The Coronavirus Bull Market
I don’t know if this Coronavirus is good or bad for the market.
On the one hand, it’s certainly not a good thing, the stock market aside. It’s also a risk to the market. Things could get bad. I don’t know. Nobody does. At the very least, it will stall out the global economy in the short term. It is also adding a constant headline risk that seems to knock the market back at least once a week.
That said, it’s also probably the only thing stopping the market from getting drunk and making a fool of itself. Without this virus stuff I feel like the market would have soared so high that a significant pullback would be inevitable or already underway. It’s pacing the bull market and keeping it honest.
It seems like there is no news that can hold the market back for more than a day or two. Nothing seems to change the fact that this market wants to go higher. And why shouldn’t it? The economy is good, interest rates are low and the continuing technological revolution is adding exciting growth.
Sure, the global economy is sputtering. But it’s been wobbly for the past ten years. I don’t think a global slowdown will derail the bull market or recovery. But it could certainly halt the bull move higher that has been underway since October 8th. That’s not a high bar.
It is likely that a pullback in the market, as measured by the indexes, is increasingly likely in the near term. But that would be healthy and welcome. And it would set up things better for the rest of the year. Don’t be surprised if things get choppy in the weeks and months ahead. The market can’t just keep going higher forever.
Meanwhile, the shining stars of this market are technology and safety. Investors love the defensive dividend paying sectors right now, namely REITs, Utilities and Healthcare. And technology stocks continue to boom. I also believe that performance in the sector will get an adrenalin shot from 5G.
High Yield Tier
Brookfield Infrastructure Partners (BIP – yield 3.9%) – The global infrastructure company is still within pennies of the all time high. It reported solid earnings last week and has trended slightly higher since. Operationally, things are solid as the company is successfully employing its asset rotation strategy of selling mature assets and buying higher margin new ones. The market loves defensive stocks right now and this is one of the best. It’s also not as overvalued as most of the other defensive stocks, even though it has returned over 40% in the past year. It still looks strong. HOLD
Community Health Trust (CHCT – yield 3.3%) – This small healthcare REIT has soared 18% already this year, and it’s only the middle of February. And this is after the stock returned 58% in 2019. That’s some high flying for a REIT. It has certainly gotten overvalued and I did already sell two thirds of the position. But REITs are such hot stuff right now it makes sense to keep letting this run. HOLD
Enterprise Product Partners (EPD – yield 6.9%) – Energy was the worst performing market sector before coronavirus. Now it really stinks. The disruption the virus is causing in China will likely decrease demand for energy at least for a while and the energy sector is getting hit. Of course, EPD isn’t affected by commodity prices but rather through put volumes that won’t be affected. But the market doesn’t know the difference. This stock is a great value that is performing very well operationally. Eventually the market will come around. In the meantime, enjoy the 6.9% yield. BUY
STAG Industrial (STAG – 4.4%) – This industrial REIT announced earnings in line with expectations last week. The stock pulled back very slightly but is still very much in an uptrend. STAG has a great niche in the under-supplied industrial space market at a time when online shopping is create growing demand for warehouse space. The profits have been slow and steady as has been the performance. It’s not winning any races but it’s like a tortoise that just keep on going in the right direction. It’s a little pricey but momentum is still solid. And it pays a dividend every single month. HOLD
SFL Corporation (SFL – 10.3%) – This shipping stock took a dive when the coronavirus news hit but it has leveled off in the past couple of weeks. Unfortunately, shippers are directly affected by the disruption in global trade. Also, although SFL has long term contracts and won’t be affected by the falling spot rates for shipping, the stock falls in sympathy with the overall sector. The company is solid operationally on its own. But if this virus news takes on a more threatening tone I may have to exit the stock. The dividend is safe as it has been paid for 64 consecutive quarters. For now it’s a hold until there is more clarity on the coronavirus effects. HOLD
Verizon Communications (VZ – 4.2%) – The stock pulled back a couple of dollars per share this week as the Sprint/T-Mobile merger was approved by a Federal Judge. The approval has been likely for a long time. But the stock got knocked back when it became official because it will create more competition for wireless pricing. That said, I believe the tailwinds and increased profits from 5G will more than compensate for the increased competition. Verizon was already an excellent income stock but with opportunities ahead it will become an even better one. BUY
Dividend Growth Tier
AbbVie (ABBV – 5.0%) – The biotech giant predictably pulled back this week after a huge 20% surge in the stock price in the first 12 days of February. Earnings beat expectations with 16% growth from last year’s quarter and the company issued 2020 guidance that was above expectations. The Allergan (AGN) merger is also expected to close in the second quarter. The stock has broken above the previous resistance level of about $90 per share. We’ll see if after this recent consolidation the stock continues to move higher. BUY
