Sentiment Drifts Lower
So far, the post-Labor Day market has been just a little bit crummy.
Stocks have drifted slightly lower over the past week. While that’s nothing alarming, it is a reversal of the summer market where stocks were drifting slightly higher. It could be that the balance has been tipped toward the negative.
This is where things can go badly. If investors determine that stocks are melting down, the selling could be more serious. Several bank analysts have been coming out with negative views on the market including Deutsche Bank, Bank of America and Morgan Stanley. You can feel the consensus drifting negative.
That doesn’t mean that stocks will sell off. But the risk is greater than usual. The market has had an enormous rally for the ages over the last year and a half. It’s due for a correction. September and October are typically the worst months of the year. The delta variant isn’t going away. And new taxes are coming.
But even if there is a selloff, it won’t be the worst thing. I’m still bullish over the intermediate term and would regard weakness in the market as a buying opportunity. Sure, investors could get spooked for a while, but where are they going?
They’ll tire of the historically low bonds yield as soon as fear wanes, and it always does. We’ll see what happens. But I’m more cautious than usual in the near term. There are a few ratings downgrades in this week’s update.
High Yield Tier
AGNC Investment Corp. (AGNC – yield 9.0%) – AGNC continues to flounder at around 16 per share. But I still like the way this mortgage REIT is set up right now. The stock got knocked back over the summer because of the flattening yield curve. But the current level of the 10-year yield doesn’t reflect the booming economy or persistent inflation. AGNC shouldn’t have much downside in the strong economy and the dividend is safe. There’s a good chance that interest rates rise and lift the stock price over the next several months. BUY
Rating change “BUY” to “HOLD”
Blackrock Enhanced Capital and Income Fund (CII – yield 5.2%) – This covered call ETF is a great way to generate a good income and still get capital appreciation as the market trends higher. But CII tends to reflect the overall market. And the market is at a crossroads right now. It’s been melting slowly down while sentiment is getting increasingly bearish. Let’s wait and see how this plays out. HOLD
Enterprise Product Partners (EPD – yield 8.1%) – This midstream energy partnership continues to go nowhere. It had a great run until June but has floundered since. Operationally things are solid. Business should continue to improve in the recovery over the rest of the year and that huge dividend is safe. I don’t know when the great fundamental story will win out. But that huge dividend is safe in the meantime. BUY
ONEOK Inc. (OKE – yield 7.0%) – This midstream energy company is a similar story to EPD. But earnings are better. Business is strong and getting even stronger. And OKE moves a lot faster when the attitude toward energy stocks improves. Eventually, that safe 7% yield combined with the cheap price and strong fundamental story should propel the stock higher. BUY
Realty Income (O – yield 4.1%) – This legendary income REIT has pulled back from the 52-week high to the tune of about 5% in the month of September. The REIT sector overall has pulled back this month after a good run in the summer. But the story remains solid. Realty is also on the verge of completing its acquisition of retail REIT peer VEREIT (VER) which should be accretive to earnings by about 10% right away. HOLD
STAG Industrial (STAG – yield 3.5%) – Even this red-hot industrial REIT has pulled back in September. Somewhat of a pullback was to be expected as STAG rallied 45% between February and September. It continues to be a great environment for industrial REITs and this stock could have more upside. We’ll see if it rallies again from here in the next few weeks. HOLD
Verizon Communications (VZ – yield 4.7%) – The wireless giant stock continues to go nowhere. But it’s so entrenched in going nowhere that it’s good in down markets. Practically nothing gets the stock moving. It will continue to be held in the portfolio for two reasons. It’s a strong down-market stock that is good to hold as things look like they could get dicey in the market. And there is still a hope that 5G becomes a bigger story after the summer. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 4.8%) – This biopharmaceutical stock was riding along making a series of new 52-week highs. Then it got whacked a couple of weeks ago when the FDA announced it will require a warning label on its new immunology drug Rinvoq. That’s a negative development for a drug that is important in helping AbbVie overcome lost revenue when its blockbuster Humira drug faces generic competition in the U.S. is 2023.
