Safety is Back
The market mood is always changing. Just last week the market indexes were forging new all-time highs and cyclical stocks were the best performers. What a difference a week makes.
The upward momentum in the market hasn’t necessarily stopped, although it’s down today on renewed trade fears. But the safe sectors that had been getting pummeled as the market rose (namely REITs and Utilities) have sprung back to life this week. In fact, REITs were the best-performing sector of the market and Utilities weren’t far behind.
Those sectors had been stellar performers over the past couple of years and it remained an open question whether the recent selloff was an overdue consolidation or a more serious correction. This week’s market action indicates it is the former. In fact, several portfolio positions in those sectors are back to new all-time highs.
Sure, the market may rise in the days and weeks ahead. Investors may have an increasingly “risk-on” mood. But we are still in the very late stages of this recovery and bull market. Investors know that and will still continue to have at least one foot on the safe stuff as uncertainty continues to linger.
At the same time, value stocks are continuing to look good. Portfolio positions Valero Energy (VLO) and Altria (MO) have leveled off since the recent surge but continue to hold onto the gains. AbbVie (ABBV), on the other hand, continues to forge higher. It helps that investors have been moving toward Healthcare stocks of late.
The monthly issue will come out a day earlier than usual next week, Tuesday, November 26 instead of Wednesday, November 27. We want to give you more time to absorb it before the Thanksgiving holiday.
Rating Changes: Cheniere Energy Partners moves from BUY to HOLD
High Yield Tier
Brookfield Infrastructure Partners (BIP 53 – yield 3.9%) – This global infrastructure company is at a new all-time high. Third-quarter earnings were boosted by new higher-margin investments in North American energy pipelines, North American railways and Indian telecom towers. The company also has an additional $1.1 billion in new investments that should come on line in future quarters. Infrastructure remains in vogue with investors and it’s very encouraging that the stock has held up so well while other safe sectors, utilities and REITs, sold off. The stock is still rated HOLD because it is already up over 60% on the year and valuation a little stretched for new money. But the momentum is still strong. HOLD.
Community Health Trust (CHCT 47 – yield 3.7%) – The stock pulled off its all-time high as REITs got a little beaten up by the market. But its upward momentum is still intact despite a minor consolidation. I am concerned about valuation, which is why two-thirds of the position was sold over the past couple of months. I will continue to hold the remaining third as this has been an all-star performer (up over 60% for the year) and I’m not convinced that the market has abandoned REITs beyond the near term. HOLD.
Enterprise Product Partners (EPD 26 – yield 6.9%) – Energy sector woes continue. Oil prices are weak because global inventories are rising while China trade fears persist. As a result, rig counts in the U.S. have been falling, which is probably curbing the enthusiasm for infrastructure stocks. But the lower rig count will pressure prices higher next year, which would improve industry conditions. But this company is growing strongly regardless of the rest of the sector. It has billions in new projects coming on line in the upcoming quarters. The stock is a great value with an enormous dividend that is rock solid and growing. BUY.
STAG Industrial (STAG 31 – 4.6%) – The industrial REIT has been rock solid in a challenging environment for the REIT sector. As an industrial REIT it tends to be more cyclical than its peers, many of which underperformed when safety was king. But in this more “risk-on” market environment STAG is outperforming the other REITs. Earnings were solid and this is still a good monthly dividend payer. As a matter of fact, the stock has been significantly outperforming the REIT index of late and is at a new all-time high. Momentum still looks good. HOLD.
Dividend Growth Tier
AbbVie (ABBV 87 – 5.3%) – The stock continues to relentlessly move higher regardless of what the market does. After floundering badly amid concerns about competition for its top drug Humira, investors have apparently discovered the value and bright future. The stock is up over 40% since mid-August and 11% so far in November. The stock has also been aided by a rotation into value and positive news in the trial phase for a couple of its promising drugs. Yet despite the recent run-up, ABBV still sells at a remarkably cheap forward price/earnings ratio of about 9. This is still a great stock to buy here, especially with a stellar 5.3% yield. BUY.