Altria (MO – 7.1%) – It has been a lousy time for this stock. Altria took another $4.1 billion impairment charge on its JUUL stake after the $4.5 billion impairment it took in October. Altria took a disastrous $12.8 billion 35% stake in the E-cigarette maker a little over a year ago. Since then, JUUL has been under relentless scrutiny from regulators for marketing to teens. And the stock took a hit after the earnings announcement. But remember the company still has investments in beer, wine, marijuana and other things. It also has the most popular cigarette brand in the country by far. This company just raised the dividend for the 50th consecutive year because of the predictability of sales and earnings per share continue to grow despite the current circumstances. The stock is still a super value with a recession resistant business and a massive 7.3% yield that is safe. But until the stock reverses trend it will remain a hold. HOLD
Crown Castle International (CCI – yield 2.9%) – I love it. This 5G cell tower REIT has soared back to new all time highs. The stock is kicking butt, up 27% since December and 10% in less than 2 weeks. That’s a heck of a move for a conservative REIT. What’s going on? 5G is what’s going on. The REIT is in a favorable sector right now and is especially well positioned as the 5G rollout will continue in haste, providing as much opportunity for growth as the company can handle. It also helps that REITs in general have been market darlings in this all time high, coronavirus market. The stock has moved so far so fast that I don’t consider it to be in the buy range anymore, but it is still very much in an uptrend. The company will announce earnings on Wednesday after the market closes and I welcome the prospect because robust earnings amidst the 5G phenomenon is why we bought the stock. HOLD
Innovative Industrial Properties (IIPR – yield 4.2%) – This marijuana REIT has been a party animal. It’s lighting it up. It’s up over 40% since being added to the portfolio in December, 30% in less than a month and 10% in the past week. And, at 103 per share, it is still well below the 52-week high of about 140. That’s some serious appreciation for a high income REIT. The reason is that this company is growing earnings like crazy while the rest of the marijuana sector is struggling in the earnings department. It never deserved to be knocked down almost 50% in sympathy with the rest of the sector at the end of last year. The company announces earnings next week that should be strong; after all, earnings are expected to more than double this year. But don’t forget. This stock can be volatile. It could see 90 per share before it sees 120. But the payoff is worth the ride. BUY
Qualcomm Inc. (QCOM – yield 2.8%) – The 5G chip maker is in the right place at the right time. 5G is a huge deal that should propel technology stocks even more powerfully in 2020 and beyond. The company will likely experience a huge boom in earnings that will move the stock price higher. The only thing standing in the way is the coronavirus. It will hamper sales in the near term as the company does a lot of business with China. But when that problem finally abates, sales will make up for lost time. 5G is phenomenon that can only be held at bay temporarily. The virus is actually creating an opportunity for QCOM by holding the stock price down and giving you a chance to still get into the stock at a good price. BUY
Valero Energy Corp. (VLO yield 4.7%) – This world-class American refiner is also being held back by the coronavirus. The troubles in China and the global economy will reduce demand, and consequently prices, of refined products. That will hurt crack spreads and profit margins for Valero. That’s why the stock is down. But beyond the virus, margins will likely significantly rise from last year’s levels. When the ugly headlines finally fade, this stock too should make up for lost time. As well, the fact that this stock and the energy sector are being clobbered by the virus is creating an opportunity to still get into a stock that is likely to go places over the remainder of the year at a cheap price. BUY
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.4%) – There is a torrid love affair going on between this stock and 2020. The stock had been consistently forging ever higher last year. But this year it’s doing the same thing at a faster pace. Safety is hot. REITs are hot. Healthcare is hot. Technology is hot. This research lab and life science REIT encompasses all those things. At some point the stock will have to take a breather. It’s pricy but sometimes it makes sense to just get out of the way. Go baby go.
The research lab and life science REIT announced solid earnings on Monday and the stock jumped to new all time highs. Funds from operations grew 5.4% in 2019 over the previous year and revenues climbed 15.4% as the company grew its property portfolio. The relentless slog higher for this stock just got a nice bump. With everything going so well for the stock I’m tempted to take profits on part of the position. But the momentum is still great and the stock is a trouper in down market markets. So I will continue to hold the whole position for now. HOLD
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.6%) – The high market with the lingering coronavirus news is increasing investor appetites for safety. Interest rates are being held down as well. 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 is also a nice yield for bonds that mature at the end of next year. BUY
Invesco Preferred ETF (PGX 15 – yield 5.3%) – Ditto on what I said about BSCL. As well, 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 current market. BUY
NextEra Energy (NEE – yield 1.8%) – I would say slow and steady wins the race. But this stock has changed. Now it’s fast and steady. After a terrific 2019 where NEE returned over 46%, it has returned over 16% so far in 2020. And this is a utility stock mind you. Just about everything I said about ARE applies to this stock as well. This regulated utility and alternative energy company is actually pulling back a little today. But that is probably setting it up for another move higher. The company also approved a 12% dividend hike. HOLD
Xcel Energy (XEL – yield 2.5%) – This smaller alternative energy utility is up over 14% this year. The market loves utilities right now and alternative energy always. It has the right stuff for this market and it looks like it will never pull back. Like NEE, the stock has gotten expensive but the upward momentum still shows little sign of abating. I won’t fight the tape and will continue to hold the whole position and bask in the magnificence. HOLD
