July 21, 2021

A Summer Scare
What a week! The bears sure enjoyed a rare day in the sun on Monday. The Dow had its worst day of the year, down more than 3%. Pessimists haven’t loved life like that since March of 2020.

The culprit was the Delta variant coronavirus strain. Investors fretted that the growing cases could return us to 2020-style lockdown mode. But not so fast. After Monday, stocks have sprung right back as investors realize that probably won’t happen. It’s a summer market. And summer markets are notoriously headline sensitive.

But I don’t want to completely poo-poo this latest virus stuff. The growing cases will have somewhat of a tangible effect. The recovery in travel and leisure could be derailed temporarily. In addition, no matter how bad things are here, they’re worse overseas. The virus could temper the global recovery. These things will somewhat hamper the U.S. recovery.

But I don’t think it will matter. Any tempering of economic growth in the third quarter will just likely bring growth back to what the always-chic-to-be-pessimistic Wall Street analysts project. Plus, any slowing of near-term growth will likely be made up in future quarters. A longer lasting hot economy is good for stocks.

That said, the ugliness might not be over. It’s still a summer market and bad headlines are likely to continue for a bit. That’s okay. I don’t think it will drive stocks into correction territory. But any significant selloff will present a buying opportunity ahead of what should be a wonderful remainder of the year.

High Yield Tier
AGNC Investment Corp. (AGNC – yield 8.9%) – Boy, this high-yielding mortgage REIT got creamed. First, the flattening yield curve hit it. Then, the virus scare kicked it. But it’s all nonsense. The economy is booming. The yield is safe. And interest rates are highly likely to trend higher from here. BUY

Enterprise Product Partners (EPD – yield 7.8%) – Sure, this midstream energy stock got its hair mussed in the market freak-out about the virus on Monday. But it just creates a good buying opportunity if you don’t own it already. I don’t care what the headlines say. EPD is dirt cheap. The huge yield is rock solid. Business in booming. This thing will trend higher over the rest of the year. BUY

ONEOK Inc. (OKE – yield 7.5%) – This midstream energy company sold off worse than anything else in the portfolio on Monday. It’s also bouncing back with a vengeance. Ditto what I said about EPD. Mask mandate or no mask mandate, business is booming and OKE is going higher. In case it takes a little longer than expected, you get paid 7.5% while you wait. That’s not bad when a 2-year CD is paying less than 1%. BUY

Realty Income (O – yield 4.0%) – This legendary income REIT bores you all the way to the bank. While investors freak over the latest headlines and the market bounces around, O quietly pushes on toward a new 52-week high. I’m more certain about the upward trajectory of this retail property maestro than I am about the overall market. BUY

STAG Industrial (STAG – yield 3.6%) – Sure, the market has been scary. And STAG loves it. While pundits and fund managers are having a cow about the new virus strain, STAG is quietly within bad breath distance of a brand new all-time high. It’s a defensive REIT that is more cyclical than its peers and benefits from the booming economy. At the same time, the longer-term dynamic is terrific as industrial properties are in short supply and high demand. HOLD

Verizon Communications (VZ – yield 4.5%) – I hope 5G and the likely boost this wireless giant gets in earnings will morph this stock into something better. Right now it’s like a utility. The dividend is decent but the stock price doesn’t go anywhere. I’m continuing to hold it because it’s a good down-market stock that is nice to have in times of uncertainty. That’s enough for now while we wait for the 5G Great Pumpkin. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 4.5%) – Earnings are coming up at the end of the month. I look forward to it. AbbVie stock is cheap and the company has an amazing pipeline. It reminds me of Eli Lilly (LLY) about nine years ago. LLY had a huge patent cliff but a great pipeline and I believed in it. I was rewarded with a 700% return. Just stick with ABBV and collect the fat dividend while beautiful things happen over time. BUY

Broadcom Inc. (AVGO – yield 3.1%) – I know. This incredible technology titan, whose systems 90% of internet traffic use, hasn’t done much since being added to the portfolio. But the market has the kind of short-sightedness that can’t be corrected with glasses. Screen out the short-term noise and realize that we are in a technological revolution that’s getting a big shot of adrenalin as 5G rolls out. Just hang on to this one and enjoy the bounty over time. BUY

