Here are five stock ideas that should do well if everything goes as planned. However, as I often do, I’ve limited my list to dividend paying stocks. That way, if I’m wrong about the market, you’ll still get paid while you wait out any unforeseen bumps.
Rentech Nitrogen Partners (RNF)
A November 2011 IPO, Rentech produces nitrogen fertilizer products at its facility in Illinois. Natural gas accounts for most of the cost of producing nitrogen fertilizers. Although U.S. natural gas prices are near historic lows, that is not the case in Europe and Asia where natural gas prices remain high. Thus, it’s cheaper to produce fertilizers in the U.S. than overseas, giving Rentech a cost advantage over fertilizers produced overseas.
Rentech is organized as a Master Limited Partnership (MLP). Although not corporations, MLPs trade just like regular stocks. They don’t pay federal income taxes; instead they distribute their earnings to shareholders. The way MLPs are structured, a general partner runs the business, while individual investors are limited partners. In most instances, the general partner receives a percentage of the profits before the limited partners get their cut. However that is not the case for, Rentech, its general partner does not take a cut. The fertilizer business is famous for its ups and downs. That said, most analysts expect farmers, striving to make up for the drought-ravished 2012, to plant a lot of corn next year. So fertilizer demand should be high. Estimated dividend yield 8.4%.
Telular makes communications equipment that connects residential and commercial security systems to alarm monitoring facilities via wireless networks. Telular also makes products that petroleum and chemical companies use to track storage tank gas or liquid levels. In March, Telular acquired a company that tracks the location of shipping containers, rail cars, rental equipment, and trucks. With a market-capitalization (value of shares outstanding) of $160 million, Telular is a small company, and thus a relatively risky compared to our other picks. Dividend yield 4.5%.
Valero Energy (VLO)
While it’s hard to believe when you’re filling your tank, oil refineries have been only marginally profitable in recent years. But that is changing. Crude oil production volumes in the U.S., especially in North Dakota and Texas, have increased to the point where we are starting to export gasoline to South America, thus opening new markets. Also, natural gas is what powers oil refineries; so lower natural gas prices are translating into higher profit margins.
With 14 refineries, Valero is the largest independent petroleum refiner headquartered in the US. Moreover, Valero enjoys a competitive advantage because its refineries are able to process lower grades of crude oil (sour oil) than most refineries. Valero pays a lower dividend yield (2.1%) than our other picks, but has stronger capital gains prospects.
SeaCube Container Leasing (BOX)
SeaCube, a November 2010 IPO, has been operating under the Seacastle Container Leasing name since 2006. SeaCube buys refrigerated (reefers) and non-refrigerated (dry) steel shipping containers, as well as diesel-fueled generators used to power reefers when transported by truck, and leases the containers and generator sets to shippers. Reefers are the fastest growing segment of the shipping container market, and SeaCube, with a 26% market share, is the biggest player. Dividend yield 6.2%.
Triangle Capital Resources (TCAP)
Business Development Companies (BDCs) were created by congress to encourage the flow of public equity capital to private businesses too small to go public. BDCs don’t pay corporate income taxes as long as they invest at least 70% of assets in private or thinly traded, public U.S. corporations and pay out at least 98% of income to shareholders in the form of dividends.
Out of the more than 30 publicly traded BDCs, Triangle Capital is my favorite. A BDC’s profit margin is essentially the spread between what it pays to borrow money and its lending rates. Because Triangle targets smaller businesses than most BDCs, it is able to raise cash by selling bonds that are insured by the U.S. Small Business Administration, thus giving it access to cheaper money, and thus higher potential profit margins. Dividend yield 8.3%.
As always, stocks that look good to me may not suit your investing needs. So do your own due diligence. The more you know about your stocks, the better your results. Also, I picked these stocks assuming an improving economy and strong stock market. Don’t buy them if those assumptions don’t play out.