Safety Swings Back in Vogue
Here we are in an up leg of a bull market that began three months ago. Since early October the S&P 500 has climbed 14%. With trade issues and Iran out of the headlines, the strong economy and low interest rates are driving stocks higher with technology leading the charge.
But that’s been the case for while. What’s new is the resurgence of the safe stuff. REITs and utilities had been consolidating and underperforming the market significantly in the earlier phases of this latest stretch of bullishness, but not no more.
As I mentioned, investors were unlikely to abandon the safer plays this late in a bull market and recovery. The temporary investor distaste for stocks with low sex appeal is abating in a big way. Several safer plays in the portfolio are surging to new all time highs including BIP, STAG, CCI, ARE, NEE and XEL.
It looks like investors’ love affair with safe dividend stocks is still burning hot. They just had a little spat and made up.
There has also been very good performance in semiconductor company Qualcomm (QCOM) and marijuana REIT Innovative Industrial Properties (IIPR) since being added to the portfolio. Qualcomm had a nice week as it got an upgrade from Citigroup. And the marijuana sector is starting to turn around. So far, the 5G and marijuana themes I mentioned for 2020 are playing out.
It’s also important to note that this market surge has included long neglected value stocks. Not only are these stocks reasonably valued, which had been the case for a long time, but now they have momentum as well. Value positions ABBV, MO and VLO have all had nice runs, although they are consolidating somewhat lately.
Right now the market looks good, especially for dividend stocks. In the weeks ahead, earnings news will likely dominate the exquisitely crafted stock write-ups in the updates. And it is likely that moves will become more individualized, and less about the overall market.
High Yield Tier
Brookfield Infrastructure Partners (BIP – yield 3.8%) – The global infrastructure company is soaring to new all time highs this week. After pulling back from the old high, BIP is up about 6% this week and 11% since mid December. It has also returned over 43% for the past year, much better than its peers and the overall market. The reliable and significantly growing payments from its essential assets makes BIP like a utility on steroids, sort of like NEE and XEL. And the market loves those kinds of plays these days. I expect continued solid performance as new, higher margin assets continue to come on line and drive earnings higher. The stock is still rated HOLD because it has had a solid run-up and this might not be the ideal entry point. HOLD
Community Health Trust (CHCT – yield 3.7%) – This small healthcare REIT has also had a nice rebound after pulling back from the high. The bull market seems to love REITs so far this year. CHCT is in the healthcare arena, which is defensive and the market likes. And it’s also a smaller REIT with more upside potential than most of its peers. It returned over 50% in 2019 and has gotten too high priced to be a “buy” but it looks like it might be poised for another run at the high. HOLD
Enterprise Product Partners (EPD – yield 6.2%) – Every time this stock looks like it’s going places, it fizzles. It had a strong run since the beginning of December but it floundered again this week. It’s still an amazing value with growing earnings and an awesome dividend that is rock solid. It seems like every week I point out all the things this energy infrastructure giant has going for it. Hopefully, the market will have an epiphany at some point. Until then, a 6.2% yield doesn’t stink. BUY
STAG Industrial (STAG – 4.4%) – This industrial REIT is yet another portfolio participant in the all-time-high club. STAG is a low drama, steady performer that pays dividends every single month. The stock just slowly trends higher with less volatility than the overall market. The announcement last week of a new share offering barely slowed this juggernaut. Like several other portfolio positions, the stock is too high priced to be a “BUY” at the current price. But the momentum looks good and the stock could move still higher in the months ahead. HOLD
SFL Corporation (SFL – 9.7%) – Shipping stocks took a bit of a hit this week on news of the Chinese virus outbreak. The sector is vulnerable to things like that. Hopefully, it won’t be a big deal. That aside, SFL is a strong player that has a proven ability to earn consistent profits in any environment. A likely continued recovery in the shipping industry should also add nice support to this very high dividend payout. This is one of the very few places to get a huge dividend with an acceptable level of risk. BUY
Dividend Growth Tier
AbbVie (ABBV – 5.4%) – Since rising 40% from the summertime lows, the biotech giant has leveled off. The upward move is a significant reversal of a nearly two year downtrend. After a big move like that it is encouraging from a technical standpoint that the stock has been level and hasn’t pulled back at all. There is a strong possibility that it is consolidating ahead of another move higher. Meanwhile, the pipeline still looks phenomenal. There was good news from a phase III study of its psoriasis drug this week. The merger with Allergan (AGN) appears on schedule to close in the next several months and the stock is still cheap at just 9 times forward earnings. I like ABBV to buy here and I believe most analysts are underestimating the near term upside. BUY
