The Market Hangs Tough
The market is hanging tough despite a plethora of uncertainties and some bad news.
A stimulus plan, at least before the election, is in serious question. Of course, the possibility of a plan changes almost every day. Wall Street loves stimulus and the market seems to go up or down on any given day based on the perceived prospects.
The virus also appears to be on the rise again and several states are reinstating some lockdown provisions. That’s not good news. It is also unlikely that a vaccine will be announced before the election. However, many are predicting one will become available before the end of the year.
The election is still a huge wild card on everyone’s mind. As I’ve mentioned, Wall Street doesn’t care so much who wins. It’s much more concerned about possible uncertainty regarding the results. A contested election that drags on will probably be a big negative for the market.
Yet, the market is still solid. The bad news and uncertainty hasn’t dragged it down in any significant way. Investors still see the prize of a rapidly recovering economy and the pandemic fading. While I see very good days ahead for the post election and post pandemic market, there may be some rough seas ahead in the near term.
In the meantime, it’s earnings season. Earnings should be particularly important for the worst performing stocks in the portfolio, Enterprise Product Partners (EPD) and Valero Energy (VLO). The quarters these companies report are likely to be lousy, the stock performance leading up to earnings is telling us that.
However, the reports could mark a low point from which the stocks recover. Looking ahead, investors will see much better days as the industry inevitably recovers along with the economy. I’ll be watching those stocks very closely.
High Yield Tier
B&G Foods (BGS – yield 6.7%) – The packaged food company announces earnings in the next few weeks. The last report showed massive earnings growth and the stock got a nice pop over the following weeks and months. B&G is benefitting from the lockdowns in the near term as people are eating at home more. The trend should remain strong in this quarter. As well, B&G is likely to benefit from a continuing eat-at-home trend beyond the pandemic. BUY
Brookfield Infrastructure Partners (BIP – yield 4.2%) – This business was built with recessions in mind. The portfolio of crucial assets provides reliable cash flow in any economy. In one of the most severe economic downturns ever, BIP earnings only fell 5% year-over-year in the first half, and the company expects earnings growth for the full year. It’s also true that BIP is snapping up properties at discounted prices during the recession. The properties will boost growth in the post pandemic environment. This is a great holding for the rest of the recession and beyond. BUY
Enterprise Product Partners (EPD – yield 10.4%) – This is a tough stock to own right now. It’s a contrarian play in a market that hates such things. It’s in a cyclical business at the tail end of one of the worst economic downturns ever. But business is improving as lockdown restrictions subside and the economy gains serious traction. If you believe that the economy will experience robust growth next year, EPD will certainly benefit. In the meantime, you get paid a double digit yield (that is safe) to wait. HOLD
STAG Industrial (STAG – 4.5%) – This is a solid industrial REIT that pays a reliable monthly dividend and has strong growth prospects for the future by virtue of the fact that industrial properties are likely to remain in short supply and high demand for some time. The stock is okay. It behaves like a classic dividend stock in that it underperforms in a bull market and performs better in down and sideways markets. I’m confident in this business and the market going forward, especially with interest rates so low. HOLD
Verizon Communications (VZ – 4.4%) – The wireless giant announced third quarter earnings today that beat consensus estimates by adding more subscribers than expected. The company also raised 2020 guidance to earnings growth of 2%. That may not sound great, but this is a horrible economy. Revenues were off 4.1% from last year’s quarter. Nevertheless, the results show strong resilience in a recession and were better than anticipated. And there’s something else. 5G has arrived. Verizon rolled out its 5G network to accommodate the new Apple (AAPL) 5G smartphones. The new technology should be a catalyst for stronger growth going forward. It’s solid in the recession and promising for the future. BUY
Dividend Growth Tier
AbbVie (ABBV – 5.6%) – Despite being a defensive business with a huge tailwind of the aging population going forward, health care has been one of the worst performing sectors of the market over the last three months. I believe it is because of uncertainty regarding the upcoming election. Several Wall Street people are saying that the market is anticipating a Biden win, and health care and energy are suffering as a result. That may be. But I believe health care will thrive regardless of who wins. This stock did quite well during the Obama administration. It’s a good time to get in while the sector is sleeping. BUY
