One area of interest is income stocks. To me, these are companies and stocks that pay well above average dividend payouts. I am talking about stocks that pay 8%, 12% or even higher. The challenge with these companies is that by allowing the dividend rate to be so high, the market is assuming there is a high degree of risk that the payout rate will not continue. My challenge is to attempt to determine/guess if the dividends will continue or even better increase.

The second type of stocks are those I will call growth stocks. I look at several factors that I think will give a stock market beating performance. First, I love unfollowed stocks. If they have 1-3 analysts predicting their future, the odds of them accurately predicting the future are slim. I like a classic growth stock, whose earnings and revenues are growing significantly faster than there PE would indicate. In this case the market does not believe the growth is sustainable. Gigamedia (GIGM: 2.08 0.00 0.00%) is a good example of this type of company. I am also interested in turn around plays where a company’s earnings have fallen on hard times and the company is taking steps to get back on track. Headwaters (HW: 3.46 0.00 0.00%) and Tetra Technologies (TTI: 8.85 0.00 0.00%) fall into this group. I also have a strong interest in smaller cap international companies, especially those based in South America as I have additional interest and knowledge about that region.

Sometime over the next few days I will start dismantling the 20 Stock Portfolio and setting up an Income Portfolio and a Growth Portfolio. Right now I will continue tracking the portfolio stocks on an equal dollar weighted basis and updating quarterly. The current components will be the ones from the old 20 Stock group minus the ill fated Thornburg Mortgage (TMA: 0.79 0.00 0.00%).

Last note: I am going to try to generate more commentary on topics of general investing interest. I will still try to give good analysis of the stocks that interest me, but I want to broaden what I am writing about. So if you are not a regular reader, I hope these new changes tempt you to become one.

The letter states that spot rates for their tankers have been good and the first quarter dividend will be over $1.00. This will be a nice change from the last two dividends of 40¢ and 50¢. Official earnings and dividend declaration will be in early May.

Nordic American does not try to do anything fancy with their business, stock or dividends. Their fleet of tankers is managed to have very low overhead, they lease only in the spot market and the majority of earnings are paid out as dividends each quarter. The tanker fleet has grown over the last several years and they should continue to add new ships. The dividend can fluctuate tremendously with spot tanker rates. Mr. Hansson believes the spot market will give the best returns over time and that is where the company places 100% of their efforts.

Investors and money managers looking for steady results should stay away, but I find the company very intriguing and an investor with a longer term investment horizon can definitely pick up discounted shares when the dividend is low and reap the rewards when spot rates pick up.

A few months ago, I found this video from CNBC very entertaining. If you know anything about NAT it is filled with errors.

Note: I currently do not have a position in NAT.

U.S. Bioenergy had fallen to negative profitability (i.e. losses) by the last quarter results. VeraSun is still generating profits and I expect them to improve the efficiency and assets of the acquired plants.

The other press release is here. This one announces the completion of an ethanol plant in Ohio that brings VeraSun’s annual production capacity over 1 billion gallons. For comparison, VSE shipped 353 million gallons in 2007. The company is still in a strong growth mode as far as production goes.

I also have a few points concerning the ongoing viability of corn ethanol as an alternative fuel. There has been a lot of press lately concerning the value of corn ethanol. In my opinion it is the only significant quantity, U.S. produced, non-oil, vehicle fuel that will be available for several years if not longer. On to my points:

• Almost all of the cars currently on the road, all built since 1999, are certified to run on ethanol blends of up to 10% (E10). Ethanol is the only current way to significantly reduce petroleum use for vehicles currently on the road.

• Many cities mandate E10 gasoline to lower carbon monoxide emissions to meet federal clean air standards. Since it was discovered that MTBE loves ground water, ethanol is currently the only gas additive that reduces emissions.

• Three states have mandated E10 minimum for all gasoline and others are considering similar regulations. In 2007 the California Air Resource Board (CARB) passed regulations that all gas sold in California will be E10 or greater by 2010. California will require at least 1.7 billion gallons of ethanol per year to meet the mandate.

I have written in the past that I believe VeraSun Energy will become a major producer of ethanol on a profitable basis. Their low cost structure allows them to be profitable even when crush spreads are tight and they will make a lot of money if/when the crush spread spreads.

Note: I currently do not have a position in VSE.

The portfolio finished the quarter with a return of negative 12.08% for the 3 months. The 0.75% earned in dividends had negligible effect on the overall return. My -12% fits neatly between the S&P500, down 9.9% and the NASDAQ, off 14.1%.

Although 13 of the 20 stocks in my portfolio were negative for the quarter a majority of the actual overall loss came from just two stocks: Thornburg Mortgage (TMA: 0.79 0.00 0.00%) is flirting strongly with bankruptcy and has lost 87% of the value it started the quarter with. And Thornburg was up 50% at one point in February. Number 2 on the list of dogs is VeraSun Energy (VSE: 0.00 N/A N/A) which shed 52% of its value. VSE has been hit by high corn prices and negative sentiment concerning ethanol as an alternative fuel. With TMA and VSE starting the quarter as 10% (2 of 20) of the portfolio, they managed to be responsible for almost 7% of the loss on the total portfolio.

The next two on the loser hit parade come from opposite sides of the stock spectrum. Number 3 dog, Terra Nitrogen Co. L.P. (TNH: 92.0442 0.00 0.00%) was down 22% even as grain prices kept rising (TNH is in fertilizer) and the company sports an eye-popping 15% dividend based on the latest quarter payout. PowerShares Global Clean Energy Fund (PBD: 13.1036 0.00 0.00%) was 4th worst down 19.3% as the market soured on the formerly very hot renewable energy sector.

Only two stocks in the portfolio had double digit positive returns for the quarter: Headwaters (HW: 3.46 0.00 0.00%) still has falling earnings, but it appears the market has some faith in the company’s efforts to enter new markets in coal cleaning and waste oil. Penn West Energy (PWE: 18.85 0.00 0.00%) had an 11.5% positive return including almost 4% in dividends. The company still sports a 14% yield, pays monthly, and the dividend looks secure for at least a couple of years.

The bottom line is that I learned a lot over the last 3 months. My personal investments in the stocks of the portfolio were down about 5%, even though I still have a long position in TMA. I had been buying call options on TMA as the stock fluctuated, made some money, now hold July $10 calls, but made a little money overall on the positions. This blog is still fairly new, and I am learning as I go and hope to improve my results going forward. Since MarketWatch reported it was the worst quarter since 2002, my odds of doing better are good!

Note: Of the securities listed I am long TMA, HW, PWE.