November 15, 2023

The November Rally Continues

The November rally is alive and well. After the market soared to the highest weekly returns of the year in the first week of the month, the rally sputtered last week. But it has come alive again after a good inflation report.

The peak interest rate trade is back on. The benchmark 10-year Treasury yield is plummeting again. And interest rate-sensitive stocks are being turbo-charged to the upside. Hopefully, these good times can last a while.

Inflation for October came in slightly better than expected. The CPI number was 3.2% while core CPI, excluding food and energy, was 4%. The main takeaway is that Wall Street doesn’t see anything in these numbers that will prompt the Fed to raise rates. The perception is that inflation has peaked, and interest rates have peaked.

In fact, traders are now anticipating that the Fed will lower the Fed Funds rate by a full percentage point in 2024. Inflation and interest rates are coming down and the economy is still solid. And Wall Street had a party on Tuesday.

Inflation and rising interest rates caused last year’s bear market. Rising interest rates cause this year’s rebound to sputter. Getting those things out of the way with no recession is very positive for stocks. The momentum could carry through for the rest of the year.

Of course, we might not be out of the woods yet. We’ll see what happens next year. The current euphoria could discombobulate. Inflation could reignite. The recession that appears to have been avoided could just be a little further down the road. All Hell could break loose in the Middle East. Or the good times could roll.

But for now, the market looks strong. Let’s enjoy the bounty while it lasts.

Recent Activity

October 25^th
Hess Corporation – Rating change “BUY” to “HOLD”

November 8^th
Purchased Marathon Petroleum Corporation (MPC) - $143.50
USB Depository Shares (USB-PS) - Rating change “HOLD” to “BUY”
Vanguard Long-Term Corp. Bd. Index Fund (VCLT) - Rating change “HOLD” to “BUY”

High Yield Tier

Enterprise Product Partners (EPD – yield 7.7%) – This midstream energy partnership has done quite well in the past two challenging years for the market. It has consistent earnings that can hold up to inflation and a slowing economy and that huge yield is extremely well supported with 1.7 times cash flow coverage. In fact, Enterprise just increased the distribution by 5.3% in the last quarter. The growth in profits and distributions is likely to continue as the partnership is expanding operations in the high-growth Permian basin. (This security generates a K1 form at tax time). BUY

ONEOK Inc. (OKE – yield 5.9%) – This midstream energy company has pulled back from the recent high made in the middle of October and has been bouncing around the last couple of weeks. ONEOK reported solid earnings with adjusted EBITDA growth of 11% over last year’s quarter as natural gas volumes were up 12%. The company also completed the acquisition of Magellan Midstream Partners and raised the guidance on projected consolidated earnings going forward. The dividend is safe, and earnings should continue to be solid and growing in just about any environment. BUY

Realty Income (O – yield 6.2%) – The REIT was already having a bad year when it announced the purchase of Spirit Realty Capital (SRC) for $9.3 billion. It is slated to be an all-stock transaction and Realty estimates the acquisition will increase its annual adjusted funds from operations (AFFO) by 2.5%. The stock fell on the day of the announcement, as is usual for stocks of acquiring companies. But O has since recovered the losses plus more. The deal should be a longer-term positive and this REIT is selling at historically dirt-cheap valuations. BUY

The Williams Companies, Inc. (WMB – yield 5.1%) – The natural gas pipeline company reported strong earnings growth earlier this month. It also delivered good news in terms of acquisitions and expansions. It pays a well-supported 5.1% yield (with 2.38 times cash flow coverage) and is a business with steady demand even in tough times. Its recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. This should be a solid holding in any environment. BUY

Dividend Growth Tier

AbbVie (ABBV – yield 4.5%) – The drug maker has shrinking revenue and earnings this year because its blockbuster Humira drug is facing biosimilar competition in the U.S. But this has long been expected and the company’s new drugs and pipeline are well on pace to make the company a solid earnings grower in the years ahead. Its two new biosimilar drugs Rinvoq and Skyrizi grew sales over 50% in the last quarter and the company expects these drugs alone to eventually surpass Humira’s peak sales. The stock sells at a low valuation and investors sense that it might turn the Humira corner sooner ahead of a very bright future. BUY

Broadcom Inc. (AVGO – yield 1.9%) – Wow. The artificial intelligence juggernaut has reignited. AVGO has soared over 16% in the past two weeks to a new all-time high and is up nearly 75% YTD. There isn’t really individual company news driving the move and it doesn’t report earnings until next month. Technology stocks have rallied strongly this month as interest rates have moved lower. It seems like a case of AVGO having been held back by the tough environment for tech stocks and being unleashed again. HOLD

Brookfield Infrastructure Partners (BIP – yield 6.0%) – This is a fantastic partnership with crucial assets that generate reliable revenues in any environment. It also has a fantastic track record of market-beating performance over time. But lately, it has been mostly an interest rate play. It was a dog all year as intertest rates rose. However, the changing situation is seriously boosting BIP. If interest rates have indeed peaked, it should ignite BIP for the rest of this year and beyond. It’s dirt cheap with a great business and safe distribution. (This security generates a K1 form at tax time). BUY

Digital Realty Trust, Inc. (DLR – yield 3.8%) – The data center REIT caught fire again and was up around 6% on Tuesday alone and within pennies of the 52-week high. Although DLR had a terrific year so far in a very bad REIT market, it had been held back by the rising interest rates. The peak rate expectation and the fall in yield have made it party time again. Digital has also teamed up with Realty Income on new data center properties. Hopefully, DLR continues to run. BUY

