented since the pandemic still drive an FCF inflection. We now model Plains generating an all-in FCF surplus [...] We continue to believe the partnership’s outlook is much better than recent investor sentiment in the stock."
In line with these comments, Jenkins rates PAGP a Buy. His $9 price target suggests it has room to grow ~10% from current levels. (To watch Jenkins’ track record, click here)
Overall, there are three recent reviews of PAGP on record, and all are Buys – making the analyst consensus here a unanimous Strong Buy. The stock is selling for $8.17, and its $10 average price target implies a one-year upside of 22%. (See PAGP stock analysis on TipRanks)
Granite Point Mortgage Trust (GPMT)
Next up, Granite Point Mortgage Trust, is a mortgage loan company serving a US customer base. The company invests in senior floating-rate commercial mortgages, as well as originating and managing such loans. The company’s portfolio is valued at more than $1.8 billion.
GPMT is showing some solid messages in recent financial performance. The company beat the forecasts on earnings, reporting 27 cents per share against a 20-cent estimate, for a 35% beat. Revenues were up year-over-year, and the company finished the quarter with over $353 million in cash and cash equivalents.
That foundation allowed GPMT to keep its dividend, although the company did adjust the payment to 20 cents per common share. At that rate, it annualizes to 80 cents and yields a hefty 8.3%. This compares favorably to financial sector peers – and is more than 4x higher than the average dividend found among S&P listed companies.
Granite Point is another of Jim Simons’ new positions. The quant billionaire bought up 155,800 shares of this real estate investment trust (REIT), for a stake that’s now worth $1.48 million.
Stephen Laws, covering this stock for Raymond James, sees GPMT as a potential winner for dividend investors. He writes, “We expect net interest income to continue to benefit from LIBOR loans in floors, and are increasing our core earnings estimates to reflect this. While GPMT reinstated the quarterly dividend of $0.20 per share, the company still has roughly $29 million of undistributed taxable income at September 30. Given this, we anticipate a special dividend of $0.40 per share to be declared prior to year-end.”
The 5-star analyst rates the stock an Outperform (i.e. Buy), and his $11 price target implies 16% growth over the next months. (To watch Laws’ track record, click here)
This is another stock with a unanimous analyst rating – although the two recent Buys make the consensus view a Moderate Buy. The average price target matches Laws’, at $11, and indicates a 16% upside from the current trading price of $9.60. (See GPMT stock analysis on TipRanks)
Phillips 66 (PSX)
Last on our list of Simons’ new purchases is Phillips 66, the oil and gas giant. With over $107 billion in annual revenues, and more than $58 billion in total assets, Phillips 66 is deeply involved in oil production, refining, and marketing. The company also has a large presence in the petrochemical industry.
The low prices, economic shutdowns, and unpredictable demand have put pressure on PSX’s share price this year, and the stock has only partly rebounded from last winter’s swoon. PSX is down 40% year-to-date, but it’s up 54% from its late-March trough.
In the third quarter, Phillips 66 saw an EPS loss of 1 cent – but that was far better than the 80-cent lost which had been forecast. Revenues for the quarter came in at $15.93 billion, up 45% from the previous quarter.
The company pays out 90 cents per common share, and has an 8-year history of keeping a reliable payment with occasional increases. The annualized payment of $3.60 gives a yield of 5.4%, well above the utility sector average yield of 3.3%.
Simons, for his part, was impressed enough by this stock to purchase 120,800 shares. That’s a holding now worth $7.47 million.
In his note on PSX, Scotiabank’s Paul Cheng notes several key points, including some that may seem counterintuitive.
“Passing of Election Day may actually trigger new buying in the group even with a Biden win. Contrary to the widespread belief, the sector has historically outperformed the general market in the first year of a new Democrat Administration… Cyclical sectors could be in demand again as investors re-focus their attention from the election to vaccine availability,” Cheng opined.
The analyst added, "...relative to other refiners, PSX should benefit more from a rising oil price environment given their large chemical and NGL operations."
To this end, Cheng rates PSX an Outperform (i.e. Buy). He sets a $79 price target, indicating an upside potential of 25% for the next 12 months. (To watch Cheng’s track record, click here)
All in all, Phillips 66 get a broad-based thumbs-up from Wall Street – as clear from the 11 Buy ratings on the stock, giving it a Strong Buy analyst consensus. (See PSX stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.