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Marijuana Sales Strong During Covid Enviroment

For investors looking to get ahead of current trends, you need to look at the current environment especially in covid-19 to see what businesses are thriving currently and will continue to prosper going forward. There has been much positive news about the marijuana industries. During the shutdowns, the marijuana retail store was considered an “essential business” which meant it was one of the few businesses that remained open.

In Illinois, there were lines to get in the first opened retail marijuana dispensaries when they first legalized marijuana. There was a recent article mentioned that “US retail marijuana sales are on pace to rise 40% in 2020, near $37 billion by 2024”. The Chicago Daily Herald mentioned June was the best month for the Illinois marijuana dispensary.

A major growth initiative for the marijuana business would be having access to bank lending. Currently, this is not allowed in the United States of America. You cannot allow lending to a product that is deemed illegal. The marijuana businesses would get this growth with the passing of the Safe Banking Act which would allow lending to cannabis businesses. Last month, the House passed the Heroes Act which included the Safe Banking Act as part of the stimulus plan.

To get the Safe Banking Act finally approved, it would need to be approved by the senate and signed by the President. These are a couple tough hurdles to get through but something that will eventually need to be passed as the legalization of marijuana becomes more prevalent.

Principal Real Estate Income Fund – Monthly Dividends

Principal Real Estate Income Fund (PTZ) is a closed-end ETF that invests in high yielding debt and equity commercial REITs. This may sound dangerous in the current environment especially with many businesses with the potential of closing or going bankrupt. However, PTZ has been a consistent dividend payer monthly and, unlike other stocks where many have suspended their dividend, Principal Real Estate Income Fund has already announced dividends to be paid for May and June.

Let’s delve deeper into the closed-end fund and see how safe the company is to continue to pay the dividend.

Principal Real Estate Income Fund is managed by the ALPS Advisors, Inc. The advising company was founded in 1985. From their website, they state that the management team has more than 23 years experience which means they have been through two of the big recessions of 2008 and 2001. It is a positive that they have experienced two major downturns in the economy. However, they still weren’t immune to the March 2020 downturn falling over 50% in stock price.

Looking at their holdings as of 4/30/2020, their biggest holding is JPMorgan Chase Commercial Mortgage Securities Trust at 5.65% of their Total Market Value followed by Goldman Sachs Mortgage Securities Trust which is 4.87% of their Total Market Value. The close-end ETF has a total of 130 holdings that consists of majority Mortgage Securities Trust, Mortgage Trusts, and equity REITs. Around 67% of the holdings are Mortgage Trusts and Mortgage Securities Trust, this does sound a bit dangerous in the current environment especially if their customers do not make their mortgage payments.

Fortunately, the Federal Government announced they would be purchasing commercial debt through their TALF 2.0 program. TALF 2.0 revives the Term Asset Backed Securities Loan Facility (TALF) that was used in the 2008 Great Recession. TALF allowed the FED to purchase commercial backed mortgage securities. TALF was successful in the 2008 Great Recession to reviving the commercial market.

The new program TALF 2.0 allocates up to $100 billion to support asset based security markets. On April 9, 2020, the Federal Reserve announced TALF would include commercial mortgage backed-securities which means the majority of Principal Real Estate Income Fund would be included in that program. However, there is plenty of highly leveraged companies that can easily force the Federal Reserve to use their max allocation of $100 billion.

Let’s look at the original TALF program that was implemented in 2008 to see how things could possibly play out in the 2020 stock market. The TALF program was originally announced in November 2008. The S&P hit a all-time low of 741 when it was announced. This was a huge drop from S&P being at 1313 in August 2008 and S&P at 1576 in October 2007. This is a 43.5% drop and 52.9% drop respectively. On February 10, 2009, the Federal Reserve announced they would expand the Term Asset-Based Securities Loan Facility. This announcement still did not prevent the stock market from dropping further as it hit a S&P low of 666.

If there was another meltdown in the credit market and the Federal Reserve ends up using the $100 billion allocation, I believe the FED will do whatever it takes to make sure the market survives as they did in 2009. In this most recent TALF 2.0, the FED did act rapidly and announced the program a week after the March lows. I believe that the FED will continue to act rapidly in response to any future downturn as well. It remains to be seen how far the commercial market can go down which puts the investment in PTZ to be a bit risky. In the long-term, as long as the Federal Reserve can make afford payments to shore up the commercial market, then PTZ should continue to pay dividends and survive any downturn.