Altria (MO – 6.6%) – The headlines for E-cigarettes, and Altria’s 35% stake in JUUL, aren’t getting any better and probably won’t in an election year. There is new concern about the higher minimum age (21) to buy cigarettes. The regulatory landscape looks ugly as usual. That said, marijuana stocks are starting to perform which is good for Altria’s stake in Cronos (CRON). MO has done very well during the market’s three month run higher, as it included value stocks. The company continues to grow earnings and the huge dividend should be safe. BUY
Crown Castle International (CCI – yield 3.3%) – The days of this 5G infrastructure REIT’s pulling back from the highs are over. This stock has been on fire and is on the cusp of a new all-time high. REITs have been strong over the past couple of months and CCI is making up for lost time, up about 14% since early November. I think the run can continue as Crown Castle should continue to experience robust and growing demand for its properties as the 5G build-out continues in haste. 5G related stocks are poised for a strong 2020. BUY
Innovative Industrial Properties (IIPR – yield 4.8%) – This owner of marijuana farms has been very strong out of the gate. It’s up around 12% since being added to the portfolio in the December issue. The timing is likely very good. Although this REIT continues to make money and grow earnings at a huge clip, it got knocked more than 40% from the highs in sympathy with the overall marijuana sector. The company has an expected earnings growth rate of 80% in 2020 and the beaten down sector is due for a rebound. BUY
Qualcomm Inc. (QCOM – yield 2.6%) – The chip stock had a nice week as it got an upgrade from Citigroup with a price target of 108. The signing of the China trade agreement also helped the semiconductor sector. 5G is exploding onto the scene and Qualcomm has by far the best 5G cell phone chip. The stock is behaving well as it has trended distinctly higher over the past year and isn’t far from the 52-week high. I strongly believe that the 5G phenomenon will propel this stock significantly higher than it is now at some point in the year ahead. BUY
Valero Energy Corp. (VLO yield 3.9%) – This is one stock that had a bad week, down over 5% in the past five days. Refiners had a bad week on news of gasoline inventories rising, which could result in lower prices and crack spreads. And there were also bad economic numbers from China which could negatively affect global demand for refined product. That said, conditions at the company are improving and Valero expects year over year earnings growth of 93.4% in 2020. While conditions are generally trending upward for the refiner, news items affecting the supply/demand dynamic for refined products can always knock the stock around in the near term. BUY
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.5%) – This life science and research lab company is another portfolio REIT making new all time highs. Since the beginning of last year ARE has pushed almost relentlessly higher up over 45%. It barely stumbled after announcing a new offering of 6 million shares. Demand for its rare life science and research lab facilities remains strong and investors are still attracted to the defensive nature of the business. The stock has been an all star performer for many years and I expect it to continue to behave well in this environment. On valuation reasons alone it is just a HOLD. HOLD
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.7%) – The best thing I can say about this short-term, investment grade bond ETF 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. It’s also a nice yield for bonds that mature at the end of the year. BUY
Invesco Preferred ETF (PGX 15 – yield 5.3%) – 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 in the stock market continues to remain a factor. BUY
NextEra Energy (NEE – yield 2.0%) – This utility and alternative energy superstar is also making new all time highs. Nothing seems to stop the relentless push higher. The stock price has more than doubled in the last three years. In that time it has absolutely blown away the returns of the utility sector as well as the overall market. It’s a great company that combines the steady revenue of one of the best regulated utilities in the country with the growth of the world’s largest alternative energy producer. It is also in the wheelhouse of a market that loves best-in-class safe stocks. The stock is pricey but the momentum is to die for. The company is expected to announce quarterly earnings on Monday. Half of the position was already sold so I’m less cautious. HOLD
Xcel Energy (XEL 62 – yield 2.5%) – This smaller alternative energy utility is yet another portfolio position making new all time highs. Much of the story is the same as NEE except this is a much smaller company that has potentially more upside. The stock stumbled for a while as the bull market shunned utilities but it has come back with a vengeance in the last couple of weeks. It’s pricey but the momentum is very strong. HOLD
