The Ever-Rising Market Meets a New Season
Summer is over. It’s time to drain the pool, time to go to school. What a drag.
Labor Day is right around the corner, next Monday. That marks the unofficial end of summer. Of course, it really doesn’t make much difference in my life anymore. It’s just that the end of summer left such a deep emotional scar in my youth that a bummer reflex gets automatically triggered.
But I’m not alone. It matters to investors too. Labor Day marks the start of a new year of sorts and a rebirth of seriousness in the collective psyche. The other side of Labor Day is a new ballgame, when investors shake off the apathy of summer and refocus with intensity.
What will the sobered-up investor see?
The investor will see a market that has soared to new all-time highs with no signs of stopping, despite the fact that the virus is still with us and the economy has been seriously hobbled. The S&P is up over 9% and the technology-laden Nasdaq is up over 30% in this pandemic-stricken year. It seems like a mismatch destined to be corrected.
But the news is good. The virus is in decline and the possibility of a vaccine by or near the end of the year seems increasingly likely. Sure, there could still be some stumbles ahead. But this pandemic is on its way out. The economy is rapidly recovering. And the Fed is very market friendly, with record low interest rates and plenty of stimulus.
Then there’s the election. The two parties are far apart. But they have been for a while and every election in the last 20 years has been dubbed “the most important in our lifetime.” Yet, in the absence of another driving factor like the financial crisis or delayed election results, the market has been fine with either side winning.
That said, this election is riskier because there is a greater chance of a contested result at a time when the acrimonious political environment is unlikely to handle it well.
That’s the landscape. We will see how the refocused investor copes after Labor Day. I will surely be in touch. In the meantime, enjoy the positive momentum and the rising portfolio returns.
High Yield Tier
B&G Foods (BGS – yield 6.1%) – This packaged food company stock pulled back a little over the past week. But the uptrend is still intact. BGS has had a great run of late and it has returned almost 80% YTD. Yet it sells at valuations that are still below the five-year averages despite the fact that growth has picked up dramatically and will likely stay at a level well above the five-year averages for a long time. The stock was over 50 per share in 2016. The trend toward eating at home will likely continue beyond the pandemic, making BGS a transformed and superior stock. BUY
Brookfield Infrastructure Partners (BIP – yield 4.4%) – After significantly outperforming the market over the past 10 years, BIP has underperformed over the past year. Part of that is due to the underperformance of most dividend stocks during the recovery so far. Also, Brookfield has some assets in emerging markets, which are out of favor with the market right now. But the company has a great defensive business with a growth catalyst of more infrastructure spending in the future. It’s in a good position now as the stock is still reasonably valued. BUY
Enterprise Product Partners (EPD – yield 10.1%) – This midstream energy company has performed magnificently on an operational basis through the pandemic. And business will rebound quickly. It also has great value at this depressed price level. For now you get a double-digit yield on a stock that isn’t really doing anything. But the market should realize the value at some point. This stock should be priced a lot higher. HOLD
STAG Industrial (STAG – yield 4.5%) – After lagging in the market recovery, STAG has significantly outperformed the market over the last three months. The REIT sector’s underperformance had kept it down somewhat but now the stock seems to be coming alive. It has a great niche market in industrial REITs and it should continue to perform well as the economy recovers. The stock is also a conservative play on the growth of e-commerce as it owns distribution centers for online retailers. HOLD
Verizon Communications (VZ – yield 4.1%) – The stock has performed much better in the past couple of months. After floundering for much of the recovery 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 stock tumbled almost 4% yesterday on news that it is being subpoenaed by the House of Representatives for allegedly failing to comply with a House panel investigating drug prices. The panel says AbbVie failed to provide requested information for 18 months. AbbVie has denied the allegations. Government scrutiny and negative attention is never a good thing. But this news certainly doesn’t change the very positive story on this company and stock. This is one of the very best large health care companies and that sector should be a great place to be going forward. BUY
Altria (MO – yield 7.8%) – The cigarette company is out of favor, that’s for sure. Not only is smoking unpopular but Altria’s attempt to get into E-cigarettes in going over like a lead balloon. But this is a stock that has performed marvelously for decades amidst contempt and non believers. This is nothing new. The company easily generates enough free cash flow to pay that huge dividend. Plus, there are some potential growth catalysts out there. It should at the very least perform as a good high income stock. BUY
Crown Castle International (CCI – yield 2.9%) – This cell tower REIT has outperformed the market YTD as well as over the long term. But over the last three months it has floundered. The stock was remarkably quick to recover from the March lows and was back to all-time highs by May. It seems like it was ahead of the market and recovered early and has paused while the market is catching up. Such behavior is not unusual for this stock and it is still in a long-term uptrend. 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. It also has a rich pipeline with more than two dozen drugs currently in clinical trials. The stock has been a strong performer but has pulled back recently, with the uptrend still intact. As well, LLY is popular with hedge funds, and they usually outperform the market. It looks like a good time to get into LLY, and I see little downside if the market turns south. BUY
Innovative Industrial Properties (IIPR – yield 3.4%) – The marijuana farm REIT is really off to the races. It’s up 40% since mid-July and appears destined to soar to a new high over 130 (currently 125). At some point it will top out and I will try to secure profits near that level. But for now it’s still well worth riding the momentum that has continued to propel the stock higher for more than a month. HOLD
Qualcomm Inc. (QCOM – yield 2.2%) – The chip maker rose faster than I expected because of the settlement with Huawei. Fear of a negative settlement had been holding the stock back and it took off with the positive news. It still has a big revenue boost from 5G-enabled phones when they start to hit the market this quarter and in the quarters ahead. Right now, the stock seems to have everything going for it: a great catalyst for growth, a long-term uptrend, and amazing momentum. HOLD
Valero Energy Corp. (VLO – yield 7.4%) – VLO is the other side of the equation. The stock can’t get out of its own way. It recovered from the March bottoms into early June but has been floundering ever since. It seem that, unlike the overall market, it needs to see tangible evidence of a real recovery before it rallies. Demand for refined product has already picked up a lot from the worst days of April. But there is still excess inventory to work through before profits really rebound. But as the recovery continues that seems sure to happen. It could still be a little early to buy VLO. But it is a great bet to be a lot higher six months to a year from now. HOLD
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.5%) – This life science and research lab niche REIT continues to raise the dividend and deliver solid price performance. Over the longer term the stock has outperformed the market. Recently it has performed on par, but considering that safe dividend stocks have been shunned in this recovery, that’s exceptional performance. The stock also has a strong longer-term uptrend. 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 got surprisingly hard hit during the selloff in March but it has climbed all the way back. The ugly selloff was very brief but in a full market panic it can take a hit too. It is less volatile than the market in general and provides a high yield and excellent diversification from both the stock and bond markets. HOLD
NextEra Energy (NEE – yield 2.0%) – This is about as good looking a chart for a stock as you’ll see. The longer-term uptrend appears unstoppable. Sure, it’s a great utility, but this is ridiculous. That said, alternative energy is big business that’s growing faster than most people realize. At the same time, the cost of delivering it keeps dropping like a rock. NextEra is one of the world’s largest providers and offers a conservative way to play the trend. HOLD
Xcel Energy (XEL – yield 2.5%) – Much of what I said about NEE also applies to XEL. It doesn’t have a regulated business to steady the earnings and it’s much smaller. But it has a fantastic uptrend and it is benefitting mightily from the emergence of alternative energy. It is more volatile and a less conservative way to play the trend. But it may have more upside over the longer term. HOLD