Principal Real Estate Income Fund is currently offering a substantial yield at over 10%. It remains to be seen if they will cut or suspend the dividend like many real estate investment trusts have already done in this pandemic. I believe that the FED will do whatever its needed to shore up the commercial market including purchasing more commercial mortgage backed securities and continue purchasing corporate bonds and even start a program to purchase equities. Of course, when things do get worse, PGZ will have a dip in price which should give you ample opportunity to get purchase more. However, at the current price, PGZ does give a substantial yield so there’s no reason not to at least purchase a small allocation to diversify your portfolio. I would not recommend putting all your “eggs” into PGZ as there should be plenty of opportunities to buy in future dips as well.

Granite Point Mortgage Trust – Strong Buy!

Granite Point Mortgage Trust (GPMT) is a mortgage reit that purchases floating-rate mortgage loans. From the initial outlook, especially at this time, purchasing commercial loans is risky. That means their loans are not backed federally like agency debt. To remedy this concern, they do use less leverage than other mortgage reits. At 63% loan-to-value, they are more conservative in the other players in this space.

However, even with a 63% loan-to-value, there is still lots of risk for default. However, their earnings report showed from a couple weeks ago that their is plenty of upside in this stock. First, their book value was a very high $17.43. At their current stock price of $5, the stock is trading at a very discounted value that is more than 70% off. This is the most discounted mortgage reit out of all the stocks that invest in commercial loans.

Digging deeper into the earnings report, they reported that only one of their commercial loans did not make the payment for the quarter. That means 123 out of 124 of their mortgage loans are current. This shows that the management is experienced to handle this recession and are conservative to make the company can survive.

You might wonder why their price is so cheap compared to their competitors. One of the main issues is they suspended their dividend. Their competitors continued to pay a dividend which kept their stock price higher. The should be a positive for investors wishing to get into GPMT.

You get in at a very affordable price for a stock that will pay a strong yield over 10% when they put the dividend back in place. There was a sell-off when the dividend was suspended. Many expected that GPMT might go bankrupt or get “margin called” on their portfolio. However, none of this was true. The company was just acting conservatively and making sure they have enough reserves to handle the situation.

At the current price of $5, there is plenty of upside in the stock in both price appreciation and dividend yield. Their most recent dividend was $0.42 which was recorded on December 31, 2019. If that dividend gets reinstated on the 2nd half of 2020, you can expect a dividend yield of 33.6% at a purchase price at $5. I would be more conservative and expect them to put the yield at 10% though. Either way, the stock is really cheap and you have plenty of upside from here.

America First Multifamily Investors – Tax Exempt Income

ATAX, America First Multifamily Investors LP, holds mortgage revenue bonds in majority multifamily apartments and student housing. They hold the first lien on these buildings which means they are the first to be able to foreclose if the landlord cannot make payment. The company has been around for almost half a century and have been consistently paying dividends every quarter. They are a very conservative company with a very experienced team.

With the covid-19, there stock has had a dramatic drop from being over $8 to now being under $5. Since they offer a $0.50 per year dividend, you are getting over a 10% dividend at today’s levels. It’s rare to see the current price being below $5. Each time that it fell below $5 per share the stock ripped back upwards. For the long-term buy and hold investor, you are getting a nice 10% dividend that is majority backed by tax-free income.

That means if you have a federal income tax at 32% you still do not pay any taxes for the dividend that comes out of ATAX. They are able to do this by investing in low-income housing which gets tax benefits. Of course, not all their income is tax free, but they will do their best to make sure it is tax exempt.

With an experienced team in place and first lien holders to housing, America Family Multifamily Investors is a great long term investment. Even for those looking for appreciation, there is plenty of upside in this investment. I expect the price to spike upwards with the after stock market earnings call later today.

Expect More Downside and More Bargains

This has been the most rapid drop in the stock market EVER! The closest one to do this dramatic drop was in 1987 with the oil crisis. We are now facing an oil crisis but that is in small part of the major issue with the Covid-19 virus shock which is a global epidemic that will affect substantially affect the economy. The government has just started the stimulus plan early to keep the economy and banks going. The House has just passed the $2 trillion stimulus plan which was recently signed by Senate and President Trump. In 2009-2009 in the Great Recession, the stimulus plan came later in the recession which meant a major mess for the economy and affected many households and businesses.

