While 2023 is still relatively young, the markets have already proved to be extremely difficult to navigate this year. Bullish in January, bearish in February and back to the bull again so far in March, the swings make it impossible to know what’s up next.
One simple solution to help make sense of the confusion is to just take a leaf out of the “legendary investor” playbook. And hardly any come more legendary than George Soros.
Some quarters might not be too keen on the “man who broke the bank of England,” with Soros often the target of conservative conspiracy theories but that doesn’t alter the fact he has decades of nearly unrivalled investing success behind him.
With uncertainty ruling the roost right now, nestling in Soros’ portfolio are some stocks tailor-made for such times; dividend stocks with big yields in the order of 9% – more than enough to beat the current inflation rate.
For a fuller picture of these stocks’ prospects, we ran the tickers through the TipRanks database to also see what the Street’s stock experts have to say about them. Let’s take a closer look.
OneMain Holdings (OMF)
The first ‘Soros pick’ we’ll look at is OneMain, a consumer finance company with a difference. OneMain offers a full range of retail financial services – but its customer base is in the sub-prime market, people who would have difficulty accessing services through more traditional banks. OneMain can provide its customers with everything from affordable loans to finance and credit to insurance products and policies, and it has become a leader in the sub-prime finance niche. To mitigate risk, OneMain engages in a careful customer screening process and can boast that it has kept its default rate to a low level.
aking a look at OneMain’s financial releases, we find that the company beat the earnings expectations as 2022 came to a close. In the 4Q22 report, the company showed pre-tax quarterly income of $238 million, and a net income of $180 million. While down year-over-year, these results supported an adjusted diluted EPS of $1.56, which was 3.3% above the $1.51 forecast.
While the financial results were gratifying, the company also raised its dividend payment significantly. In the last declaration, the common share payment was bumped up by 5.3% to an even $1 per share. The annualized rate of $4 gives the dividend a yield of 9.2%. That’s 4.5x higher than the average dividend yield among S&P-listed companies, and a full 2.4 points higher than the last inflation data, ensuring a real rate of return for investors.
This consumer-lending-services firm was clearly attractive to Soros. The billionaire opened up a new position in Q4, buying in to the tune of 275,000 shares. This stake is worth $12 million at the current valuation.
So, Soros is evidently confident OMF can withstand any bearish macro trends, and so is Piper Sandler analyst Kevin Barker. The 5-star analyst writes: “The market appears to be rewarding consumer lenders that are close to reserving for a mild recession or embedding one in their guidance. OMF guided to NCOs (net charge-offs) that were roughly in-line with consensus while stating trends should improve in 2H23—implying credit headwinds are close to peaking. Although we continue to have macro-economic concerns, OMF appears well positioned to handle at least a mild recession and earnings should trend higher in 2H23 and into 2024.”
Putting some concrete numbers onto this stance, Barker gives OMF shares a price target of $51, suggesting a one-year upside of 17% and backing up his Overweight (i.e. Buy) rating. Based on the current dividend yield and the expected price appreciation, the stock has ~26% potential total return profile. (To watch Barker’s track record, click here)
Overall, there are 11 recent analyst reviews of this stock, breaking down 9 to 2 in favor of Buys over Holds. The shares are priced at $43.64 and their $50.73 average price target is almost the same as Barker’s objective.
Energy Transfer (ET)
Next up is Energy Transfer, one of North America’s largest midstream players in the hydrocarbon sector. Energy Transfer makes its business moving crude oil and natural gas products from the wellheads to the refining, terminal, storage, and distribution points, through a network that includes almost 120,000 miles of pipeline assets. In addition, Energy Transfer has assets in oil and gas gathering facilities, fractionators, processing plants, storage farms, and export terminals. This wide-ranging network is centered near the Gulf Coast, in the states of Texas, Louisiana, Arkansas, and Oklahoma, but also branches out to the Great Lakes, the Mid-Atlantic, and Florida.
All of this is big business, as shown in the company’s recent 4Q22 results. Revenue came in at $20.5 billion, for a 10% year-over-year gain, while the operating income rose from $1.7 billion to $1.8 billion. At 34 cents per share, the diluted EPS was up 5 cents, or 17%, from the prior-year quarter. That said, both the top-and bottom-line figures missed expectations.
Nevertheless, the company’s solid position allowed it to raise its common share dividend for the 5th quarter in a row, increasing it by 15% to $0.305 cents. This annualizes to $1.22 per common share, and gives a yield of 9.3%, enough to beat inflation by 2.9 points. The company has kept up its reliable dividend payments since 2006.
These are solid attributes for a defensive stock, and Soros has a long-standing stake in ET, totaling 477,750 shares. This stake is currently valued at $6.22 million.
Stifel analyst Selman Akyol also likes the look of what’s on offer for investors here. He writes: “Energy Transfer is now operating within its leverage target of 4x-4.5x and we estimate distribution coverage of ~2.0x. Therefore, we expect substantial room for growth spending above $1.8 billion, distribution increases or unit repurchases, but we believe the first two are more likely. Finally, we view ET’s current yield of 9.3% as substantially more secure than in the past and the leverage reduction completed over the past several years will ultimately reward investors…”
“Overall we remain positive on ET given its significant and well covered yield, FCF generation and incremental growth potential beyond 2023,” Akyol summed up.
Source: Yahoo
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