Before I explain what CTT is about, some good news! Momentum returned to the market this morning. Small-cap and nano-cap stocks rallied.
Investors largely left the mega-cap stocks. This is the environment where I like to bring cash back off the sideline. If momentum goes negative again, I’ll just move back to cash. Now, I’m looking across a market that looks like we’re about to start revving back up despite the concerns about Russia, higher commodity prices, stagflation, and China’s economic policies.
The Fed’s statement yesterday was critical because markets like predictability. The Fed didn’t tell us anything that could shake the boat. Fed Chair Jerome Powell said the central bank doesn’t want to add any uncertainty in a time of uncertain conditions.
We’ll have several more rate hikes this year. That’s no surprise. That said, the central bank didn’t tell us a timeline for tightening its balance sheet. We’ll likely discover that timeline when the Fed releases minutes from this week’s meeting in three weeks. With that in mind, I’ve been sitting on cash. And in this environment, I want to focus on ways to profit from any rally we see – even if it lasts only eight or nine trading days…
Looking for Value and Momentum
I want to find a stock that is trading so cheap that investors have to pay attention to it. Forget chasing some hot EV. Forget trying to speculate around biotech and consumer stocks. I’m going to get boring. I’m going to find something that is very tiny (under a $1 billion market cap) and can outperform in March and beyond. A real “Cinderella.”
So, I’m looking at CatchMark Timber Trust (CTT). This is a company that invests in the timberlands industry. They operate in the mill market. They manage – lumber. Yes… lumber. And with the threat of stagflation and rising commodity prices, there’s no better offensive and defensive mix than what a company like CTT does.
Lumber companies like CTT have VERY significant backlogs due to the housing market. As a result, they can expand their timber operations in times of economic growth and tighten in times of economic weakness. And looking at CTT, this is so freaking cheap that it makes my eyes pop. Hedged funds are net buyers of this firm trading at a PE ratio under 7. It pays a dividend of 3.6%, and it’s something that I can buy and sell some calls on top of to generate even more revenue.
Stagflation appears to be here, says Goldman Sachs. And I’m looking to put money to work in stocks that became strong buys during the recent pullback. By purchasing something like CTT, I have spotted the floor for this company – instead of speculating on Cathie Wood-style stocks that likely haven’t found their bottom yet in 2022.
If consolidation comes to this industry, I think this would be the first target on the board as well. While merger speculation is never a reason to purchase a stock, I do see a deeply undervalued stock in an essential sector – one that is managed exceptionally well in times of uncertainty.
Consider picking up 100 shares and look to sell some covered calls on this stock. Meanwhile, I’ll look for this stock to get back into double digits later this year. I’ll be back tomorrow to talk about Quad Witching and what to expect next week.