This expected stimulus plan will bring money for big businesses, small businesses, wall street, and families almost immediately. The form of this stimulus is planned to come quickly without major paperwork to help Americans as quick as possible. In addition, the Fed Chairman Jerome Powell also planned earlier this week to provide Unlimited QE, purchasing of Mortgage-backed Securities and stocks, and possibly even supporting the stock market by purchasing ETFs. The government even has given a contract to BlackRock to stimulate the economy by purchasing in the bond market.

There will be plenty of bargains moving forward but a couple recent ones that come to mind are in the mortgage-backed securities market. There are two stocks AGNC Investment Corp (AGNC) and Annaly Capital Management (NLY) that invest in primarily Agency securities. These Agency securities are backed the government which means they are insured by the government. These are the safest of the mortgage reits and will perform well in the long term. The short-term will have plenty of volatility and can definitely go down further in the market.

On the closing of March 27, 2020, Annaly Capital Management (NLY) closed at $6.13 with a yield of 16.3%. AGNC Investment Corp (AGNC) closed at $13.15 with a yield of 14.6%. These dividend yields are absurdely high and most likely will drop as book value goes down with the economy recession. However, there stock prices are very cheap and for the long-term investor will bring massive returns.

For the more conservative investor, I recommend the preferred shares which all earn a substantial return over 10%: NLY-PD returns 8.9%, NLY-PG returns 8.3%, AGNCN returns 7.8%.

I recommend watching these and purchasing them at a LOWER price as the bear market continues. There will be plenty of bargains for the long-term investor.

Investing in Marijuana and Arbitrage Opportunity in Origin House

The Safe Banking Act held a hearing last week on tuesday AKA the SAFE (Secure and Fair Enforcement) Banking Act. This act was passed on March 26, 2019 by the House Committee. If this act passes the senate, then it will be sent to the president Donald Trump to give the final approval.

President Donald Trump was asked by reporters during before his flight to the G-7 summit in Canada about the bill regarding marijuana. He told them that “I support Senator Garner. I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.”. Just like that, Donald Trump is giving huge approval for the SAFE act. There is no reason why he wouldn’t especially since this would bring additional revenue to the USA and it would mean access for more funds to go into marijuana businesses.

Currently, marijuana is considered a “Schedule I” drug in the USA. It is estimated at $10.4 billion in 2018 and has 250,000 jobs devoted to the handling of plants. There are ten states that have legalized marijuana for recreational use and there are 33 states that have legalized it for medical use.

In 2019, New York, New Jersey, Illinois, and Connecticut are up next for legalizing marijuana. Illinois actually just recently passed the act and it will become legal for recreational usage on January 1, 2020. Illinois is also the home of the headquarters of Cresco Labs (CRLBF).

Cresco Labs Inc. (CRLBF) is a publicly traded US cannabis company. They have been very active acquiring and merging with multiple companies to become a powerhouse in the marijuana industry. They hold dispensaries for wholesaling the products and retail stores to sell recreational use and medical use of marijuana.

Earlier this year in April 1, 2019, Cresco Labs Inc. made a partnership to merge with CannaRoyalty Corp. d/b/a Origin House (ORHOF) for an all stock transaction where holders of common shares of Origin House would receive .8428 subordinate voting shares of Cresco Labs for each Origin House share.

However, the merger had a hurdle with the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 which required Cresco Labs to file a notification with the U.S. antitrust authorities and observe a waiting period before completing the transaction. This also gives the U.S. time to review the merger and require certain conditions to allow the acquisition to occur.

On July 26, 2019, Origin House annouced the sale of AltMed where it owned a 5.1% equity interest. Cresco Labs Inc. is prohibited under state law from acquiring additional positions in the Florida market therefore this was part of the conditions to allow the acquisition to occur.

On the closing of July 26, 2019, Origin House closed at a price of $4.79. If the merger were to happen today, a single share of Origin House would convert to .8428 of a Cresco Lab share which would be $6.93. This would mean your stock value would increase 45%!

Right now, you have an amazing and rare opportunity to acquire Origin House shares at a really lucrative arbitrage opportunity with Cresco Labs. This could not have occurred with the U.S. antitrust authorities intervening with the transaction. There are many investors that sold out not being patient with this investment but also not believing that the merger will happen.

On July 17th, Curaleaf Holdings (CURLF) acquired Grassroots for a value of $875 million. Origin House only has a market cap of $331 million. Cresco Labs has an opportunity to use the acquisition by Curaleaf Holdings as an argument to acquire Origin House to remain competitive if the U.S. antitrust authorities still have issues with the transaction.

