A Resilient Market Forges On
The market is continuing its bumpy ride higher. Despite a barrage of concerns, 10 of the 11 S&P 500 stocks sectors are higher year to date.
January had a couple big issues. One was the troubling ascent of the 10-year Treasury rate to the highest level since 2023. Concerns have faded and the rate has pulled back. Then, the DeepSeek issue roiled the artificial intelligence (AI) trade in all facets including technology and stocks benefitting from skyrocketing electricity demand.
The stocks that got clobbered last week have been recovering, but most of the losses remain. Further recovery may have been interrupted by the tariff issues that have dominated the headlines this week. The 25% tariff threats on Canada and Mexico have been resolved for now. But the China tariffs are the new focus. China is apparently reciprocating with more tariffs of its own. The two leaders are scheduled to talk this week, and we’ll see if that gets resolved too.
Even if it does, I suspect these tariff threats will be ongoing. There is still Europe to deal with and whatever else comes up. Hopefully, the scuffles will result in longer-term benefits to the country. But the issue is likely to present short-term headwinds for a while.
It’s also earnings season. This week features several big tech companies as well as portfolio positions Eli Lilly (LLY), McKesson (MCK), and Qualcomm (QCOM). The reports could determine the near-term direction of the stocks. Healthcare has been one of the strongest sectors so far this year and hopefully LLY and MCK can keep riding the wave.
Overall earnings have been strong so far. It’s worth noting that stocks outside of technology are expected to have the strongest earnings growth in years. A good earnings season can certainly drive the market higher. Strong earnings for the rest of the market while technology is struggling could broaden out the bull market as different sectors get a lift.
Recent Activity
January 8
ONEOK Inc. (OKE) - Rating change – “HOLD” to “BUY”
AbbVie Inc. (ABBV) – Buy Half
NextEra Energy (NEE) – Rating change “HOLD” to “BUY”
January 15
Toll Brothers, Inc. (TOL) – Rating change “BUY” to “HOLD”
January 29
Broadcom Inc. (AVGO) – Rating change “HOLD” to “BUY”
High Yield Tier
AGNC Investment Corporation (AGNC – yield 14.9%) Earnings – The mortgage REIT reported solid earnings on Monday. Numbers were better for the full year but a little worse for the quarter as the environment took a slight step back. The stock was up after the report, however, because the environment is improving in the current quarter. After wallowing since October, AGNC has had a nice rebound so far this year, up about 9%. Spreads are still higher as the Fed Funds rate has already been cut 1% and longer rates are higher. AGNC should be set up for a much better 2025. BUY
Brookfield Infrastructure Partners (BIP – yield 4.9%) Earnings – The infrastructure partnership reported earnings last week that beat expectations with 8% FFO (funds from operations) growth for 2024 over the prior year and 10% minus exchange rates. Brookfield also announced a 6% distribution increase, marking the 16th consecutive year of payout increases. BIP jumped 4.5% on the day following the report. It’s more good news that also reflected confidence in future earnings. The business is delivering but the stock price isn’t. BIP returned a lame 6.3% over the last year while the market was up about 20%. It continues to be at the mercy of the interest rate narrative and likely won’t break out until interest rates fall again. But it does deliver a solid income in the meantime and provides an element of defense to the portfolio. (This security generates a K1 form at tax time.) BUY
Cheniere Energy Partners, L.P. (CQP – yield 5.3%) – This high-yielding liquid natural gas export partnership has been terrific. It barely sold off on the DeepSeek news last week and has rallied 10% since. CQP is also up over 21% YTD and 33% since the election. Electricity demand is still booming, and natural gas is the primary beneficiary. At the same time, the Trump administration is removing many energy restrictions and encouraging the export of natural gas and Cheniere is the country’s largest exporter. The longer-term situation was always strong and now the short-term situation looks great. (This security generates a K1 form at tax time.) BUY