Altria (MO – 8.8%) – The dividend is massive and rock solid. The stock is near an all-time low valuation. Altria also has significant growth prospects in other businesses to help offset the slippage in cigarette smoking. The market hates the stock right now. But there will always be investor demand for a reliable 8.8% yield in a world where the 10-year Treasury is yielding 0.82%. While MO continues to not-get-a-move-on, it is still well worth holding under the circumstances. BUY
Crown Castle International (CCI – yield 2.9%) – This cell tower REIT will announce third quarter earnings after the close today. They should be solid as the business is strongly growing amidst increased demand during the 5G buildout. The stock has also had a nice move higher over the past month, breaking a slow slide that had been in place since July. 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 2.9%) – This data center REIT is in a growth business as technology infrastructure will only get bigger. But DLR is also a great stock to own in an uncertain market. It doesn’t seem to care what the overall market does. It has a beta of just 0.25. The stock has returned over 32% YTD as well. BUY
Eli Lilly and Company (LLY - yield 2.1%) – The stock got knocked back a little bit as its very promising Covid treatment testing got stalled because of “safety concerns”. The market is overreacting to this drug because of the times. I never put much stock in it, although it could still be successful. Lilly has a fantastic pipeline with lots of promising drugs. In the grand scheme of things, this Covid drug won’t make much difference, whether it’s successful or not. The recent selloff presents a great opportunity to get into one of the best companies in the business at a time when the price is temporarily depressed. BUY
Innovative Industrial Properties (IIPR – yield 3.6%) – This rapid growth marijuana farm REIT has been spectacular. It has returned over 73% YTD and provided an average annual return of 95% over the past three years. But competition is on the way. Two brand new similar REITs are coming to market this month. That’s okay. For now, there is still more than enough growth in this emerging business to go around. I’m still holding on at this price not because I’m greedy, but because the stock is still in an uptrend. HOLD
Qualcomm Inc. (QCOM – yield 2.0%) – The chipmaker became a better company after the settlement with Chinese firm Huawei. It improved a risk factor that had been holding the stock back. The company also should start benefiting from increased royalties as 5G phones, including Apple’s (AAPL), are coming to market. Of course, Qualcomm announces third quarter earnings the day after the election, so good news might get lost. But this stock should still have more good days ahead. HOLD
Valero Energy Corp. (VLO yield 9.6%) – The beleaguered refiner announces third quarter earnings tomorrow. Recent action in the stock suggests that the earnings will stink out loud. Despite the fact that refining margins have been steadily improving as the economy reopens, there is still a lot of excess inventory to work off. However, with the ugly quarter behind, investors will be looking at the prospects for future quarters as inventory issues get corrected. This report may very well mark a low point from which the stock begins to recover in the weeks and months ahead. HOLD
Safe Income Tier
Alexandria Real Estate Equities (ARE – yield 2.6%) – This life science and research lab niche REIT is a nice stock to own as uncertainty ratchets up with the election coming. It a solid stock that is popular among more conservative investors, who will likely increase in size as craziness ensues. The stock has been sputtering since making a new high at the end of July. But it has since broken that downtrend. 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 5.1%) –This preferred stock ETF is rock solid in all but the most tumultuous market selloffs. PGX has been consistently trending back toward the high and the uncertain market will probably edge it over the top. 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%) – NextEra reported third quarter earnings and beat consensus estimates slightly .The company grew year-over-year earnings by 11%, which is solid growth for a utility, especially during a recession. The alternative energy company grew earnings by 23% over last year’s quarter. While the earnings were solid, there was no big surprise and the stock down slightly on the day. NEE was already trading near the all-time high with a YTD return of 26%. As a reminder, the stock will split 4 for 1 effective October 26th. You will then have four times as many shares at one quarter of the price. The split should help performance as the price will be affordable for more investors. HOLD
Xcel Energy (XEL – yield 2.4%) – The alternative energy utility is pricey but still going strong. I believe XEL deserves to sell at a higher price because of the superior level of growth from alternative energy. It’s the future and this company will benefit. That fact also stokes investors. XEL is a great way to get the benefit of the growth in alternative energy while owning a conservative dividend stock at the same time. HOLD