This is a great opportunity to go long in the marijuana industry. Even if the acquisition does not go through, Origin House will most likely succeed on their own or be acquired by another company as the cannabis industry continues to mature in the future.

Getting Defensive with Treasuries

The stock market has made an amazing run this year. The S&P has had a 14% gain starting from December 23, 2018 where it bottomed. As much as I hear the bullishness of this market and confidence in the market, I have to fathom that we are at turning to the month of May where statistics show that going forward the returns are much less which gives the saying “Sell in May and go away”.

With that knowledge, I plan to trim my stock holdings and start increasing my position into treasuries. TLT is an ETF of the iShares 20+ Year Treasury Bond. It is a defensive position that tends to go up when the stock market goes down. I feel this run is almost over now that the best earnings have been posted this week. I also feel that the long-term trend is heading towards a more bearish market.

Invest in Energy with LPs

I’ve been looking at Energy stocks as I think the quarter will be bullish for them as oil prices go up. As I further my search, I noticed that the smaller companies do pay a substantial dividend. These companies usually have a higher deviation and move up and down more violently which puts bigger risk as well.

On April 18, USA Compression Partners, LP (USAC) announced a dividend of $0.525 for shareholders on record on April 29, 2019. This is a substantial dividend of over 13% per year from their market price. Stifel Nicolaus also gave a price target of $18 a few weeks ago which the stock is close to hitting soon. Also, the past year, six other brokerage companies gave a price target ranging from $18-22 which bodes well for future growth while collecting the dividend.

USAC only has a small market cap of 1.68B. This is much smaller than other LP companies and this gives them substantial chance of being bought out if they can succeed moving forward. Energy Transfer, LP (ET) owns 39.7 million shares of USAC which gives them 23% ownership of the company. You can bet that ET will increase their ownership on success and most likely lead to a buyout.

There are definitely other energy stocks that have potential for success. For example, Energy Transfers has a substantial dividend almost at 8%. I believe the Energy sector will perform this quarter and possibly the next but having a nice 13% dividend gives you some assurance that if things get worse you have a bit of a hedge. You also have the opportunity to invest in some growth with this smaller unknown LP.

NXP Semiconductors Target to $125

NXP Semiconductors (NXPI) dropped over 4% after management stated that they have already spent $3.7 billion of the $5 billion dollars on buybacks from the Qualcomm (QCOM) breakup. Many investors thought that they haven’t or used very little of the buyback since there was never a public announcement until now. The stock price ended Tuesday below $90 which is a very nice buy level. On the same day, Credit Suisse gave the stock a target of $125. This is a 38.9% gain if their analyst is correct. Today, the stock is went below $86 as they received a downgrade by Stifel analysts for the entire industry of analog and mixed-signal semiconductors. This is a great buying opportunity for a short-term issue that the analysts are seeing. Remember, NXP Semiconductors’ chips are in both Apple and Samsung phones. It doesn’t matter who wins the phone industry for them. They have chips in both.

The CEO of NXP Semiconductors and President was on Mad Money with Jim Cramer on Tuesday. He had sold millions of dollars of stock when the stock was over $120 per share. He announced that he was buying at these levels at $90 including his CFO was buying their stock as they believe the company is undervalued. He also showed a processor that integrates with the cloud and internet to take advantage through edge processing. NXPI’s largest customers also include Garmin, Continental, and many car manufacturers since their chips are on the sensors of the cars.

I am long this stock and I believe it will do well in the future. The technicals do indicate that the stock could go down further for those that wish to be more conservative but don’t wait too long!

Facebook at Buy Value!

Facebook, ticker FB, dropped in stock share price yesterday and even further today currently down over 4% today after the hearings with congress yesterday. Much of the drop earlier in 2018 was related to fake users that they had to remove which showed that Facebook has less users than originally stated. Remember, that Facebook also owns Instragram which continues to grow its user base and is valued at $100 billion by Forbes if they were its own separate company.

Also, remember that Facebook is still widely known around the world even if their growth has slowed down in the USA market. They also have a cash holdings of $42 billion that should be factored into your fundamental analysis. FB has a PE of 25 while GOOG is at a PE of 50. That fact alone shows you the undervaluation that the market is giving to Facebook. I believe there is plenty of growth in the stock and the stock price does not factor this in.

At the current price, you can’t go wrong purchasing below $163.

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