Enterprise Product Partners (EPD – yield 6.5%) Earnings – The partnership reported solid earnings on Tuesday with 7% earnings growth for the year and a 5% distribution hike, marking the 26th consecutive year of an increase. Natural gas demand is booming, and Enterprise will continue to benefit. While most midstream energy companies took a hit last week on fears that AI energy demand will be less than anticipated, those fears are waning and the midstream stocks are coming right back. It looks like EPD is moving back toward the high. EPD is still below the all-time high set in 2014 and can certainly move beyond that, especially with much higher earnings now. (This security generates a K1 form at tax time.) BUY
FS KKR Capital Corp. (FSK – yield 12.1%) – While AI-related stocks got a comeuppance, this Business Development Company (BDC) continued to forge ahead and made a new 52-week high last week. The stock even endured the last ex-dividend without a selloff, which is unusual for a stock with such a high yield. FSK is a strong beneficiary of the Trump victory. The perception of high economic growth going forward is exactly what FSK needed. It has a portfolio of smaller companies that tend to be economically sensitive. FSK is up 7% YTD and has returned 31% over the past year and the prognosis got better going forward. BUY
Main Street Capital Corporation (MAIN – yield 6.7%) – As a BDC, this story is very similar to that of FSK. Main’s portfolio of companies not only makes high-interest loans, but it also takes equity stakes. The equity stakes are the primary reason the total returns have been better than just about every other BDC. MAIN is also breaking out and made a new high last week. MAIN was a rare stock that didn’t have a December swoon. It just keeps on inching higher. The improving economic outlook leaves room for further appreciation. BUY
ONEOK Inc. (OKE – yield 4.2%) – This more volatile midstream energy company stock has pulled back over 20% from the high set in late November. It has been bouncing around for the last six weeks and the last bounce is lower on the DeepSeek news last week. It’s still down 2% YTD but some perspective is warranted. OKE has returned a whopping 50% over the last year. It’s still in a great position with reduced regulation, encouragement of oil and gas production, and growing demand for electricity. The market loves the new acquisitions of Medallion Midstream and Enlink Midstream (ENLC), as the new additions are accretive immediately. The midstream selloff on last week’s news is a bridge too far and these stocks should come right back. BUY
The Williams Companies, Inc. (WMB – yield 3.6%) – This midstream energy company took the biggest hit of any in the portfolio on the January 27 selloff, down 8.43%. WMB has recovered much of those losses but is still up 4% YTD and 69% over the last year. Sure, the selloff was overblown and electricity demand will still rise strongly but the stock was probably rising too fast and needed a consolidation. Things are still good for all the reasons mentioned above. Natural gas has a lot going for it and Williams will likely find lasting upside traction in the weeks and months ahead. BUY
Dividend Growth Tier
AbbVie (ABBV – yield 3.7%) Earnings – The biotech company surged 4.7% last Friday after an upbeat earnings report and overtook its 200-day moving average and is up 9% YTD. The company beat earnings forecasts, but the main driver was the performance of its immunology drugs Skyrizi and Rinvoq, which collectively delivered $5.61 billion in revenue for the quarter. Those drugs alone have replaced the Humira revenue which peaked at a little over $20 billion annually. The company also raised revenue forecasts on the two drugs by $4 billion to $31 billion a year by 2027. The earnings report showed Abbvie has replaced the Humira revenue and is well on track to strong earnings growth in the years ahead. The patent cliff had been holding the stock back but that’s gone now. BUY
Ally Financial Inc. (ALLY – yield 3.1%) – Ally has had a strong move off the recent bottom this month, up over 16% since January 10. It had been floundering badly along with most other financial stocks as the soaring interest rate narrative took hold. But it rallied in the last month as big bank earnings were stellar and December inflation was OK. Now, there are renewed expectations for the Fed to cut rates this year. Plus, the regulatory environment is certain to become much more friendly in the new administration. Analysts are also expecting earnings growth of 40% in 2025. BUY
