Beware the Market Comeback
Things are certainly looking up. After a lightning fast 30%-plus plunge, the market has recouped half of the losses already.The market is forward looking. It senses an end to this pandemic crisis and a reopening of the economy sooner rather than later. That’s good news. And I agree. The end-of-the-world pessimism that caused the market crash is being tempered. It’s a very good thing.
Let me also say that I am an optimist when it comes to the market and the economy. I strongly believe that we will get through this. It is a resilient country and economy. Businesses will come roaring back. The economy will roar again. The market will thrive again. And it won’t take all that long either.
That said, I don’t think we’re out of the woods by a darn sight. We are overcoming the virus. The market senses an end to this pandemic. But the government crashed the economy to fight it. While the virus cycle may be winding down, the economic disaster cycle is just beginning.
News of the financial carnage is just starting to hit the market. The market is down over 2.5% today on news of terrible earnings for big banks and an 8.7% decline in retail sales for March. Many companies will post disastrous earnings for the quarter with a promise of worse to come. Economic numbers are likely to be Great Depression-like. The market doesn’t like today’s numbers. It surely will not like tomorrow’s.
It will take a lot longer to restart the economy than it did to shut it down. Think about the consumer, which accounts for 70% of economic activity. All those millions of people who lost their jobs will have to get back to work, recoup the financial harm from months of unemployment, and regain confidence. That will take time. In the meantime, the S&P 500 is currently at the same level it was in March of 2019. But the economic fundamentals are significantly worse than they were then.
As I mentioned, I believe we will overcome. A year from now the market is likely to be higher than it is now. But there is a strong possibility that the market will have another down leg before this is over.
The virus will be overcome. The economic downturn will be overcome. If the market does turn south again, don’t look at it as a disaster that confirms your earlier pessimism. View it as an opportunity and another bite at the apple to get stocks dirt cheap before the market inevitably recovers.
I will be with you every step of the way. We’ll get through this and emerge in better shape than ever.
High Yield Tier
Brookfield Infrastructure Partners (BIP – yield 5.4%) – Brookfield is one of the most defensive and reliable earnings-generating stocks on the market. It invests in infrastructure assets all over the world including cell towers, toll roads, railroads and utilities. After the hysteria, the stock has been performing nicely. In the panic of the 34% market selloff in record time, everything got creamed. But this was one of the first stocks to come back after the market sobered up. Reliable earnings and high and safe yields won’t be going out of style and neither will the demand for BIP shares. This is a great stock to hold even with the remaining uncertainty in the market. BUY
Community Health Trust (CHCT – yield 4.6%) – The small healthcare REIT had an enormous bounce back from the bottom. This too is resilient business model in any economy as people need their healthcare facilities regardless of the economic disruption. Two thirds of this position was sold during the good times and the stock is once again a compelling value well below the high. HOLD
Enterprise Product Partners (EPD – yield 10.6%) – Some stocks were unfairly bludgeoned during the selloff. EPD isn’t one of them. The energy sector is right in the crosshairs of the economic shutdown and will be hampered for some time. Demand for energy has crashed as much as it possibly can without the earth being struck by a huge meteor. In fact, the county is running out of storage for unused oil. Companies may stop shipping and stop paying on the long term contracts with EPD. That said, business will come back. The post Coronavirus world will need energy. In the meantime, this dividend is safe. The company is financially solid, has loads of cash on hand and has a more than 20-year track record of consistently paying and raising the distribution. It’s an ultra high income play for now with a high likelihood of significant capital appreciation over time. HOLD
STAG Industrial (STAG – 5.5%) – This industrial REIT has really bounced back from the indiscriminate bottom, up almost 50%. The allure is most likely because of the fact that its industrial warehouse properties are booming as online shopping is exploding with the stay-at-home orders. The monthly payout doesn’t hurt either. But this REIT will be hurt by the shut down as some tenants won’t be able to pay the rent. That’s already reflected in the price. STAG should be a solid performer going forward. HOLD
Verizon Communications (VZ – 4.2%) – There’s a reason that this stock is actually a little higher since being added to the portfolio right before the market went to Hell in a handbag. Its business is actually thriving during the shutdown. People are using their phones, the internet and watching TV more than ever. While that is fortunate for Verizon, it isn’t the main reason the stock was recommended. The main reason is the earnings growth catalyst of 5G, which will come into play in the quarters and years ahead. In the meantime, this is one of the very best stocks to own through the crisis. BUY
Dividend Growth Tier
