It’s easy to get dizzy when markets are moving in multiple directions at once. The crazy moves we’ve seen in recent weeks have been a recipe for confusion – a bear turned into a bull rally, inflation hit a 40+ year high and then retreated, the Federal Reserve made some of the most aggressive interest rate hikes in its history, before to sound a dove note.
For the average investor, charting a course through these waters is a difficult task. It’s at a time like this that some expert advice can provide a clearer picture. Hardly anyone on the street is more valuable than billionaire Steve Cohen.
The legendary stock picker built Point72 into a giant in the hedge fund industry with more than $26 billion in total assets under management. Using what is known as a multi-strategy approach, which includes stock market investments as well as global investments in several asset classes at once based on macroeconomic trends, Cohen is considered one of the best in the business.
With that in mind, we opened TipRanks database to get information on two of Cohen’s latest new positions. These are Buy-rated stocks – and perhaps more interestingly, both are strong dividend payers, with annual yields above 5%. We can turn to Wall Street analysts to find out what else might have drawn Cohen’s attention to this stock.
Highwoods Estates (HIW)
We’ll start with an unsurprising member of the “high dividend club”, Highwoods Properties. This company is a real estate investment trust (REIT) based in Raleigh, North Carolina, owning a portfolio of properties in the Best Business Districts (BBD) of growing metropolitan areas in the Sun Belt: Atlanta, Charlotte, Nashville, Orlando, Raleigh, Richmond and Tampa. In addition, Highwoods also has properties in Pittsburgh, Pennsylvania. The company owns, develops, leases and manages its properties and boasts more than 27.4 million square feet of usable space with 91.1% occupancy.
These properties have generated steady income for Highwoods. The company reported $203.8 million in the top line in 2Q22, the most recent reported, for a 9.8% year-over-year gain. That revenue line supported net income of $50.5 million, or 48 cents per diluted share. At the end of the quarter, Highwood had net real estate assets of $4.9 billion, along with cash and liquid assets of $25 million.
Earnings and assets together held the company’s dividend. Highwood declared in late July a common stock dividend of 50 cents per share, payable on September 13. This marks the fifth consecutive quarter with a dividend at this level, leveling off year-over-year even to $2 and yielding an above-average yield of 5.6%. That yield is nearly triple the average among S&P-listed companies and is high enough to provide some protection against inflation.
It all makes for an interesting stock at a time when defensive plays are gaining steam, and it’s clear that Cohen would agree. His firm opened its position in HIW by buying 103,061 shares. That bet is now worth $3.56 million.
What it all boils down to is summarized by analyst Baird Dave Rogers, who wrote: “We expect HIW stock to outperform an underweight Office group, given the company’s more limited exposure to technology-driven expansion tenants, solid visibility into rehiring needs and a strong balance sheet . 3Q12 leasing is progressing well for the company and its development plan has limited risk or at least bridged the supply gap through our recessionary view. Portfolio upgrades and strategic transactions should limit outperformance in FFO growth, but HIW should provide solid relative near-term risk-adjusted returns.”
Rogers continues to give HIW an Outperform (i.e., Buy) rating, along with a $43 price target, suggesting ~25% upside potential for one year. (To watch Rogers’ record, Press here)
While Rogers is openly bullish, the Street generally has a mixed – if somewhat positive – view of this stock. The 10 recent analyst reviews are split down the middle, with 5 buys and 5 holds for a moderate consensus buy rating. Shares are trading at $34.53, and their average price target of $38.78 suggests about 10% upside over the next year. (See the HIW stock forecast at TipRanks)
For Cohen’s second pick, we’ll turn to the Chinese digital market. A notoriously complex language and authoritarian government combine to keep China’s digital world isolated from the West – but the country has an urban population of 800 million, a total population of 1.4 billion and a “digital” population of connected internet users of more than 1 billion . In terms of scale, China’s Internet scene deserves a second look from investors.
Within this internet scene, JOYY is a major social media company operating multiple brands that act to connect users through video formats. The company’s brands include live streaming Bigo Live, short video provider Likee and networked multiplayer social gaming platform Hago.
JOYY will report its 2Q22 numbers later this month, but we can get an idea of the company’s trends by looking at its 1Q22 numbers. At the top, JOYY brought in $623.8 million, down 3% year over year. However, net income, on a non-GAAP basis, came in at $20.9 million, a huge turnaround from the $24.1 million net loss reported in the prior-year Q1. This turnaround was driven by gross margin improvements, more disciplined marketing efforts and an overall improvement in operating efficiency.
Along with improved operational efficiency, JOYY has amassed a cash “war chest” totaling more than $4.47 billion. The company is also cash positive from operations, generating $592 million in cash from operations in Q1.
After becoming profitable and accumulating a lot of cash, JOYY now has a solid dividend payout base. The company paid out 51 cents per common share, with the last payment sent on July 6. The annual payment of $2.04 yields a strong 7.25%, which is well over 3x the average dividend yield.
Steve Cohen showed he was impressed with JOYY’s attributes and did so with a big buy. His firm acquired 198,000 shares of YY, creating an initial position now worth $5.3 million.
5 star reviewer Fawn Jiang, of Benchmark, is also considered a fan. Jiang sees a company with clear appeal to value investors. The analyst says YY is a “strong cash play” and writes, “YY currently has a cash balance of $43 per share and could increase its cash balance to ~$70 in cash per share after the YY Live sale closes (pending regulatory approval). The company has issued total share repurchase plans of $1.2 billion in 2021 (with $316 million of repurchases made in 1Q22). YY pays quarterly dividends with an annual dividend yield of 5%. The group turned profitable in FY21, effectively reducing concerns about potential cash burn.”
This is a bullish position and Jiang’s rating on the stock is Buy. Jiang backs this with a $62 price target, indicating confidence in a robust one-year upside of 131%. (To watch Jiang’s record, Press here)
Overall, JOYY has 4 recent analyst reviews, including 3 buys and 1 hold, making the analyst consensus a Strong Buy. The average price target of $57.67 suggests the stock has ~115% upside potential from its $26.81 share price. (Check out the JOYY stock forecast at TipRanks)
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Rebuttal: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.