My second top pick in the Industrial sector is 3M Company (MMM). This is one the leading industrial ...
Todd Shaver's Concentrated Focus
02/10/2016 10:00 am EST
Though a long-time veteran of financial markets, Todd Shaver has just launched the Bull Market Report. Here, we discuss the goals of the service, his investment strategy and concentration on a small number of favorite stocks, and a trio of his latest recommendations.
Steven Halpern: Our special guest today is Todd Shaver, editor of the Bull Market Report. How are you doing today, Todd?
Todd Shaver: I’m doing great! How are you, Steve?
Steven Halpern: Very good. Thank you for taking the time. You’ve been an expert in the financial industry for over three decades. Could you tell our listeners a little about your background and what led you to the newly launched Bull Market Report?
Todd Shaver: All right, well, yeah, I’ve been in the Wall Street arena for well over 30 years. I’ve been a trader. I’ve been a trader of options. Been a trader of futures. I’ve been an investor. I’ve invested for other people. This led to the start of the Bull Market Report in 1998.
It was quite successful. Although the dot.com crash of March of 2000 was sort of the end of the bull market, it’s a bit difficult to work with a company called the Bull Market Report when you’re in a bear market, but we survived.
I sold the company in ’05 and just recently I was able to buy the company back and relaunch it after it had been shut down for a couple of years. I’ll tell you, the subscribers are very, very happy that I’m back and we’re excited to be back as well.
Steven Halpern: Well, it’s great to be able to introduce you to the MoneyShow audience. Let’s talk a little so they can learn more about your strategy. Now, despite the market volatility and so many naysayers on the outlook for the economy, you recently stated we are bullish on American, the stock market and US stocks. Could you expand on that?
Todd Shaver: Yeah, I did say that. What I meant to say is that you know there are a lot of equities that you can buy in China. You can pick and choose from Europe. You can go to South America.
And my take on that is; listen, there are 10,000 stocks in America on the United States stock market, the NASDAQ, and it’s difficult enough to find the really great ones in this country, so why go overseas?
Especially since we don’t really know what’s going on with the government in China and how they control the market. We stick to American. We are bullish on the United States. Economy is fairly strong. It’s very entrepreneurial.
Just look at what I’ve done here recently, restarted a company at my exalted age and I know a lot of young people here in Aspen, 20s, 25, 30, 35, and they’re all thinking about starting companies or are starting companies.
A friend of mine today, he’s been in business one year. He has 18 clients in the architectural world. We’re very entrepreneurial and we look forward to good things happening in the future with the stock market.
Steven Halpern: Now you maintain a very concentrated strategy, which focuses on 20 favorite stocks with an even more concentrated focus on the ten that you call Super Likes. Can you explain this approach?
Todd Shaver: Well, actually, we’re going to expand that to probably between 30 and 40 stocks. We have just started a second portfolio. The first one was called 20 Stocks for Success, as you mentioned.
The second one is toward special situations, companies like Twitter (TWTR) and GoPro (GPRO), which, price-wise, the stock have been absolutely hammered. They look like turnaround situations. They are turnaround situations.
And in Twitter’s case, the founder has come back and—not unlike what we’re doing here with the Bull Market Report—the founder is back and we always like that. When that happens, usually good things happen. Anyway, that’s in our special situations portfolio.
The 20 stocks for success are essentially all buys. People are always asking me do I have a buy target. Take any stock up to an $80 stock. Would you buy it at 80? Would you buy it at 70? Of course we’d buy it at 70 if we like it at 80. The 20 stocks that we like are buys now.
For example, a company like Apple (AAPL) has $216 billion in cash. If you equate that as a per share basis, it’s essentially $40 a share in cash. There’s no company like it in the world that has this much cash. The stock is trading in the middle $90s now and $40 of that is in cash. Yes, they are changing from a growth stock to a value stock.
Their last quarter sales were a little bit flat. I don’t know if you call selling 75 million iPhones in the quarter flat. They are a great company and they are still in a growth base. They are going places. That’s just one example of the type of securities that we follow in the 20 Stocks for Success.
Steven Halpern: What’s interesting, I read in one of your recent reports—and I’m not sure if it was serious or in jest—but you said you could actually write an entire newsletter than only focused on Apple. Are you that positive on the outlook and would you consider it a core holding for any long-term investor?
Todd Shaver: Before I was able to get this company back—the Bull Market Report—I was considering starting a company called the Apple Investor. I still have that URL and I may start the company up in the next 12 months or something because there are two kinds of people in the world: There are those that own Apple and those that don’t.
Those that own Apple are thinking, is the story over? Should I sell now? Those that don’t own Apple are thinking, is the story over? Is it too late to buy? I say that a little bit tongue-in-cheek, but it is true.
Apple is actually neck and neck now with being the largest market capitalization company in the world, right next to Google (GOOG).
They’ve fallen back a little bit from the high of $134 down to $96 as we’re speaking right now. They are very innovative. They have over 60,000 unbelievably intelligent employees.
They’re working on all types of things for the future and we have not given up on them here at the Bull Market Report. We think it’s a core holding.
Even if the stock sits there at $96 for the next six months, that would be fine with us. They’ll just accumulate more cash and we could see them setting a new all-time high hopefully sometime in the next 12 months.
Steven Halpern: You’ve mentioned Apple and Twitter—both tech companies—but just so our listeners understand, you follow a broader universe of stocks outside of technology. In fact, one you’ve recently recommended is Annaly Capital Management Mortgage Real Estate Investment Trust (NLY). What’s the attraction here?
Todd Shaver: Annaly is a very interesting company. They’ve been around for over 20 years and they are currently paying a dividend. I haven’t looked lately, but I think it’s in the 11.5% to 12% range, which is absolutely amazing. They do it without paying back any of their capital.
There are many companies—business development corporations—that take part of their capital and part of their assets and they pay it out as a dividend. This is not the case with Annaly. They actually produce this in profit and they pay it out—since they’re a REIT, they have to pay it out—they have to pay 90% of it out in the form of a dividend.
Basically, what they do is they take their capital. Let’s just say for the sake of argument it’s $1 billion. They then go borrow five times that from the bank and they go out and they buy government securities—Ginnie Mae’s, Fannie Mae’s—that are backed by the full faith and credit of the United States government. I used to say that AAA rated, not quite AAA rated anymore, but pretty darn close.
They pay the bank strictly round numbers on the order of something very low because interest rates are so low, 2.5% to 3%, and they’re getting 5% to 5.5% on these government-backed securities.
If you do the math, between their capital and the five times the capital that they borrowed, they’re actually producing a profit on the order of somewhere between 13% and 15% on their capital. They’re happy to pay out 11% to 12% after they pay out all the expenses of running the company, and the executives, and so on.
Every time interest rates start to move up, the whole world goes like, “Whoa! You’ve got to sell Annaly; you’ve got to sell Annaly!” But you know what? They have lived through thick and thin. They have been through high interest environments, low interest rate environments, bull markets, bear markets, for over 20 years.
They’re listed on the New York Stock Exchange. They’re still worth well over $10 billion market cap. It’s just something that I think most people can take a hard look at and certainly put some of their capital into this stock.
Steven Halpern: Again, our guest is Todd Shaver. Congratulations on the re-launch of the Bull Market Report and thank you so much for taking your time today.
Todd Shaver: My pleasure. Let’s look for a bull market to resume very, very soon.
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