Last week’s stock-market drop, and subsequent rebound, have the mainstream crowd paralyzed.
They have no idea what to do!
Some are selling. Many are holding. But this, to me, looks like a sterling buying opportunity.
That’s especially true with our CEF Insider service’s equity-fund holdings. One, in particular, sports a particularly attractive “double discount”: one on its oversold portfolio (its net asset value, or NAV, in CEF-speak) and one on the fund itself, which trades at a 12.6% discount to that NAV.
And that discount has been “held over” due to recent choppiness. Given how fast the market drops, then snaps back, these days, this could be a bargain on borrowed time.
AI Worries Look Overdone
The midterms have brought fresh worries about an AI bubble, specifically that the new Democratic Congress will slow down the data-center buildout.
But let’s be honest: AI is here to stay. And even if the data-center buildout slows, AI’s spread—and its benefits to the economy—will keep spreading. As that continues, the benefits will keep moving out from the tech sector and into the broader economy.
Meantime, Corporate America is entering this new era on solid footing.
We’re now in the midst of earnings season, and even before the midterms, there was growing concern about tech profits. That’s only been magnified in the past week or so, and has been a big part of this recent volatility.
But the numbers don’t back it up.
As you can see above, tech companies have reported 69.2% earnings growth in the third quarter, based on results so far. And crucially, earnings growth exists across all sectors, with the S&P 500 posting a profit-growth rate of 31.4%. If that stays in place, it’ll be the third consecutive quarter of earnings growth over 25%.
I think it’s clear that even if there is a regulatory slowdown around AI, it’ll likely take months to come into effect, and even then it’ll likely be gradual, giving companies time to adjust.
In other words, the current worries over tech, overall profits and indeed the economy as a whole look overdone. That’s especially true when you look downstream. Initial unemployment claims have been falling since the summer, despite fears that AI will hamper the job market.
Then there’s the following chart, from Apollo Global Management, one of the world’s largest private-equity firms. It makes a compelling point: Unemployment has been below 5% for over five years (or 61 months, to be more specific), near the 64-month record of low unemployment that began in 1965.
All of this points to a corporate sector that’s performing well and a job market that’s holding up. To be sure, it’s not all a pretty picture, as recent wage growth has trailed inflation.
But at the end of the day, the stock market should reflect earnings growth. And this year’s rise in the S&P 500 (around 11% as I write this) falls short.
This, for us contrarian income-seekers, is setting up a tidy window for buying. Which is why we’re going to spotlight the Liberty All-Star Growth Fund (ASG) today.
It’s an 8.9%-yielding holding of my CEF Insider service whose discount to NAV has been pinned down around the 12.6% level in the last few days. That’s partly because its top holdings include NVIDIA (NVDA), Alphabet (GOOGL), Microsoft (MSFT) and Apple (AAPL). All four have been caught in the downdraft of yet another rising wave of fears around AI.
The fund essentially gives us two discounts in one buy: One on its oversold portfolio (its NAV, in other words) and one on the fund itself: As mentioned, ASG trades at a 12.6% discount to that NAV now. This combination compounds the discount, giving us potentially stronger returns in the future.
As mentioned, ASG pays out an 8.9% dividend to shareholders, and its top holdings are showing strong growth—a 47.4% increase in profits in the last 12 months, compared to a year earlier, on average across the fund’s top six holdings: NVIDIA, Alphabet, Halozyme Therapeutics (HALO), Meta Platforms (META), Microsoft and Apple.
Also, ASG isn’t swinging for the fences: Most of these are well-known companies with strong growth histories.
It’s true that the Chinese spy scandal has been hitting NVIDIA over the last few days, but I suspect that’s a short-term story and buying opportunity; the whole mess is embarrassing for Jensen Huang and fodder for talking heads, but at the end of the day it’s not likely to slow demand for NVIDIA chips.
But the recent panic has caused this fund to be far oversold, and that’s why its discount—which makes its 8.9% yield on price a sustainable 8% when calculated on ASG’s NAV—makes it attractive.
That payout is tied to the fund’s NAV per the fund’s distribution policy, so a higher NAV puts upward pressure on the payout, too. The fund’s profits over the last decade have been 11% per year on average, which is far higher than the 8% it pays out to investors.
This kind of performance is out of step with ASG’s 12.6% discount. Which is why I continue to recommend the fund in CEF Insider, for both upside and high income.
AI’s Next Winners Are NOT Tech Stocks: 4 Funds Yielding 10% on Average
ASG gives us a discounted stake in AI’s builders, like NVIDIA, Alphabet and Microsoft, plus an 8.9% dividend while we wait out the panic.
But AI’s next big payday is more likely to go to the technology’s users: the companies putting this technology to work far beyond Silicon Valley.
I’ve pinpointed 4 of these “pivot points,” which the mainstream crowd is missing:
- Drugmakers using AI to speed up new treatments.
- Factories handing more of the work to robots.
- Power producers racing to keep up with rising electricity demand.
- And banks providing financing to companies using AI to expand.
Better yet, I’ve zeroed in on a CEF to tap each of these “quiet megatrends.”
Together, these 4 funds yield 10% on average. On a hypothetical $500,000 portfolio, that works out to about $4,167 a month in dividend income.