Justin Sullivan
Seeking Alpha contributor CashFlow Hunter correctly predicted big problems for Silicon Valley Bank parent SVB Financial Group (SIVB) three months before the firm collapsed. Now he recommends looking for bargains in energy MLPs and shares of Charles Schwab (NYSE:SCHW) — and in some financial stocks unfairly hit by “shrapnel” from the recent failures of SIVB, Signature Bank (SBNY) and Silvergate Bank (SI).
“This explosion in the financial [sector] has created a lot of detritus or shrapnel — however you want to describe it — in the banking space. So, I think there’s going to be a lot of places to pick up value,” CashFlow Hunter said in a recent podcast with Seeking Alpha.
Here’s a rundown of stocks and sectors that CashFlow Hunter touted in the podcast and in some of his latest articles:
Charles Schwab (SCHW)
SIVB’s collapse sparked a serious sell-off in fellow financial firm Charles Schwab (SCHW), which sank more than 20% intraday on March 13 after regulators seized Silicon Valley Bank. Although shares have since partly recovered, SCHW closed Friday at $53.26, down some 36% year to date.
CashFlow Hunter thinks that makes Charles Schwab (SCHW) a good deal here.
He told Seeking Alpha in his podcast the firm only has about 10% of deposits loaned out to borrowers vs. around 35% for Silicon Valley Bank, and that SCHW “has access to hundreds of billions of dollars of liquidity. I really don’t think that they are going to have what I would call a traditional run on the bank.”
The expert added that Charles Schwab (SCHW) is probably too big to fail as far as the U.S. government is concerned.
“They’re just such a central cog in the machinery of this country,” he said. “I mean, they have 34 million account holders, [and] a lot of those are retirement-account holders. … If the feds [stepped] in to try to do something to help Silicon Valley Bank (SIVB) and Signature Bank (SBNY), they would bend over backwards [to] make sure Schwab was OK.”
CashFlow Hunter laid out his “Buy” thesis for Charles Schwab (SCHW) in a recent SA article, arguing that the stock has been “unfairly tarnished from SIVB’s failure.”
UBS
CashFlow Hunter thinks some of the panic over banks has been overdone, arguing in his podcast that regulators might have overreacted in shutting down Signature Bank (SBNY) shortly after SIVB failed.
“Part of me wonders if the regulators had so much egg on their face that they just decided: ‘OK, we’re just not even going to take any risks. We’re just going to shut these guys down,'” he said in his Seeking Alpha podcast. “It’s still not entirely clear to me why Signature (SBNY) went down.”
The expert said such overreactions can provide great opportunities in certain banks, and one that he likes is UBS (UBS) following its Swiss government-engineered acquisition last week of troubled Credit Suisse (CS).
CashFlow Hunter recently analyzed the merger and wrote that “this deal will pay off for UBS immediately and then drive gains for years to come. I see around 20% in short-term upside with over 50% gains over the next 2-3 years and extremely limited downside.” As a result, he rates UBS (UBS) as a “Strong Buy.”
Crestwood Equity Partners and Enterprise Products
CashFlow Hunter is a big fan of select energy master limited partnerships ((MLPs)) like Crestwood Equity Partners (CEQP) and Enterprise Products (EPD) at current prices.
“I like to get assets on the cheap, and I also like to capture what I think are very safe cash flows at very high yields,” he told SA’s podcast. “[MLPs] have traded a little bit off with the weakness in oil and natural gas recently, but I think those are [still] tremendous values.”
The analyst recently rated Crestwood Equity Partners (CEQP) as a “Strong Buy,” arguing that its well-covered 10%+ distribution yield and other positives make it “a really easy place to invest capital.”
CashFlow Hunter similarly rates Enterprise Products (EPD) as a “Strong Buy,” lauding its roughly 7.5% yield. He wrote in a deep dive into the stock that a “combination of a bulletproof balance sheet, irreplaceable assets, growing cash flows and cheap valuation makes EPD one of the premier energy investments available in this and almost any environment.”
To hear all of CashFlow Hunter’s recent podcast, click here.
