Investing in America is the theme this week of a major, unnamed (oh, well, Jim Cramer) stock guy famous for screaming on television. He is right – he is late to the game, actually – it is time to invest in the American energy and manufacturing renaissance that is in its very early stages. Where to start? Energy, specifically fracking. What there? This is where growth can be found – serious, double digit growth. Second, yield – why just wait for the appreciation of a stock? Buy a growth stock with yield and sell come calls against it. Or if you do not want to own the shares, sell some puts.
Calumet Specialty Products (CLMT): I have written about CLMT before; it is a specialty refiner with roughly $4 billion in top line revenues. I guess that is too small for Wall Street. The company has more than 80% of the world aviation lubricant market, has a very favorable diesel to gasoline mix in its Midwestern refineries (notice the location?) and is building a new diesel refinery smack in the middle of the Bakken fracking fields in North Dakota. This will increase cash flow when open, giving the company plenty of ability to raise its already fat dividend, currently at 7.8%. Sell calls every month and you can add up to $3.50 per share in cash, increasing your yield north of 20%. And I think the stock is good for $42 this year. Now you have a return of more than 40%. Sell puts every month. This month if you sell the July $35 put that is a about a buck in the money you get about $0.75 in premium. Do that twelve times a year and you get $9.00 in premium – a return of 26%.
USA Compression Partners (USAC): I don’t consider USAC speculative in the way a biotech or software company is speculative before they generate revenue, I consider it speculative because their trailing P/E is 105 and is up 35% in five months since its IPO. USAC does have revenue — $118 million in 2012, $32 million last quarter. The IPO is providing the investment and working capital needed to grow much faster than the industry. Oh, what does it do? When gas comes out of the ground, it needs to be compressed and cleaned up or it is useless. The company is focused exclusively on shale fields and rents out its equipment. Analysts estimate the yield could be between 5% and 6% at these levels. The company thinks distributable cashflow will be higher, up to $56 million or $1.90 or so a share, a yield of 8.3% at current prices. Sell calls every month and you can add more than $3 a share to that dividend, increasing your yield to 21%. Sell puts twelve times year based on today’s numbers and you get roughly the same return. But if the stock appreciates – I think is good for $30 this year – owning it and selling calls produces a return of about 50%.
Michael Shulman is the author of Made in America.