The Dog Days of Summer
These are the dog days of summer. It’s a rare time of year when a certain degree of slackery is not only tolerated, but expected. People tend to focus on enjoying the waning days of summer. More serious issues and considerations get postponed until after Labor Day.Investors are no different. Usually whatever market trend was in place before the summer begins to run out of time persists through the final weeks. The market was upbeat and moving higher in mid-August and should continue on that path in the weeks ahead.
The rubber will hit the road in September. I’m not sure how sobered-up investors will react to a market that is higher than it was before the pandemic. There is still unpredictability regarding the virus, a hobbled economy and election uncertainty and risk. Plus, the market may need a breather after a 56% rally in five months.
I’m not expecting disaster by any means. But don’t be surprised if the market pulls back at some point in the months ahead. I believe in the economy and the recovery and that the market will trend higher over the course of the next year.
In the meantime, the portfolio is doing well. Our portfolio REITs and Utilities are outperforming the market despite the fact that those sectors are significantly underperforming. Plus, Innovative Industrial Properties (IIPR) and Qualcomm (QCOM) have broken out and are off to the races.
High Yield Tier
B&G Foods (BGS – yield 6.2%) – This packaged food company sure has some terrific momentum. It’s up 23% since being added to the portfolio in July and has returned 79% YTD. With performance like that from a stodgy food company it may seem like time to start looking for the exits. But the stock still sells at valuation levels well below those of the overall market. BGS was over 50 per share in 2016 (currently 31.12) with much lower earnings than today. It has become a much stronger growth company with the shift to more cooking at home. BUY
Brookfield Infrastructure Partners (BIP – yield 4.5%) – It ain’t fast, but it’s steady. After a quick rebound in April, a tortoise-like ascent has persisted. Although not high-flying, the performance has been solid. And the fundamentals are terrific. Its infrastructure assets continue to generate steady revenue in any economy. It also has a growth catalyst in the future as more private sector infrastructure projects became all but inevitable given the precarious fiscal situation of most governments. BUY
Enterprise Product Partners (EPD – yield 10.0%) – Yeah, the market hates this stock’s guts right now. But that massive 10% yield is rock solid and safe. The company has performed magnificently on an operational basis through the pandemic. And business will rebound quickly. It’s a great value, even if the market doesn’t give a wit. Just enjoy the yield for now. HOLD
STAG Industrial (STAG – yield 4.4%) – Who doesn’t like a monthly dividend with a high yield from a stock with solid upward momentum? The industrial REIT has a great niche in cheap and easy-to-maintain warehouse spaces as online retail continues to grow at a break-neck pace. It isn’t lighting the world on fire, but it is slowly heating it in the stew pot. HOLD
Verizon Communications (VZ – yield 4.1%) – It looks like the market has stopped dissing this stock. After floundering in no man’s land since April, VZ has been trending steadily higher since mid-July. It is still underperforming the market but the stock has less downside if things turn south. The steady business, high dividend yield and downside resilience are greatly complemented by a growth catalyst from 5G in the years ahead. BUY
Dividend Growth Tier
AbbVie (ABBV – yield 4.9%) – This biopharmaceutical giant has lost its upward mojo. After going on an unholy tear since the lows of March, it petered out in mid-July. The stock broke 100 and is currently 93.20 without any discernible near-term momentum. That’s okay. A consolidation after a big rally is normal and healthy. The operational story is great and earnings are solid. The stock is still quite cheap on a valuation basis and I expect the uptrend to reignite in the not-too-distant future. BUY
Altria (MO – yield 7.8%) – This cigarette maker stock is a great value with a high and safe dividend yield. I believe that the company’s troubles are more than reflected in the stock price, and indeed overly discounted. Despite the JUUL woes, it has growth catalysts in heated tobacco product IQOS and other things. In the meantime, it is still making money rain or shine and extending its track record of 50 years-plus of dividend hikes. The stock has also been slowly trending higher. BUY