Broadcom Inc. (AVGO – yield 1.1%) – The AI powerhouse has recovered 8% from the one-day 20% bludgeoning last week. News about Chinese start-up chip company DeepSeek roiled all AI-related stocks last week, especially those that had rallied the most, and AVGO was a prime offender. It was the worst single-day selloff in years for a stock that had remained within 3% of the high after a massive 42% two-day price surge last month. I believe the selloff was overblown. Broadcom has a unique infrastructure niche that is not easily duplicated, and the stock was up for very good reasons, skyrocketing profits. AVGO has moved higher since it was upgraded to a BUY last week following the selloff. The stock looks like it wants to go higher but is being held back by the tariff stuff for now. BUY
Cheniere Energy, Inc. (LNG – yield 0.9%) – This natural gas exporter has not been as hot as its subsidiary CQP of late. That’s probably because it surged much higher in the past year, up 41%. The electricity and natural gas trade was red hot and bound to cool off. But things still look very good going forward. Natural gas demand is soaring in the U.S. and abroad. Cheniere stands to benefit from a friendlier regulatory environment, more natural gas production, cheaper domestic prices, and encouragement of natural gas exports. BUY
Constellation Energy Corporation (CEG – yield 0.5%) – The nuclear and now natural gas giant has rebounded from last week’s bloodbath in which the stock plunged over 20% in one day. CEG had been on fire after announcing the deal to acquire Calpine Corp. and the Trump administration’s announcement of a $500 billion private sector investment in AI and data centers. Before the selloff, it was up 43% in January and 202% over the past year. A sobering-up was due. CEG has only recovered about a third of the recent losses. It’s unclear whether the muted recovery is because a consolidation was overdue or because the market sees legitimacy to the DeepSeek fears. The electricity story is still very much alive and CEG should regain upward traction at some point. HOLD
Digital Realty Trust, Inc. (DLR – yield 3.0%) – This data center REIT was also on last week’s casualty list, down over 9% for the week. It had benefitted mightily from the data center expansion prospects and was in the line of fire. The stock probably got a little too high too fast. But the future still looks extremely bright and DLR should recover going forward. Data center growth will continue to be a trend this year as the recent troubles fade into memory. HOLD
Eli Lilly and Company (LLY – yield 0.7%) – This is a big week for Lilly. The company reports fourth-quarter earnings on Thursday. The report will be closely watched as the company has already warned of lower-than-previously-expected demand for weight-loss drugs. The stock plunged to a six-month low after the warning but recovered about 12% from the recent low last month. Lilly already raised guidance for 2025 and still expects very strong earnings growth. The bad news is out and there is a possibility of an upside surprise from the official earnings report. BUY
McKesson Corporation (MCK – yield 0.5%) – McKesson recovered all the summer and fall dip in a very short time, resumed a funk in December, but is moving higher again this month. The pharmaceutical distributor took a plunge after second-quarter earnings missed because of supply disruptions. But the third-quarter earnings alleviated that concern, and the stock took off again. The next chapter in the saga will be added this week when the pharmaceutical supply chain company reports fourth-quarter earnings on Wednesday. Earnings reports have been moving the stock for the past few quarters and a good one could get the stock moving meaningfully higher again. BUY
Qualcomm Inc. (QCOM – yield 2.0%) – QCOM didn’t take a hit last week because it wasn’t riding high like other AI-related stocks. Although QCOM has been strong this year, it’s still stuck in the mud in the recent range. It’s way below the June high and still the same price it was last spring. It’s worth being patient because when this stock moves it easily makes up for lost time. And it will take off at some point. The market wants to see strong U.S. smartphone sales from an AI upgrade cycle. Although that hasn’t happened, it could become a catalyst sometime this year. Qualcomm reports earnings this Wednesday (February 5) and we could get a better idea of the near-term direction of the stock. BUY
