July 26, 2023

Let the Good Times Roll

Let the good times roll. Inflation is collapsing. The Fed is almost done hiking rates and likely to turn distinctively more dovish in the 2024 election year. There is no recession and no signs of recession. Stocks are thriving. And it’s summer.

The market rally is broadening out to include defensive stocks in utilities and healthcare. Technology stocks continue to thrive. And the energy stocks are regaining their mojo. The portfolio is up and moving higher almost every day.

Eventually the party will end. It always does. But we are well diversified and well positioned in front of mega-trends like the aging population and the technological revolution.

Right now, the best stock to buy in the portfolio is probably AbbVie (ABBV). The stock had been a dog this year but has been moving higher again recently. The stock tends to be bouncy and moves toward the high and the low a couple times every year. It has been moving distinctly up from the low and history suggests the stock should continue to run for a while. Plus, it’s cheap and defensive and should hold up well if the economy does roll over in the quarters ahead.

Energy has also come to life. China reopened and recession talk has gone out of style. Energy prices are moving higher again. The midstream energy positions in Enterprise Product Partners (EPD), ONEOK (OKE), and The William Companies (WMB) are all trending toward the 52-week highs. Also, exploration and production company Hess Incorporated (HES) is getting a serious move on as it is highly leveraged to energy prices.

The best performing stocks, Broadcom (AVGO) and Eli Lilly (LLY), are also not only hanging tough near the highs but moving slowly higher. Thing are good and they might stay that way for a while. It will discombobulate eventually. But for now, let the good times roll.

Recent Activity

June 28
Realty Income – Rating change “HOLD” to “BUY”

July 12
Purchased Digital Realty Trust, Inc. (DLR) - $117.75
Qualcomm (QCOM) – Rating change “HOLD” to “BUY”
Intel (INTC) - Rating change “HOLD” to “BUY”

High Yield Tier

Enterprise Product Partners (EPD – yield 7.5%) – EPD is within bad breath distance of the 52-week high. Enterprise is getting the job done while paying a massive yield that is rock solid. EPD has returned over 16% YTD despite being in a sector that hadn’t participated in the market rally until very recently. The partnership also increased the quarterly distribution by 5.4%. Business is solid while most company earnings are shrinking. Enterprise should be a solid holding in a broadening or changing rally. (This security generates a K-1 form at tax time.) BUY

ONEOK Inc. (OKE – yield 5.7%) – Oh my goodness. OKE is red hot. This bad boy is up 17% in the last month. It has made up all of the losses from when the market hated its purchase of Magellan Midstream Partners (MMP) and then some. The deal will turn ONEOK from a natural gas operator to a diversified midstream company that services oil and refined products as well. The deal is a longer-term positive. OKE should remain a solid performer with a high and safe dividend and reliable earnings in an environment where overall market earnings are contracting. HOLD

Realty Income (O – yield 4.8%) – This market likes O too. After floundering in oblivion for seemingly forever, O has been reignited recently. It’s up over 7% in the last couple of weeks after gaining momentum that might last. The second half should be kinder to O. Either investors will crave defense again or the rally will broaden out to include this year’s lagging sectors. BUY

The Williams Companies, Inc. (WMB – yield 5.4%) – Yeah. I’m disappointed in this one. But WMB is finally getting the lead out. It’s up 17% in the last couple of months. This had been a tough year for defensive stocks and energy stocks. But the broadening rally is lifting WMB. And the momentum could last. WMB is still well off the 52-week high, and earnings have been growing strongly. Earnings per share grew a whopping 36% over last year’s quarter as natural gas volumes remained strong and growing. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 4.2%) – ABBV is a notoriously bouncy stock. Once it starts moving up or down it usually continues. Lately, it has been moving higher off the recent bottom. It’s up over 7% in the last couple of weeks after wallowing in oblivion for months. Earnings will be reported later this week. They could be good or bad. But it should pay off to bet on AbbVie over the longer term as it is one of the very best healthcare companies in the world while the population is aging at warp speed. BUY

Broadcom Inc. (AVGO – yield 2.0%) – I give up. It looks like AVGO is just going to keep moving higher regardless of how high it gets. I thought AVGO would pull back after its amazing AI surge, but it never sobered up and maybe never will. The AVGO return now exceeds 100% since being added to the portfolio in early 2021. It is no doubt a great company and returns should be good over the next couple of years. The road higher may not be as bumpy as expected. HOLD