Crown Castle International (CCI – yield 3.0%) – This cell tower REIT is still outperforming the market YTD but it has floundered since June after a big run higher. There is news of an activist investor trying to force the company to invest less in fiber optic cables and raise the dividend. I don’t see this as a problem. The stock should continue to perform well and maybe better if they take his advice. At any rate, a consolidation in the stock was probably necessary. HOLD
Eli Lilly and Company (LLY – yield 2.0%) – The drug company has a fantastic lineup of recently launched drugs that should propel earnings higher for several years. Some other drug companies make that claim but Lilly has a strong history of actually executing. A best-in-class pharmaceutical company with the tailwind of a rapidly aging population should be a great place to be. The stock has pulled back from the high in July but the uptrend is still in place. BUY
Innovative Industrial Properties (IIPR – yield 3.5%) – The marijuana farm REIT keeps on soaring ever higher. It has returned 65% YTD and 33% in the past month. It has the growth to justify the surge, and then some. It is reaping the rewards and the only company with a fantastic niche in a fast-growing industry. Innovative is weathering the pandemic with flying colors and the stock should continue to trend still higher in the future. In the near term, it is very levered to the performance of the overall market. If the market pulls back in the fall, so should IIPR. HOLD
Qualcomm Inc. (QCOM – yield 2.2%) – The chip maker had been a market performer through the pandemic, but it broke out a few weeks ago when the company announced better-than-expected earnings and a highly impactful settlement with Huawei. There was always the catalyst of 5G ahead, but legal issues with the licensing business concerned investors and held back the stop. The resolution of this issue is huge and put the stock on a higher trajectory. HOLD
Valero Energy Corp. (VLO – yield 7.2%) – The stock of this beleaguered refiner is a play on the economic recovery. I could throw some numbers at you. I could say clever things about refiners and the energy industry. But today I’ll keep it real simple. If the economy comes back strongly in the quarters ahead, this stock will benefit. If it doesn’t, it won’t. I have confidence in the recovery, so I’m still camping out in VLO. And by the way: the dividend should be safe for the foreseeable future. HOLD
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.5%) – This life science and research lab niche REIT is not only a safer play, but it tends to outperform the market over time. It made a new high in late July and has pulled back ever so slightly since. But since March the stock has been moving up and down on an upward trajectory and I haven’t seen anything to indicate that pattern has broken. HOLD
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.6%) – This short-term bond ETF has held up well through the crisis because it isn’t in the stock market, the bonds are short term, and they are investment grade-rated. It still has a yield that’s better than you’ll get in most traditional safe-haven investments. BSCL is a safe port in a stormy market and owning it provides much needed comfort as risk and uncertainty abound. BUY
Invesco Preferred ETF (PGX – yield 5.5%) – This preferred stock ETF holds up like a rock in all but the most tumultuous market selloffs. And even then it goes down much less than the market. At the same time, it provides a serious yield from an asset class that is diversified from the stock and bond markets. HOLD
NextEra Energy (NEE – yield 2.0%) – What utility underperformance? While the utility sector has lagged badly in the market recovery, NEE is significantly outperforming the market. It is a great regulated utility in a class above the rest. Plus, alternative energy is a rapidly growing business. Investors love the combination and this stock should continue stellar performance. It is fairly valued but I will likely raise the rating to a BUY on a pullback of any significance. HOLD
Xcel Energy (XEL – yield 2.5%) – This smaller and lesser known alternative energy utility recently made a new all-time high and has since pulled back just a little. Alternative energy is a fantastic business with a future that will inherit the world. With Xcel you can invest in the industry with a very practical and income generating company. The future may be even brighter than the recent past. It’s also beating the market this year, as well as over the long term. Alternative or clean energy isn’t going away. It will continue to grow in prominence and perhaps at a faster rate in the future. It also continues to become cheaper to produce and deliver all the time. HOLD
