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Swinging for the fences...


In my last articles I have discussed a few sensible moves I had made in my own portfolio over the past year, and I wrote that I live by the Axim that the best formula is to spend time in the market, rather than try to time the market. I also wrote about making regular contributions to low-risk index funds. But of course, there is a still a bit of a gambler in me, even though my sports betting days are over. Jim Cramer discusses the swinging for the fences part of your portfolio as Mad Money, indeed that is the name of his show on CNBC.


I have been getting tired of my holding in Verizon, especially after the recent decline, and I have thought what to do with those monies when I do finally sell it. If I was being sensible, I would put it into something with high yields and a situationally advantageous business model, The gambler in me though, would like to put it into a high-risk stock. Something where I can either multiply my money ten-fold, or lose it all. This isn't a lot of money I would be risking, and I technically can afford to lose it. So the question is, what high-risk stock to go with?


The first one I have been considering is Star Bulk Carriers, which is a high dividend play. They have a PE of 2.2, a Market Cap of $2B and a yield of 35%. They are a Greece-based shipping company, and operate a fleet of dry bulk carrier vessels. Their vessels transport commodities such as iron ore, grain and coal, all over the world. They have trailed the broader market over the past year, down around 19% (while and S&P is down 12%. But, they are up 85% over the past 5 years. The high yields are generally a red flag though. It is usually a sign that the price has come down a great deal, and you may be investing in a poor business, that cannot sustain the dividend going forward. The high yield likely says that their payout ratio is above or near 100% of their earnings. The figures say that this is the case, with Star Bulk having a payout ratio slightly below 100%. Research shows that while the order book for dry bulk remains favourable, the industry tends to underperform during recessions, which we are currently in. Due to their high dividend they have little in retained earnings to combat the coming recession. But if I maybe brought them a little down the road, as we are nearing the end of this recession, we could possibly see a pick up in shipping business as we coming out of our current economic malaise.


A stock I have had on my watchlist since its IPO is Airbnb. What draws me to Airbnb is their recent financials; up 58% in revenue, 655% in net income and 452% in net profit margin. During this same time frame (year-on-year), the stock has fallen 33%. It has a PE of 60, but if it can continue growing at the rate that it did in the last quarter, then it clearly has a lot of growth in its future. There are 3 reasons to consider Airbnb as a good bet in this climate; it is a cheaper choice for budget conscious travelers, hosts who are lacking in income will be more likely to rent out their property, and it has a self sufficient business model. Its last financials however, show the post-pandemic recovery and growth in the coming quarters will be unlikely to be at the same rate. It is expected that revenue will grow 9.5% to $9.5 billion, and EBITDA will grow 17% to $3.1 billion in 2023. Based on these projections it trades at around 9 times next years sales and 27 times EBITDA. This is more expensive than its peers Booking Holdings and Expedia. So rather than Airbnb, I would be better off to look at buying one of its industry peers.


Another couple of growth stocks currently on my watch list are Plug Power and Chargepoint Holdings, which are both in the electric vehicle services space. Over the past year, Plug Power is down only 4%, outperforming the S&Ps decline of 12%. It is not yet making a profit, which is dangerous in this type of market. Plug Power was founded 25 years ago with the goal of powering the world using green hydrogen. Their system is end-to-end from producing hydrogen to dispensing it to their customers like Amazon and Wal Mart. Chargepoint Holdings has also outperformed the market this year, only down 9%.. It operates a large network of EV charging stations, and operates in 18 countries. It made a total revenue last year of $241 million, almost doubling their revenue in the last quarter, with a market cap of $5.5 billion. They operate 30,000 charging stations in the US alone, with a 73% market share. Most of the Fortune 50 companies utilize their charging stations at their corporate offices. They have also teamed up with BMW so that their locations are integrated into BMWs navigation technology. This all gives Chargepoint some significant network effects over their competition. This all results in a very high price to sales ratio of 15.3, against an overall market average of 2.8. Although, Plug Power has an even higher price to sales of 21.8. The application software industry has a price to sales of 12.4. Chargepoint is the better valued than Plug Power, and seems to me to have the better future. It clearly has very high expectations, but if you are confident that its network effects will ward off future competition, then it might be worth a punt.


The total opposite way for me to gamble is to risk more, much more, on a total income play like MPLX, Pioneer Natural Resources, Oneok, Altria, or Star Bulk (that I discussed earlier). The problem with this is that they all have particular drawbacks. In the case of something in the energy patch like Oneok, the commodities that they produce or they transport, have generally gone through the roof this year. Natural Gas is up 22%. Crude Oil (Pioneer) is up 13%. And a stock like Pioneer has done even better, up 34%. This could signal that you are buying into an overvalued company, but a PE Ratio of 10.4 is pretty reasonable. For a stock like Altria, the dividend is looking juicy at 8.7% because the industry they are in (Tobacco) is in perpetual decline. I already own a stock like this i.e. Verizon, so I know the dangers of investing for a juicy dividend and not a whole lot more. What I wrote earlier about Star Bulk doing better post-recession, is probably applicable now, if you think this recession will end shortly. But for another global shipping stock like ZIM, you need to recognize that it's current dividend of over 100% is based on past payouts, not future payouts. It's price is down 55% so far this year, and could go down further this year and into next.


I need to remember that what I am wanting to do here is to put 'Mad Money' to work, and this means money that I can afford to lose. I think that Star Bulk or Chargepoint are the most likely stocks, of the ones I have discussed, that I will put money to work in. But there is the potential with either one that I could lose it all.



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