A Wild Week
What a nutty week in the market. Let’s recap.
Last Thursday, there was the disturbing announcement that the president of the United States had Covid. The market sold off on that news. Then he got better fast and the market rallied. But the rally only lasted until the next disturbing piece of news.
Yesterday a stimulus deal fell through. The parties couldn’t come to an agreement (surprise, surprise) and the president said that a deal was off the table until after the election. The market didn’t like that and moved sharply lower yesterday. Then today, the president said he was prepared to do a more piecemeal and targeted stimulus in the near term. The market likes that and is rallying again.
This is the nature of the current market. It’s trying to trend higher since the near-10% selloff in September. But it’s having some trouble doing so in the face of the headline barrage. I don’t think the headline risk is likely to abate, at least until the election, and probably beyond.
The market has been generally positive about Vice President Joe Biden’s apparent move higher in the polls. While the market doesn’t care who wins the election, it likes the idea of someone winning the election decisively and avoiding a contested result. But nothing is settled and those polls are likely to bounce around in the weeks ahead.
It’s hard to see how the market makes a significant move higher as the uncertainty of the election comes ever closer. Plus, the pandemic is still with us and the end is still not in sight. But there is good news as well. Third-quarter GDP is expected to be phenomenal, with forecasted growth of 30%, reflecting a resilient economy that is rapidly recovering.
In short, it looks like there will be a tug-o’-war with good news and bad news at least up until the election. I expect the market will continue to bounce around in that time frame. However, there could be great things for the market beyond the election and the pandemic. The forecast is choppiness now, and a bull run later.
Meanwhile, several portfolio positions are moving higher.
High Yield Tier
B&G Foods (BGS – yield 6.7%) – The stock took a hit with the rest of the market in early September after having run almost 70% higher during the year. But it has been trending high since the low of about 26 in mid-September. The stock had to take a breather and the next few quarters should show more impressive results as business is booming during the pandemic. Business should remain strong even after the pandemic and the stock is still very reasonably valued, with a 6.7% yield. BUY
Brookfield Infrastructure Partners (BIP – yield 4.0%) – Things are looking good for this infrastructure partnership. The stock is continuing its slow trend higher despite the choppy market. The company expects to grow earnings in this pandemic year because of its solid defensive assets. And earnings are forecast to grow more than 15% in 2021, as there will be relief in the transportation sector as delayed acquisitions, notably in Indian telecom assets, come on line for the full year. BUY
Enterprise Product Partners (EPD – yield 10.8%) – After an abysmal several months, the stock was down 10% in September. Energy is starting to get a little more love and has behaved better over the past couple of weeks. But it’s hard to see this stock getting anywhere until after the election, and the end of the pandemic is in sight. On the other side this stock could have a significant rally. In the meantime, the huge payout is quite safe. This should be a solid income stock until it becomes something better. HOLD
STAG Industrial (STAG – yield 4.5%) – There is a lot to like about this monthly-paying industrial REIT. Demand for its properties is strong and growing. The e-commerce trend creates a great need for its warehouses. The other industrial properties are in high demand as well in a very fragmented market. This stock is holding its own this year and could really take off on the other side of this pandemic mess. HOLD
Verizon Communications (VZ – yield 4.2%) – Sure, this stock isn’t exactly lighting the world on fire but it is coming as advertised. It pays a high and safe yield with very little volatility and holds up well in down markets. The dividend is supported almost three times over by free cash flow despite the company’s massive investments in 5G infrastructure. It’s a classic high-yielding defensive company for now, and maybe a lot more as 5G heats up. BUY
Dividend Growth Tier
AbbVie (ABBV – yield 5.5%) – After slowly falling since mid-July, it looks like ABBV may have found a bottom. Aside from a plunge yesterday, as the market negatively reacted to the stimulus news, the stock had stabilized and even started moving higher. The stock appears to be recovering today as well. As I mentioned last week, the fundamental story is solid, as new drugs and the pipeline continue to rise to the occasion. But the stock price was flirting with the danger zone on a technical basis. It’s not out of the woods yet and I will continue to watch it closely. But it’s selling at a very cheap price with a great yield. BUY