Altria (MO 49 – 7.0%) – The news is unlikely to get better for the e-cigarette maker JUUL, in which Altria took a 35% stake almost a year ago. Vaping is under siege by the regulators and politicians and the situation is unlikely to improve in an election year. That said, the stock has already priced in a terrible scenario and has likely already bottomed. Meanwhile, it offers great value, positive earnings growth and a safe 7.5% yield and value investors are taking notice. Because of the dividend, value and limited downside Altria is still a solid investment in the current environment. The stock has been trending higher since early October with a periodic downside jolt from bad headlines about JUUL. I expect more of the same going forward. BUY.
Cheniere Energy Partners (CQP 40 – yield 5.8%) – This LNG exporter stock has been behaving poorly. The stock is down almost 20% from the high in mid-September. It’s true that midstream American energy companies as a group have been sputtering. The Alerian MLP ETF (AMLP), which tracks the index of midstream energy companies, has fallen over 18% since September. But CQP had been vastly outperforming this index for a long time until recently. Fundamentally, this LNG terminal operator will continue to export more LNG in a world hungry for the stuff as additional capacity continues to ramp up. Rapidly rising revenues fix just about everything. But I won’t fight the tape in the near term. The stock will be reduced from a BUY to a HOLD until there is technical improvement in the stock. HOLD.
Crown Castle International (CCI 136 – yield 3.6%) – This 5G infrastructure REIT has rebounded over the past week. It had taken a hit over the past couple of months as the REIT sector experienced some consolidation after a long period of outperformance. Generally, the ones that had been up the most got hit worse. But at the end of the day, this REIT will continue to enjoy robust and growing demand for its properties as the 5G buildout continues in haste. From a technical standpoint, I’m encouraged by the strong behavior of the stock over the past week and the recent pullback offers a great buying opportunity. BUY.
Valero Energy Corp. (VLO 97 – yield 3.6%) – This refiner stock had a great run since early October, moving up over 20%, as likely improving conditions in 2020 came into investor focus and third-quarter earnings beat expectations. The stock has pulled back slightly over the past week, which is to be expected after a significant move higher. That easy appreciation is likely over in the near term as the stock is higher priced. But with improving conditions ahead, I suspect VLO will continue to trend to the upside in the months ahead. BUY.
Safe Income Tier
Alexandria Real Estate Equities (ARE 160 – yield 2.5%) – Of all the REITs in this portfolio, this has been the most consistent and solid performer though the recent turbulence for the sector. The stock is again at new highs as it continues its slow and steady slog ever higher. Demand for its rare life science and research lab facilities remains strong and investors are still attracted to the defensive nature of the business. Even if the overall market continues to move higher, there is still a lot of uncertainty out there and I believe investors will continue to demand a rock solid dividend payer like this. Alexandria is still a great place to be in this environment. BUY.
Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.3%)
Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.7%)
The best thing I can say about these short-term, investment grade bond ETFs is that there’s nothing to say. These bonds remain steady and predictable, just like they should. It’s comforting to have something in a portfolio that pays interest and is unaffected by market volatility. It tends to steady out portfolio performance and can help keep you invested in times of volatility. BUY.
Invesco Preferred ETF (PGX 15 – yield 5.4%) – This preferred stock ETF is a great way to get a high yield and diversify into an asset class that is not correlated to the stock or bond markets. It is a rare way to get a good yield in a low-interest-rate world without taking on much risk. The performance has been solid and it remains a nice position to have in the late stages of the market cycle where uncertainty continues to remain a factor. BUY.
NextEra Energy (NEE 235 – yield 2.2%) – This utility not only earns consistent and growing regulated utility income from its Florida Power and Light division in regulator friendly Florida, but it is also a huge player in alternative energy, which enables a higher level of earnings growth than its peers. At present, NEE is the best-performing large utility in the country. But is has a bright future, as alternative energy only represents about 10% of America’s energy consumption and is expected to grow strongly over the next decade. After a brief pullback, the stock has been up nicely over the past week or so. The only kink in the armor is a high valuation. But momentum looks good. HOLD.
Xcel Energy (XEL 62 – yield 2.7%) – Like NEE, XEL has a strong presence in alternative energy, which is driving a higher level of growth than its peers and also bodes well for the future. Utilities are still a strong choice going forward as uncertainty continues to loom and investors are desperate for yield. The stock has returned over 100% since being added to the portfolio in October 2014, significantly outperforming both its peers and the overall market over that period. I believe the outperformance will continue in the years ahead. It is rather pricey at this point, though, which is why it’s only rated a HOLD.