Brookfield Infrastructure Partners (BIP – yield 4.3%) – The infrastructure company stock continues to go sideways since the spring. But BIP is still around the higher levels of the recent range. The stock got new life after a sluggish period because Brookfield reported a solid earnings quarter with funds from operations (FFOs) per share growth of 12.5% over last year’s quarter. BIP is still reasonably priced with a good dividend ahead of a promising second half of the year. (This security generates a K-1 form at tax time.) BUY

Eli Lilly and Company (LLY – yield 1.0%) – I thought LLY would pull back but I’m wrong again, just like with AVGO. LLY continues to hover near the high, seemingly building a base for its next surge higher. The market is just so excited about the potential mega-blockbuster drugs in the late-stage pipeline. LLY has now returned over 200% since being added to the portfolio a little less than three years ago. The market has refused to cool on LLY because it has two potential mega-blockbuster drugs up for approval later this year or early next as well as better than 20% annual earnings growth for the next several years. HOLD

Hess Corporation (HES – yield 1.2%) – HES is up a lot over the last week and may be catching fire. The surprisingly strong economy is taking oil prices with it. HES has serious upside leverage if energy prices continue to trend higher. The longer-term supply/demand dynamic favors energy very much and Hess is a special case. It can increase production almost at will with very low-cost production. It should be stellar if energy stocks move higher. But the stock is also uniquely equipped to deal with short-term turbulence in the industry. BUY

Intel Corporation (INTC – yield 1.5%) – The stock became born again after Nvidia (NVDA) rocked the market with blowout earnings mostly from excitement regarding its expanding chip production capabilities. The frantic AI spending will lift all boats including INTC. Intel is continuing to ink new deals around the world. It is near the highest level since last summer and is starting to increasingly be seen as a cheap stock with a bright future. HOLD

Qualcomm Inc. (QCOM – yield 2.6%) – Here comes QCOM too. It’s not an immediate AI beneficiary, but it keeps marching slowly higher ahead of the period where it will surge higher quickly. Qualcomm describes itself as the “on-device AI leader,” and the company should benefit mightily from the increasing shift towards AI and profits are now likely to soar sooner than previously expected. HOLD

UnitedHealth Group Inc. (UNH – yield 1.4%) – Even UNH is catching fire after a period of floundering. It’s up over 14% in the last couple of weeks. UNH had floundered after it reported higher costs from more people get elective surgery with pent-up pandemic demand. But the company since reported higher-than-expected earnings and raised guidance, negating the negative catalyst that had driven the stock price down. Now, it’s off to the races. BUY

Visa Inc. (V – yield 0.8%) – V loves the surprisingly strong economy and increasing soft-landing talk. Inflation is down, GDP was revised higher, and the consumer is still strong. In addition, Visa just purchased a Brazilian fintech company that rival MasterCard (MA) also wanted and beat them out. As a result, V soared to a new 52-week high and the highest price in about two years. The stock has broken out to a new level and may have further to run. HOLD

Safe Income Tier

NextEra Energy (NEE – yield 2.5%) – This combination regulated and clean energy utility stock is currently at the lower end of that range. It is still more than 20% below the 52-week high. It has not been a good year for defensive stocks and the price is reflecting that. But the rally has broadened in the last month and there is an earnings recession. This company is targeting earnings per share growth of 6% to 8% annually through 2026 and 10% per year dividend growth through at least 2024. BUY

Xcel Energy (XEL – yield 3.3%) – This clean energy utility stock has been trending lower since the beginning of April but is showing signs of life again recently. Although this stock tends to be bouncy, the recent weakness doesn’t make much sense. Defensive stocks are still a safe and promising place to be as the economy slows and overall market earnings continue to fall. This stock has become cheap ahead of a period of likely market outperformance. BUY

USB Depository Shares (USB-PS – yield 5.9%) – After pulling back in sympathy with the overall bank selloff, this preferred issue has trended higher. This is a preferred stock of one of the country’s largest banks that has rising deposits. The bank is rock solid, and this security should continue to move according to interest rates. BUY

Invesco Preferred ETF (PGX – yield 6.3%) – Longer-term rates are bouncing around again with a bias toward lower since the bank failures increased the risk of recession later this year. This fund is also vulnerable to fluctuations resulting from banking troubles and many preferred issues are those of banks. The fund is only threatened if banking issues reemerge and escalate into a more widescale problem. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 4.5%) – There could be some near-term turbulence with the price on the way to solid longer-term returns and diversification. The increased risk of a recession this year bodes well for the near-term total return of this fund. BUY