Toll Brothers, Inc. (TOL – yield 0.6%) – The luxury homebuilder company stock had a nice move higher in January. After a tough couple of months, TOL moved convincingly off the recent bottom. The recent better news about the likely direction of mortgage rates was the main catalyst. TOL was downgraded to HOLD last month as a glum interest rate outlook combined with the inflation report presented a high level of short-term risk. But the outlook has improved, and mortgage rates have been falling. The recent rebound is a very welcome change for TOL so far. But the stock will still be rated a HOLD until the recent upside in is more established. HOLD
UnitedHealth Group Inc. (UNH – yield 1.6%) – UNH took another hit last month when the market wasn’t thrilled with the earnings report and the FTC accused the company, along with others, of overcharging for life-saving drugs. Earnings were mixed as revenue missed and earnings beat. However, the company also reiterated 2025 guidance, and the stock has been moving higher again. It’s one thing after another with this one. I will maintain the Buy rating for now because the price has been trending higher for six weeks now. Hopefully, this upside traction can last. BUY
Safe Income Tier
NextEra Energy (NEE – yield 3.0%) – The regulated and clean energy utility stock moved higher last month after it reported earnings. NextEra delivered a strong quarter with earnings growth of 8.2% and reiterated its outlook through 2027. But the utility also announced plans to restart its Duane Arnold nuclear plant and a collaboration with GE Vernova to develop natural gas-fired projects across the U.S. The utility is taking advantage of the soaring electricity demand and the projects are likely to deliver more revenue and stronger growth going forward. The story is still strong and NEE only pulled back slightly after last week’s news. BUY
USB Depository Shares (USB-PS – yield 5.7%) – Longer-term interest rates had been soaring and pressuring the price. But better news late last month reversed the trend. The 10-year fell from 4.8% to about 4.5% and fixed income rallied. This preferred stock has endured a tough bond market very well and should likely continue to hold its own. Plus, rates are more likely to trend lower from here in the year ahead. BUY
Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.2%) – Ditto for VCLT. The long-term corporate bond ETF loves falling interest rates and hates rising ones. There will be more price pressure if rates continue to rise and vice versa. But the situation over the course of the year should be good. BUY
High Yield Tier | ||||||||||
Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on Close 2/03/25 | Total Return | Current Yield | CDI Opinion | Pos. Size |
AGNC Investment Corp. (AGNC) | 14.20% | 10 | 4% | 14.90% | BUY | |||||
Brookfield Infrastructure Ptnrs. (BIP) | 6.80% | 32 | 61% | 5.00% | BUY | |||||
Cheniere Energy Partners, L.P. (CQP) | 6.70% | 65 | 25% | 5.30% | BUY | |||||
Enterprise Product Partners (EPD) | 7.60% | 33 | 84% | 6.50% | BUY | |||||
FS KKR Capital Corporation (FSK) | 14.40% | 23 | 33% | 12.00% | BUY | |||||
Main Street Capital Corp. (MAIN) | 9.00% | 62 | 44% | 6.70% | BUY | |||||
ONEOK Inc. (OKE) | 7.50% | 98 | 129% | 4.20% | BUY | |||||
The Williams Companies, Inc. (WMB) | 8/10/22 | 33 | Qtr. | 1.9 | 5.80% | 56 | 93% | 3.60% | BUY | 1 |
Current High Yield Tier Totals: | 9.00% | 59% | 7.30% | |||||||
Dividend Growth Tier | ||||||||||
AbbVie (ABBV) | 190 | 222% | 3.70% | BUY | ||||||
Ally Financial Inc. (ALLY) | 38 | 0% | 3.10% | BUY | ||||||
Broadcom Inc. (AVGO) | 218 | 430% | 1.20% | BUY | ||||||
Cheniere Energy, Inc. (LNG) | 7/10/24 | 175 | Qtr. | 2 | 1.10% | 230 | 32% | 0.90% | BUY | 1 |
Constellation Enery Corp. (CEG) | 8/14/24 | 186 | Qtr. | 1.41 | 1.00% | 306 | 65% | 0.50% | HOLD | 1 |
Digital Realty Trust, Inc. (DLR) | 161 | 44% | 3.00% | HOLD | ||||||
Eli Lilly and Company (LLY) | 810 | 461% | 0.80% | BUY | ||||||
McKesson Corporation (MCK) | 600 | 32% | 0.50% | BUY | ||||||
Qualcomm (QCOM) | 170 | 126% | 2.00% | BUY | ||||||
Toll Brothers, Inc. (TOL) | 131 | -13% | 0.60% | HOLD | ||||||
UnitedHealth Group Inc. (UNH) | 548 | 8% | 1.60% | BUY | ||||||
Current Dividend Growth Tier Totals: | 3.00% | 128% | 1.60% | |||||||
Safe Income Tier | ||||||||||
71 | 86% | 3.00% | BUY | |||||||
U.S. Bancorp Depository Shares (USB-PS) | 10/12/22 | 19 | Qtr. | 1.13 | 6.10% | 20 | 20% | 5.70% | BUY | 1 |
4.50% | 75 | 3% | 5.20% | BUY | ||||||
5.10% | 36% | 4.60% |
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