The Market Gets a Reprieve
Earnings are saving this floundering market. The market was turning south again after a big rebound. But a promising earnings season stopped the slide.
It’s still early. But it appears that earnings will once again exceed expectations. That’s big. Not only are earnings what it’s all about. But it reminds investors that this economy is still strong, and much stronger than the current headlines indicate.
That’s the good news. The bad news is that future economic strength looks increasingly vulnerable. And markets tend to anticipate. There is still this problem of the Fed and the fact that they will have to be aggressive to combat this high and persistent inflation. The Central Bank will likely have to significantly slow the economy. And they’ve been talking tough.
As long as the inflation/tightening Fed dynamic persists, it will be difficult for the market indices to sustain meaningful upside traction. That’s a bummer that should last the rest of this year at least.
But certain stocks that benefit from inflation and economic uncertainty are thriving in this environment. Energy stocks are up 44% YTD and show no signs of stopping. Safe sectors like utilities, healthcare and REITs are also strong. In fact, 10 of the 18 stock positions in the portfolio have recently made new highs.
It may continue to be a very choppy and floundering overall market. But it’s also an environment that is boosting the relative performance of conservative, dividend paying stocks, which constitute most of this portfolio.
High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 5.7%) – This covered call fund enjoyed the market revival since the middle of March as it tends to move along on relative par with the overall market. When that bounce back ran out of gas, half of this position was sold. The market is getting a boost so far from earnings season and it could last a while longer. The fund also provides a high level of current income which is becoming increasingly popular with investors in the uncertain market. HOLD
Enterprise Product Partners (EPD – yield 7.0%) – It’s been a long road. But this midstream energy partnership has finally arrived in the Promised Land. It has broken through the 52-week high with no signs of stopping. Typically, a high-yielding, slow mover, EPD has already returned over 25% YTD in a down market. Energy is staying hot and EPD is still cheaply valued and priced below the pre-pandemic high despite higher earnings and growth rates. Plus, there’s that yield. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc (GSL – yield 5.2%) – The containership company stock is in the right place at the right time. But it’s volatile, and we saw the downside of that volatility in the recent 25% pullback. The market overreacted to concerns about a slowing global economy. But demand for containerships remains sky high amidst limited supply and will for some time. The stock has already bounced back strongly from the recent lows and should have more to go. BUY
ONEOK Inc. (OKE – yield 5.2%) – The same favorable dynamic I mentioned about EPD is also true for this midstream energy company in the form of a regular corporation. But OKE can move faster. It has returned about the same as EPD YTD but posted nearly double the return over the past year. OKE is also near the 52-week high. It has leveled off in the last few weeks but likely has more upside left. BUY
Realty Income (O – yield 4.0%) – Quietly, and in a year so far where REITs have not performed particularly well, O is making new 52-week highs, although it is still priced below the pre-pandemic high despite higher earnings. Realty just chugs along under the radar while paying monthly dividends and slowly creeping higher. That’s what it is advertised to do. A boring income stock is just what the doctor ordered in this uncertain market. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.6%) – This biopharmaceutical stock had been moving relentlessly higher despite the down market. It soared over 30% since late January. But it has pulled back substantially from the recent high in the past few weeks, to the tune of about 11%. This stock does that. It surges and then pulls back until the next surge. We could take profits on the some of the position here. But what’s the point? One-third of the position was sold after an earlier surge. But the return since on those sold shares would have been solid. This is a stock that should have a strong longer-term trajectory and it pays a good dividend. This in one you can just hold. HOLD
Broadcom Inc. (AVGO – yield 2.7%) – This exceptional technology stalwart is a good company that is hanging out with the wrong crowd right now. The crummy tech sector market is obscuring the fact that Broadcom is growing earnings very strongly and will likely continue to do so for some time. Technology is only getting bigger, and this company runs the essential infrastructure that makes that possible. Plus, it is benefitting especially from the 5G rollout. Just hang on. It should be worth it in the end. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.2%) – What down market? The world could go to Hell in a handbasket and this company will continue to generate reliable revenues from its essential infrastructure assets. That why this stock has quietly provided average annual returns of over 15% for the last five- and ten-year periods. The timing is great now. It provides a defensive, high dividend when such stocks are in growing demand. And earnings should grow above trend because of a recent acquisition in the energy space. (This security generates a K1 form at tax time). HOLD
Discover Financial Services (DFS – yield 1.7%) – The timing has been unfortunate with this one. The market has been turning on financial stocks amidst the increased talk of slowing economic growth. But Discover is different. A slower economy means that consumers start charging more. And that’s good for Discover and their exorbitant interest rates. The rising profits should fix the stock over the course of the year. HOLD
Chevron Corp. (CVX – yield 3.5%) – This oil-price-levered, global-energy-giant stock has run right back to new highs after a brief pullback in March. It seems that oil prices aren’t likely to go anywhere but higher in the months ahead while demand remains strong. There are good times and bad times for these energy stocks. Now is one of the best times possible. And CVX is basking in the magnificence. The energy sector is up over 44% YTD with no sign of stopping. Let the good times roll. HOLD