Altria (MO – yield 8.7%) – This cigarette stock has been slowly recovering from its selloff at the hands of the down market in September. It seems to trend slowly higher as a normal course, until the market notices it and then slaps it down again. Given the extremely low valuation (at just eight times earnings), the high and safe dividend and ability to grow earnings somewhat for the foreseeable future, the stock is still worth owning. BUY
Crown Castle International (CCI – yield 2.9%) – This cell tower REIT had been trending slowly downward since July, but it had a nice up move in the past couple of weeks and may have broken the pattern. Cell tower infrastructure is a great business and I think CCI will benefit on the other side of the election and pandemic as investors will again focus on the opportunities surrounding the 5G rollout. HOLD
Digital Realty Trust (DLR – yield 3.0%) – This data center REIT has consistently moved higher since late September. DLR is still in an uptrend and it is a major player in a major growth property niche that isn’t going out of style. It also has a special bonus of a microscopic beta, which means it doesn’t move with the overall market. That’s a nice feature heading into an uncertain election with this virus. Even yesterday, when the market turned around and went south after the stimulus news, it went higher anyway. I like this both for the short and longer term. BUY
Eli Lilly and Company (LLY – yield 2.0%) – The stock is up over 3% in pre-market trading today as it applied to the FDA for emergency use authorization for its Covid-19 antibody treatment. It wouldn’t be full approval but it is progress in treatment for the virus and it speaks well of Lilly’s terrific R&D. It probably doesn’t move the needle much for the stock but it does put it in a positive spotlight. LLY has taken a pause from a longer-term uptrend. It’s a good time to buy a stock that has been rock solid through uncertain markets and will likely be a great holding beyond. BUY
Innovative Industrial Properties (IIPR – yield 3.7%) – This marijuana farm REIT has been a very interesting performer. After rising 35% since July, it didn’t sell off with the market. Instead, it just stopped moving higher but held the recent gains. Historically, IIPR has been volatile with the overall market. The recent behavior and refusal to yield reflects exceptional strength. This still looks like a stock that wants to go higher in the near term. HOLD
Qualcomm Inc. (QCOM – yield 2.2%) – The QCOM story of late is similar to IIPR. It stopped rising at a fast clip but held onto recent gains despite the market heading south. This stock is still in a very powerful uptrend. And it should be. It has a big revenue boost to look forward to as 5G phones roll out and Qualcomm earns growing royalties from its chips. Plus, the legal questions surrounding the company, which had been holding back the stock, got a lot better after the recent settlement. The recent behavior is very encouraging and the stock stands to benefit mightily beyond the election and the pandemic. HOLD
Valero Energy Corp. (VLO—yield 9.3%) – After selling off again along with the rest of the energy market last week, VLO has rebounded somewhat. It had some technical support when it approached the March lows. Of course, it took another hit yesterday when the market sold off. I see bright days on the other side of the election and pandemic for this refiner. Once third-quarter earnings are in the rearview mirror, investors will be looking toward much, much better quarters ahead. Earnings are on October 22. We’ll see what happens after that. HOLD
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.6%) – This life science and research lab niche REIT has been moving higher over the past couple of weeks. It had pulled back since July but that behavior is consistent with the normal ebb and flow of the stock’s trend higher. It’s still in an uptrend and recent behavior suggests the strong possibility of a renewed upward move in the near term. HOLD
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.5%) – This short-term bond ETF is a beautiful thing in markets like this. It’s nice to have something in the portfolio that you don’t have to worry about. 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 is rock solid in all but the most tumultuous market selloffs. And it’s been great during the latest pullback. 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 1.9%) – NEE had sold off last week on news of the Duke Energy (DUK) acquisition falling through, which nobody even knew about and is unnecessary anyway, in my opinion. The fact that the stock sold off on the collapse of a deal the market didn’t even know about was dumb. And NEE bounced right back. Now, we’re back to the same marvelous story that existed before the stupid news. This combination regulated utility and alternative energy juggernaut is a winner, and the stock will likely trend higher from here. HOLD
Xcel Energy (XEL – yield 2.4%) – This alternative energy stock made a strong move higher in the past couple of weeks and achieved a brand new all-time high. It had been moving sideways for a couple of months but was still in a longer-term upward trend. XEL deserves to sell at a higher multiple because it’s a great way to play the alternative energy trend. The cost of producing alternative energy is getting cheaper while demand continues to grow. Clean energy also captures the imagination of investors as it is the energy source of the future. HOLD
