Best stocks for 2020: Hercules Capital Stock returned 41.5% in the second quarter
Editor’s Note: This column is part of InvestorPlace.com’s Best Stocks for 2020 competition. Neil George’s choice for the contest is Capital of Hercules (NYSE:HTGC).
The second quarter of 2020 saw one of the best U.S. stock market returns since 1998. S&P500 returned 20.5%, which is a huge rebound from the horrendous first-quarter plunge. And while the S&P 500 is still in the red by 3.1%, that’s much better than that huge dip resulting in a loss of 33.8%.
But what really performed in the second quarter were tech stocks. The S&P Information Technology Index posted a 30.5% return in the second quarter. This represents a return nearly 50% higher than that of the general market.
But one of my favorite stocks in the model portfolios of my Profitable Investing did better than the general market and the technology market. It also happens to be my choice for InvestorPlace.com’s Competition for the best actions. Capital of Hercules (NYSE:HTGC) the stock returned 41.5%. And he did it by being at the heart of American technology in Palo Alto, California. In fact, it’s one of the leading companies working on technology development – and it’s benefiting well along the way.
Hercules Capital (HTGC) Total return
Hercules Capital has done all of this with strong price gains and its extensive series of regular and ongoing special dividends. HTGC stock has an annual return of 13.7%. And it’s not just a flash in the pan for the shareholders of this company. Over the past 10 years, the stock has returned 186.1% for an equivalent annual return of 11.1%. This proves high reliability.
Hercules benefits from a big boost for technology
Hercules Capital is an alternative finance company providing equity financing to technology companies at various stages of development. Technology is one of the most forward-looking segments, even through the novel coronavirus. Indeed, the sector provides solutions for remote commerce, management, and life science products and services. Many companies in Hercules’ highly diversified portfolio should continue to grow.
It is structured as an investment holding company, also known as a business development company (BDC) under the Investment Company Act of 1940. BDCs were codified under the Small Business Investment Incentives Act of 1980. corporation to largely avoid federal corporate income tax. In other words, it helps Hercules Capital generate more cash and make larger dividend distributions.
Hercules is a VC-type company that is entirely focused on technology and technology-related businesses at various stages of development. It provides loans to finance business development as well as asset-based financing. He works with his companies to lead them to IPOs or acquisitions by larger companies. And since its inception in 2003, it has successfully worked with nearly 500 companies, bringing billions of dollars of value to markets.
Unlike many other BDCs, it does not participate in collateralized loan obligations (CLOs) nor does it involve mortgages or mortgage-backed securities (MBS). This limits its risk and contributes to its transparency for shareholders.
All about the Hercules Capital portfolio
HTGC breaks down its portfolio of companies into four main groups. The first is life sciences, which includes many pharmaceutical and therapeutic companies. Then there is general technology which includes many leading companies in various industries and markets. The last two groups are sustainable and renewable energy companies and special opportunities.
Life sciences companies make up about half of its current portfolio. The full list of the current wallet list can be found here. In addition to its life sciences businesses, the rest of its portfolio includes technology companies in 16 industry groups.
Hercules has plenty of bold names that it has successfully worked with over the years. And currently, he works with companies whose FanDuel in the increasingly popular sports game market. He has Light energy source in renewable energies. Oh, and HTGC also has American superconductor (NASDAQ:CSIA), leading to greater energy efficiency.
Another great thing about Hercules is that it benefits from current technology trends. In his wallet he has DocuSign (NASDAQ:DOCUMENT) for online contracts and agreements as well as Evernote for cloud-based document management. And it has innovative food brands, including at Annie’s and impossible foods. Finally, for those looking for more personal and family information, it also has 23andme as well as Ancestry.com.
How does HTGC work?
So how exactly does it work? For starters, know that financing is not just about making a loan to these companies. Hercules also obtains stakes in each transaction, and these stakes provide the company with gains as its portfolio activities progress.
And he just doesn’t sit around waiting for the phone to ring. Instead, Hercules relies on his key location. He’s based in America’s tech hub in Palo Alto, California, so he knows everyone in the tech field. And it also has strategic offices across the country that help it connect to other clients and financial partners. For example, he has a very special team in Washington, DC. The US government offers many opportunities for technology companies – and Hercules strives to make it possible for its customers.
Hercules is not limited to financing and equity participation, it also provides advice as companies develop and mature. In turn, this helps businesses become more profitable for Hercules.
Best Stocks: Choose HTGC for Dividends and Value
HTGC stock is a great choice because of its dividends. It distributes dividends in regular amounts, currently offering up to 32 cents per share. But he also has additional special distributions throughout the year, including the 8 cents he paid on March 9. This brings the annual dividend to 13.7%.
But what really makes a buy compelling is that the stock is so cheap – even with last quarter’s big yield. Even with all the embedded tech equity and all the income-generating assets, the stock is priced barely above its intrinsic value. The price book is only 1.04 times. This compares to the average price of S&P Information Technology Index members of 8.86 times, making Hercules a real bargain right now. And with S&P Information Technology’s average dividend yield at just 1.2%, Hercules’ 13.7% is even more of a value proposition.
I have Hercules Capital as a purchase ideally in a taxable account under $12.25.
Neil George was once a star bond trader, but now he works day and night to steer readers away from the traps – and in safe and high-performing income investments. Neil’s New Income Program is a Cash Generating Machine…a Machine That Can Help You collect $208 every day the market is open.