Eli Lilly and Company (LLY - yield 1.3%) – Performance of this best-in-class big pharma stock has somewhat mirrored that of ABBV lately. LLY soared over 30% since late February but is now coming down from the highs. LLY to is bouncy. We could take some profits here but the stock is likely to continue delivering strong long term returns. The population is aging at warp speed and Lilly is perhaps the best in the world at providing drugs and treatments. That’s a good formula. HOLD
Intel Corporation (INTC – yield 3.0%) – It’s been a lousy market for technology stocks. But Intel has a key downside buffer. It has been beaten to a pulp already. It has marvelous prospects for growth over the next few years. In the meantime, it pays a great dividend and has limited downside. Plus, technology stocks are getting oversold and could rally in the months ahead. I like INTC in this market. BUY
Qualcomm Inc. (QCOM – yield 2.2%) – This former superstar performer hit the skids and is still wallowing near the recent low, down 25% since the beginning of February. Tech has been under considerable pressure as inflation, rising rates and slower growth put the hurt on future earnings growth projections. The worry with Qualcomm is slowing smartphone sales in 2023. But the company anticipated revenue growth of 27% and earnings growth of 39% in 2022 and it still sells at just 12 times earnings. The good should outweigh the bad, especially considering the stock already got the stuffing kicked out of it. HOLD
U.S. Bancorp (USB – 3.5%) – After floundering badly, USB has been recovering since a positive earnings report last week. Business is good and getting better as the yield curve steepens and net interest income increases. The problem has been concerns for future growth as the Fed aggressively raises rates to combat inflation. USB took a hit when anticipated growth got downgraded. We’ll see how things materialize. For now, the remaining one-half position could continue moving higher on new-found momentum off the bottom. HOLD
Valero Energy Corp. (VLO – yield 3.7%) – Don’t you love it? Energy is on fire and VLO has gone nuclear. It has soared 64% since the latest energy rally began at the beginning of December. VLO has been making new 52-week highs for a month now. Crack spreads are high as demand remains strong amidst sky-high gasoline and diesel prices. The situation should last awhile too. Meanwhile, VLO is still well below the all-time high made in 2018. And the environment now is better than it was then. HOLD
Visa Inc. (V – yield 0.7%) – V has been bouncing around a lot but it’s well above the recent lows and likely to stay there. It took a hit during the initial panic over the war and then another one amidst downgraded global growth. But business is likely to remain very strong as global covid restrictions have come down. HOLD
Safe Income Tier
Rating change “HOLD” to “SELL”
Invesco Preferred ETF (PGX – yield 4.9%) – The ETF has fallen in price over the past several months as rising interest rates and inflation have affected it. Preferred stocks tend to hold up relatively well in those conditions, but they are not immune. The current dynamic of likely rising rates has caused continuing price erosion in PGX shares. And the situation could get worse going forward. This position will be sold today to avoid further price erosion in the months ahead. SELL
NextEra Energy (NEE – yield 1.9%) – It looked like this alternative energy utility stock was moving back toward the high after an awful start to the year. But it has sputtered again over the past few weeks. That’s not unusual for NEE during an uptrend. Meanwhile, the dynamic remains favorable as both utility and alternative energy stocks remain strong. I love the stock longer term, and the near-term situation looks favorable as well. HOLD
Xcel Energy (XEL – yield 2.6%) – This smaller, alternative energy utility stock is absolutely killing it. It has been making a series of new highs all month. The conditions, as mentioned above for NEE, are favorable and XEL was in a solid uptrend even before its peers started to rally. It’s a great stock to own longer term, and we’ll see how high this recent surge takes it. HOLD
| High Yield Tier | |||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 4/19/22 | Total Return | Current Yield | CDI Opinion | Pos. Size | |
| CII | Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.6% | 20 | 2% | 5.9% | HOLD | 1/2 |
| EPD | Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 27 | 21% | 7.0% | BUY | 1 |
| GSL | Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 26 | 13% | 5.7% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 72 | 44% | 5.3% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 74 | 28% | 4.0% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 26.5% | 5.5% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 156 | 138% | 3.5% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 598 | 37% | 2.7% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 66 | 103% | 3.3% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 172 | 98% | 3.3% | HOLD | 1/2 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 119 | -4% | 1.7% | HOLD | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 297 | 100% | 1.3% | HOLD | 2/3 |
| INTC | Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 48 | 1% | 3.1% | BUY | 1 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 141 | 76% | 2.0% | HOLD | 1/3 |
| USB | U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.2% | 53 | 21% | 3.5% | HOLD | 1/2 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 108 | 48% | 3.7% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 216 | 3% | 0.70% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 3.0% | 40.3% | 2.6% | ||||||||
| Safe Income Tier | |||||||||||
| PGX | Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 13 | 37% | 4.9% | SELL | 1/2 |
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 82 | 99% | 1.9% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 75 | 209% | 2.6% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 3.1% | 115.0% | 3.1% | ||||||||
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