Eli Lilly and Company (LLY – yield 0.7%) – Big news. One of Lilly’s potential mega-blockbuster drugs up for FDA approval received it last week. Mounjaro, its diabetes drug, has been approved for weight loss. Some estimate this could potentially be a $20 billion per year drug. But the stock only moved a little bit higher on the announcement. The approval appears to have already been priced in. Investors are unlikely to sour on LLY because it has another potential mega-blockbuster drug for Alzheimer’s up for FDA approval in the next few months and stellar earnings growth for the next several years. HOLD

Hess Corporation (HES – yield 1.2%) – Chevron Corporation (CVX) is buying Hess for 1.025 shares of CVX for every HES share to close sometime early next year. Because of the purchase, HESS shares trade just like CVX shares. The portfolio will continue to HOLD the HES shares for now. The current Middle East turmoil could cause a significant rise in oil prices and CVX stock if the conflict spreads. Also, the selling in oil may have been overdone and prices have been moving higher again. HOLD

Intel Corporation (INTC – yield 1.4%) – Strong earnings, encouraging news about future business, and a much better market environment are turning INTC around. The stock is up about 9% over the last month and has returned 50% YTD. Earnings indicate that Intel’s turnaround is well on track. It has promising new chips coming out in high-growth areas and its foundry business could be huge. The stock got dirt cheap and investors are increasingly willing to bet on the company’s future. BUY

McKesson Corporation (MCK – yield 0.5%) – The market will bounce around in the near term. Sector performance rotates. In six months, we could have a solid economy or a recession. But McKesson’s business will continue to hum along regardless of what happens. It caters to a market that is growing all by itself and demand is unaffected by inflation, the Fed, GDP, or whoever is President. I don’t know what the next month holds for MCK, but the longer term should be stellar. BUY

Marathon Petroleum Corporation (MPC – yield 2.2%) – This refiner and brand-new portfolio addition has been moving higher since being added to the portfolio last week. Inflation is retreating. Interest rates have likely peaked. And the economy is still solid. That sets up well for refiners and Marathon in particular. Hopefully, MPC can continue to rally in the weeks ahead. BUY

Qualcomm Inc. (QCOM – yield 2.6%) – The struggling chipmaker stock got a big boost this month. While the overall tech sector rallied on falling interest rates, Qualcomm was also helped by the earnings report. While results for the quarter still showed lower earnings and revenue, the future is looking increasingly bright, and investors took notice. Qualcomm is introducing new AI chips for PCs and smartphones that could be big sellers next year. Also, strong smartphone sales in China are indicating that phone sales have already bottomed. It’s looking like 2024 could be a very profitable year. BUY

Tractor Supply Company (TSCO – yield 2.1%) – The rural retail company stock had been trending lower since the beginning of August. But it moved sharply higher in the beginning of the month. Earnings increased 11% over last year’s quarter and net sales were up 4.3%. But the company also slightly lowered guidance for the full year citing lower demand for seasonal products due to a weaker consumer. The stock got clobbered after the report in a cranky market. But the strong economic numbers and falling interest rates are reigniting the stock. It’s up huge on Tuesday. BUY

UnitedHealth Group Inc. (UNH – yield 1.4%) – Last month’s earnings report missed earnings slightly, due to temporary factors, and revenue grew 8.3% over last year’s quarter. The company also reiterated guidance for 7.5% earnings growth for the full year in 2023. The stock is higher since the report, and everything looks solid going forward. UNH is well-positioned as a defensive company with highly reliable and predictable revenue in an uncertain environment. Its market grows all by itself because of the aging population. Hopefully, the positive momentum will continue. BUY

Visa Inc. (V – yield 0.8%) – This payments processing company is thriving in the current environment. The consumer remains strong and international business continues to rebound from the pandemic. The good economic news and falling interest rates are also driving the stock back to the old 52-week highs. Hopefully, V can eclipse that level and move higher in the weeks ahead. HOLD

Safe Income Tier

NextEra Energy (NEE – yield 3.4%) – NextEra reported earnings that beat estimates and grew 10.6% from last year’s quarter. Management also reiterated previous growth projections and said the company expects to deliver earnings near the top of the expected range through 2026. NEE spiked over 8% the week of the report. NEE has also made a very convincing 26% move off the low. But the stock pulled back over 13% last week as solar power companies came under pressure as its subsidiary NextEra Energy Partners (NEP) was downgraded citing pressure from higher interest rates. But the stock has moved back up big time in Tuesday’s rally. HOLD

USB Depository Shares (USB-PS – yield 6.0%) – November has been great news for this and other fixed-rate investments. Interest rates appear to have peaked which means the selling is over and fixed-income prices are likely to rise as rates fall. The price has soared about 14% since the beginning of the month. And USB-PS has now returned over 6% since being added to the portfolio a little over a year ago despite the rising interest rate environment. BUY

Vanguard Long-Term Corp. Bd. Index Fund (VCLT – yield 5.3%) – Peaking interest rates are also a huge positive for VCLT, as evidenced by the 6% price surge this month. This long-term bond fund is very sensitive to interest rates. It held up relatively well in the rising rate environment and now it looks like rates are trending lower. BUY

Xcel Energy (XEL – yield 3.6%) – This clean energy utility stock has been trending higher since the beginning of last month. The low may be in. XEL had a convincing 13% move off the low. But, like NEE, XEL came under pressure last week as analysts expressed concern about the solar energy business amid the current high interest rates. But this is one of the best utility stocks to own and the recent debauchery may prove to be very temporary. XEL still sells near the lowest levels of the past several years and now has positive momentum. BUY