Although some of my individual stock holdings have taken a beating, we remain invested because we think these stocks have a sound business model that will recover rapidly when this crisis ends, asserts growth and income expert Mark Skousen, editor of the industry-lead advisory service, Forecasts & Strategies.
One of these is Main Street Capital (MAIN), a Houston-based business development company (BDC). Main Street has financed more than 100 small and medium-sized companies across the nation. MAIN also has several investments in small companies involved in the energy field, but they represent only a small percentage of its financing operations.
But there is good news. Company insiders are buying the stock, taking advantage of the crisis. MAIN issued an important announcement, stating that the company insiders are buying stock, and believe their diversified portfolio and the company’s limited use of debt will serve them well to survive this crisis.
I was shocked by the sudden collapse in its share price, especially after it beat Street estimates for the fourth time in a row, with quarterly earnings of 62 cents a share. That’s down from 69 cents a year ago. For the year, its earnings are up 69%.
The reason for the selloff? Small businesses have been hurt by the virus scare more than major corporations, and investors fear the worst.
I had a long talk with MAIN’s Chairman and founder, Vince Foster, who is just as surprised as anyone by the sharp sell-off of MAIN and all the other business development companies. He said that the current environment reminds him of the financial crisis of 2008-09.
Nowadays, the selling has been heavy due to hedge funds having to unwind positions into brutal markets with no buyers, while some of them were 10-12X leveraged, in addition to the impact of computer-driven trading. They had to sell.
Foster has confidence that the company will survive this crisis and may even profit in the long run. Expect MAIN to pick up some nice businesses at bargain prices with its ample liquidity and permanent capital base.
What about the monthly dividend? Vince Foster assured me that MAIN has sufficient capital to keep the monthly dividend at its current level. I believe Main Street Capital will survive and even prosper at the end of the day.
He said that MAIN didn’t have a single default on its loans during the 2008-09 crisis and it actually raised its dividend. MAIN’s top priority now is to maintain the monthly dividend. Want a bargain opportunity for income seekers? Earn 13% a year if you buy MAIN now.