AbbVie (ABBV – 5.7%) – Believe it or not, people still have other health afflictions besides Coronavirus. You may stop doing a lot of things during this shutdown, but taking your medication isn’t one of them. Nothing has really changed for this healthcare giant just because the world around it is collapsing. Everything this company had going for it (the pipeline, the merger, better than expected earnings, the safe and high dividend) is still intact. Few companies have such a defensive business along with extremely powerful demographic tailwinds from the aging population. This was a great stock before the crisis, and investors were recognizing that fact. It is also a great stock during and after the crisis. BUY
Altria (MO – 8.0%) – This cigarette maker has been a dog of a recommendation. I’ll admit it. Right after it was added to the portfolio, it purchased a company that was about to be blitzkrieged by the regulators. That said, the damage is done. At this point, Altria is a company that generates reliable earnings through the shutdown and pays an enormous yield that is safe. It’s a place to earn obscene income where you will get your principal back and then some going forward. HOLD
Crown Castle International (CCI – yield 2.9%) – 5G is still an urgent national priority. It’s actually a national defense issue considering what is at stake. Business for this cell tower property owner will continue to be strong. That’s probably why the stock is trading very near its all time high amidst the market carnage. CCI was one of the few stocks upgraded to a BUY in the March 25th weekly update, close to the market bottom. Since then it’s up about 30%. Investors realize this is one of the very best REITs on the market to own right now. The current dynamic should continue in the years ahead as the 5G rollout continues in haste. BUY
Innovative Industrial Properties (IIPR – yield 5.2%) – Like tobacco, medicine and getting high don’t go out of style in times of crisis. Marijuana use is up during this crisis and this company is growing earnings like crazy. The stock is still beaten down and cheap because it is counterintuitive to many investors. Why go with something exotic like marijuana while so many other more practical companies are cheap as well? The answer is earnings. IIPR is expected to more than double earnings this year. Making money never goes out of vogue, even in a pandemic. This stock will come back with a vengeance as the market recovers. HOLD
Qualcomm Inc. (QCOM – yield 3.2%) – 5G is coming fast, rain or shine, pandemic or no pandemic. Once this crisis fades into history, 5G will be the hot story in the market. Qualcomm will be smack dab in the middle of all the excitement as the company has the only great 5G smartphone chip on the market. Hang onto this one. It will inherit the post Coronavirus world. HOLD
Valero Energy Corp. (VLO yield 7.7%) – The world is not forever changed because of this virus. The market is realizing that fact. The world will continue to need energy to run the economy. Valero is one of those stocks that has been absolutely creamed in this bear market as demand for refined products has fallen off a cliff, temporarily. The economic engines of the U.S. and the world will roar again, and they will need plenty of fossil fuels to do it, and Valero will be right there. This stock can fall fast when conditions aren’t right. But it can rise just as fast when things improve. And they will. I believe that before the end of the year you will be handsomely rewarded for sticking with this one. HOLD
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.7%) – When hysteria fades, when people realize the world isn’t ending, investors will again love reliable dividend paying stocks with defensive businesses. This stock has already been a stellar performer in the market recovery. I believe it will continue to be highly valued in the post Coronavirus market, just like it was before the crisis. Research labs and life science facilities will not go out of style after this pandemic crisis, quite the opposite. This REIT’s properties will be a beneficiary as medical research will emerge as the most noble endeavor known to man. HOLD
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.7%) – This safe and short term bond fund took a small hit in the worst of the selloff. But on a relative basis it’s still rock solid. A holding like this may seem like an overcautious bummer in boom times, but it’s proving its worth now. BUY
Invesco Preferred ETF (PGX – yield 5.7%) – This preferred stock ETF took a sizable hit during the selloff. It’s not a short term bond fund, and there is a price for the high yield. That said, it continues to pay the high dividend and has bounced back strongly as the market recovered. At the end of the day, I believe you won’t lose any capital and you will have continued to earn a high monthly income throughout the crisis. BUY
NextEra Energy (NEE – yield 2.3%) – This is one of the best stocks to own, period. Of course, it’s great for safety conscious, income oriented investors. But it is also a must-own for anyone. It offers steady income from a stellar regulated utility and growth from its world-leading alternative energy business. It’s only down as much as it is because its obvious appeal made it overpriced before the selloff. It is only not a BUY because I expect more trouble ahead in the market. If the market again turns south, I will recommend a BUY on NEE at a cheaper price. HOLD
Xcel Energy (XEL – yield 2.6%) – Ditto everything I said about NEE. This smaller, alternative energy utility came roaring back from the selloff. Even though XEL also got overpriced before the crisis, it isn’t all that far from the all time high. With solid revenues and strong financials this is a great stock to hold on to in this market. And I will look to upgrade the stock to buy in another down leg in the market. HOLD
