The Market Violently Goes Nowhere
The strong market bounce back this month is sputtering. After a rotten May, the market found its mojo after the Fed vaguely insinuated that it could conceivably consider cutting rates before the end of the year. But it looks like the momentum is gone.
The market will continue to bounce around in the near term but consider this. The S&P 500 is exactly where it was in January of 2018. There have been steep selloffs and raging bull recoveries but the end result has been a violent move to nowhere. If you own stocks that have mimicked the movement of the market you have made nothing in the past year and a half.
However, if you own dividend paying stocks you have received six quarterly dividend payments over the last year and a half. Therein lies the brilliance of dividends. They roll in and ring the register no matter what. It’s why dividends over the long term have accounted for 43% of market returns and dividend stocks have vastly outperformed non-dividend payers.
This week I want to discuss my “buy first” stocks. These are the portfolio positions that I advise starting with if you’re to my advisory. Right now I would buy Enterprise Product Partners (EPD) and Crown Castle International (CCI). Both stocks offer defense and growth.
EPD is a blue chip energy company that benefits from the flow of oil and gas in this country, not commodity prices. Considering the fact that the US now produces more oil and gas than ever before in history and more than any other country in the world, it’s in a profitable and growing business. But the stock is still cheap. Energy infrastructure stocks still have not recovered from the oil price crash from 2014 to 2016. But their earnings have. EPD pays a huge dividend, has predictable earnings growth and sells at a bargain price.
Meanwhile, CCI is in the right place at the right time. It directly benefits from the 5G infrastructure build-out that will continue in haste no matter what. As a REIT, it’s in one of the top performing market sectors of the past year and a half. But it offers far more earnings growth potential going forward than its peers.
Of course, I like all the “BUY” rated positions right now. But if I was tortured and made to pick just two, I’d choose EPD and CCI.
High Yield Tier
BUY – Brookfield Infrastructure Partners (BIP 43 – yield 4.9%) – This company owns infrastructure assets all over the world and has been upgrading its portfolio toward higher margin assets. The area of greatest recent investment has been oil and gas infrastructure, which now accounts for 26% of its funds from operations (a key cash flow metric). A few weeks ago the company announced that it will be looking at data infrastructure assets. The stock recently made a new 52-week high. It’s up 27% so far this year and likely has room to run as it’s still below the 2017 high.
HOLD – Community Health Trust (CHCT 38 – yield 4.5%) – While the overall market had a terrible May and a great June so far, the small healthcare REIT had a fantastic May and its down so far in June. REITs had been strong performers when the market was lousy and now performance is lagging as the market springs back. CHCT has pulled back a little over 4% from the high. But it isn’t unusual for this stock to pull back after a strong surge and I still advise sitting tight.
BUY – Enterprise Product Partners (EPD 29 – yield 5.9%) – This energy infrastructure giant does nothing but grow earnings at a great clip and pay a well-supported monster dividend. Earnings revisions have been consistently higher, it has beat estimates the last three quarters and 26 out of 27 analysts that cover the stock rate it a buy. It is still flirting near the $30 resistance level that it can hopefully break soon.
HOLD – STAG Industrial (STAG 31 – 4.8%) – This industrial REIT just keeps on going. It continues to forge to new highs in June after having outperformed the overall market and the REIT index in every measurable period over the past three years. It has a great niche in a sector of the market that has been doing well. It’s a little expensive here but we will continue to ride the momentum as long as it lasts. Plus, you get a 4.7% yield on a stock that goes ex-dividend at the end of this month (and every month, as it pays out monthly).
Dividend Growth Tier
BUY – AbbVie (ABBV 79 – 5.3%) – The stock has had an up week but it still isn’t getting any love from this market. It has outperformed the Biotech index over the last three months, though. It’s time will come but it will likely take a catalyst in the form of encouraging news about its newly launched drugs and pipeline. When it moves it can move fast. In the meantime, you get a great 5.5% yield.
BUY – Altria (MO 52 – 5.6%) – Look at Altria. The cigarette maker finally had a positive week. There was encouraging news about Cronos, in which Altria purchased a sizable stake late last year, entering the US hemp market and getting more aggressive. But probably the biggest reason for the move higher was the absence of any bad news. It seems like a stock that wants to go higher and will gravitate that way when there isn’t negative news about cigarette volumes or regulators to knock it back. Over the course of the year the stock could easily move toward $60 and possibly higher if there is good news about marijuana or E-cigarettes.
HOLD – American Express (AXP 122 – yield 1.4%) – The credit card business is a great place to be as the world increasingly moves to cashless transactions. Amex has a high-quality cliental with far lower delinquency rates than average and it charges high, bankable fees. As long as the economy is okay and the market is on a solid footing this stock should continue to do well. I like the market outlook for the rest of the year but I’m still a little leery about the global economy, which is why the stock is only a HOLD.
BUY – Crown Castle International (CCI 135 – yield 3.6%) – The growth dynamics surrounding this firm’s industry, the 5G infrastructure build out, couldn’t be better. It offers both defense and growth in an uncertain market. The stock continues to outperform both the overall market and its peers by significant margins and its already up 8% since being added to the portfolio two weeks ago. Some consider the stock pricey here but with anticipated 20% per year average earnings growth over the next five years, the price is still reasonable.
Safe Income Tier
BUY – Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.2%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.7%)
There is nothing to say about these safe short term bond ETFs. And that’s the beauty of them. They just keep rolling on at a steady price paying interest. When the market booms these ETFs seem like a waste and dead money but the recent volatility underscores why these safe havens make a lot of sense in a portfolio.
HOLD – Consolidated Edison (ED 88 – yield 3.5%) – Sure, utility stocks have lagged this past week as the market regained its risk-on appetite. But the sector is the number one performer on the market over the past year. ED is one of the country’s largest utilities with 10 million customers in NYS and Westchester and has grown the dividend consistently for four decades. The rough May shows exactly why a stock like this is great to have in the portfolio. It also gets an added lift and bonus from the fact the rates are not going higher and may even decline.
BUY – Invesco Preferred ETF (PGX 15 – yield 5.6%) – The high yield and lack of correlation to the stock and bond markets make this a nice portfolio holding and income generator. I’ll take a juicy yield and monthly payments with a stable price any day of the week. As well, the recent market turbulence could give investors a renewed appreciation for an investment like this.
HOLD – McCormick & Co (MKC 157 – yield 1.5%) – This spice maker is continuing to make new all time highs even when cyclical stocks are in vogue and defensive stocks are lagging. The stock is up more than 50% over the past year and still has strong momentum. If it continues to rise into earnings at the end of the month I might reconsider holding on. But for now there isn’t any reason not to continue to hold the stock.
HOLD – NextEra Energy (NEE 205 – yield 2.6%) – It’s a sweet market for utilities with uncertainty and falling interest rates. But NEE also adds a higher level of earnings growth than most of its peer to the mix. There doesn’t seem to be anything in the market to put the brakes on this stock right now. Eventually, it will get too pricey and pull back. But for now is worth riding.
HOLD – Xcel Energy (XEL 59 – yield 2.9%) – Sure, the stock is expensive here, but for good reason. This is one of the very best utilities on the market. It has a growing alternative energy business and is a darling of the regulators. It also has strong momentum. Utility stocks have had a great run over the past year, but with uncertainty still looming and interest rates not likely to rise they should have room to run higher.