Brookfield Infrastructure Partners (BIP – yield 3.8%) – After a rude interruption early this week, BIP is resuming its painfully slow crawl back to new all-time highs. I don’t care what the stupid virus does or who’s president. Infrastructure isn’t going out of style. In fact, it’s getting more in vogue with investors as Congress bumbles around but still realizes the importance. Earnings should also get a big fat boost this year as new projects come online. BIP is a keeper that will bore you to tears while making you rich. BUY

Chevron Corp. (CVX – yield 5.6%) – Energy is weird. The sector goes in and out of vogue with every Fed statement and piece of virus news. But the thing to realize is that profits are growing in a huge way amidst the full economic recovery. In the end, that’s what wins. There is no economic recovery without an energy recovery. And there is a huge economic recovery going on. Strap in ahead of the next surge. HOLD

Digital Realty Trust (DLR – yield 3.0%) – This data center REIT marches to its own drummer. And lately, that’s a good thing. DLR has a beta of just 0.13, meaning it’s only 13% as volatile as the overall market. It did get knocked back from an all-time high last month as REITs sold off after the Fed meeting. But it’s crawling back. And it will likely continue to do so, regardless of what the virus does, or if there’s a nuclear war for that matter. BUY

Eli Lilly and Company (LLY – yield 1.5%) – I spoke about LLY in glowing terms in the ABBV write-up. I like LLY because it is the best-run major pharmaceutical company by a long way with one of the very best drug pipelines in the business, second only perhaps to AbbVie. That’s a good thing while the population is aging at warp speed. The stock has soared to new all-times highs despite the market and regardless of the health care sector performance because of justified optimism about its Alzheimer’s drug. The approval is highly likely but not guaranteed. But even if that drug tanks, LLY will be well worth buying on the dip. HOLD

KKR & Co. Inc. (KKR – yield 1.0%) – This alternative investment wealth manager is a winner, plain and simple. It’s the best in the high-growth subsector of wealth management, which is booming in the full recovery. The market may bounce around. But as soon as the dust settles, KKR resumes its relentless march to new highs. BUY

Qualcomm Inc. (QCOM – yield 1.9%) – The long consolidation period since the February high should end soon as investors realize technology is one of the few places to find reliable growth when things normalize after the pandemic recovery. Maybe earnings will get QCOM going again. The company reports at the end of this month. Last quarter was spectacular and there is no reason why this quarter won’t be even better. Meanwhile, the stock is cheap at 16 times forward earnings. BUY

U.S. Bancorp (USB – yield 3.3%) – This best-in-class regional bank stock got knocked back by the recent yield curve trade. But it’s not out by any means. Profitability will surely benefit from higher loan volume in a booming economy. Business is much better that the recent stock action indicates. And long-term rates may trend higher going forward as well. The bank should have some very strong quarters ahead. BUY

Valero Energy Corp. (VLO – yield 6.0%) – Ouch. VLO has been absolutely clobbered of late. But ditto what I said about Chevron. Profits are soaring as the demand and price of gasoline and diesel skyrocket in this amazing recovery. In the near term, VLO will bounce around with the fortunes of cyclical stocks. But ultimately, soaring profits should drive this stock higher. HOLD

Safe Income Tier
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 1.8%) – This short-term bond fund is a safe port. While the market is promising for the rest of the year, there are still a lot of uncertainties out there. It’s nice to have something in the portfolio that you don’t have to worry about. That said, the bonds in this ETF mature at the end of this year. HOLD

Invesco Preferred ETF (PGX – yield 5.0%) – After falling during the pandemic, this preferred stock ETF has recovered and is back near the pre-pandemic high. This preferred stock ETF is much less volatile than the stock market while providing a big yield. It also adds diversification as preferred stock performance is historically not correlated to the stock and bond markets. HOLD

NextEra Energy (NEE – yield 2.0%) – The move towards cyclical stocks over the last six months or so ahead of the anticipated full recovery has hurt this normally up-trending juggernaut. But NEE is actually moving higher this week as cyclical stocks are under fire. NEE is still one of the best regulated utilities in the country with the added benefit of growth from being the world’s largest producers of wind and solar. The high-growth clean energy business (which also gets more profitable every year) will have its day in the spotlight again, and probably in the near future. BUY

Xcel Energy (XEL – yield 2.7%) – This smaller and lesser-known alternative energy utility stock is retreating from the recent high it made last month, down almost 10%. That’s not unusual behavior for XEL. It bounces around a lot on a longer-term uptrend. Alternative energy has been out of favor. But that shouldn’t last long. It’s in the spotlight in the new administration. When the sector gets moving again it should be a big tailwind for XEL. BUY