But the development doesn’t change the story. Rinvoq should still be a strong grower that is likely to overcome conservative estimates. And ABBV is still extremely cheap at just 9 times forward earnings. BUY
Broadcom Inc. (AVGO – yield 2.9%) – This chipmaker and infrastructure software company is bucking the recent market trend. It is currently at the 52-week high. The tech giant announced strong earnings that beat expectations a couple of weeks ago. It has been an underperformer in recent months despite the fact that it will benefit in the near term from 5G. This company is also built for long-term growth. BUY
Brookfield Infrastructure Partners (BIP – yield 3.6%) – BIP has pulled back slightly after making a series of new highs. It really shouldn’t be surprising. It’s a great defensive business at a time of uncertainty. Between the rebound in transportation assets in the recovery, new projects coming online, and the recent Inter Pipeline acquisition; earnings should grow nicely in the quarters ahead. HOLD
Chevron Corp. (CVX – yield 5.5%) – While the market has been hating on energy stocks, oil prices are still near a three-year high and near the highest level since July. But the virus concerns will likely continue to weigh on the sector. It looks like the next real rally in energy will have to wait until worries about the virus and its affect on growth and demand for energy wane. HOLD
Ratings change “HOLD” to “SELL ½”
Digital Realty Trust (DLR – yield 2.9%) – This data center REIT has pulled back significantly after making a series of new all-time highs in August. It’s pulled back 8% in the month of September. The stock does tend to consolidate after making new highs. And this is the biggest decline since June. It’s not clear whether it will recover and continue to trend higher or enter a long period of consolidation. We’ll secure profits on half of the position here and wait to see how it behaves. SELL 1/2
Eli Lilly and Company (LLY – yield 1.3%) – This best-in-class pharma company stock has pulled back about 13% in the last month. It had a huge run higher after the Biogen approval made it likely that Lilly’s potential blockbuster Alzheimer’s drug will be approved. But the drug won’t be submitted for approval until later this year. It’s unlikely that there will be more news on that front in a while. And LLY has a habit of pulling back after a big surge. We’ll continue to hold the remaining third of the position after having taken profits on the rest. HOLD
KKR & Co. Inc. (KKR – yield 0.9%) – This latest-addition alternative asset wealth manager stock has pulled back over 8% from the high of early August. Yet, the uptrend since the bear market lows of last year is still intact. It’s taking a much-deserved breather right now. That makes this a good entry point for the stock because prospects are still excellent. Stock performance has blown away the competition over the last several years and recent results and new assets under management indicate that the superior performance should continue. HOLD
Qualcomm Inc. (QCOM – yield 1.9%) – I’m at a loss to explain the recent floundering performance of this chipmaker stock. Business is spectacular as royalties from hot-selling 5G smartphones pour in. Things should also stay great for several quarters. The stock is at a very cheap valuation considering the current earnings growth. This stock should ignite again before too long. BUY
Spectrum Brands Holdings, Inc. (SPB – yield 2.1%) – This home essentials retailer has been slightly lower since being added to the portfolio last month as the delta variant has hurt consumer confidence. But this is no ordinary retailer. Demand for home products is stronger with bad virus news. Plus, demand for home products is likely to remain strong after the pandemic stuff is long over. It’s still a good entry point for the stock if you don’t own it already. BUY
U.S. Bancorp (USB – 3.3%) – I don’t know what course the virus will take. I’m not sure if the market will find a new fall narrative that is negative or positive. But I’m supremely confident that longer-term interest rates must trend higher in the quarters ahead. That will be the missing piece of the puzzle for this regional bank that is otherwise firing on all cylinders. HOLD
Valero Energy Corp. (VLO – yield 6.0%) – Like the rest of the energy sector, this refiner stock is being held hostage by the delta variant. Demand for gasoline and diesel has been strong in the recovery but concerns about the virus and a negative effect on energy demand in a slowing economy is holding VLO back. I still believe there is another strong surge left in this stock in the months ahead as profits rebound strongly. But it likely won’t move until news about the virus gets better. HOLD
Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – 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 1.8%) – This regulated/alternative energy utility is benefitting from the recent misfortunes of cyclical stocks. That’s okay. We’ll take it. The stock is up about 15% since July. But NEE is so much better than just a cyclical alternative. It’s a fantastic way for conservative investor to play the huge growth in clean energy. It should get another good move higher when alternative energy inevitably comes back into favor again. BUY
Xcel Energy (XEL – yield 2.8%) – It’s been choppy for this smaller alternative energy utility. And it’s still bouncing around. But the alternative energy utility has a lot going for it. It’s a safe stock that should be a nice port in the storm if the market gets dicey. And it’s also a beneficiary of the growth in clean energy. BUY
| High Yield Tier | ||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on 9/15/21 | Total Return | Current Yield | CDI Opinion | Pos. Size |
| AGNC Investment Corp. (AGNC) | 04-14-21 | 17 | Monthly | 1.44 | 9.00% | 16 | -5% | 9.0% | BUY | 1 |
| Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.2% | 21 | 2% | 5.2% | HOLD | 1 |
| Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.10% | 22 | -4% | 8.1% | BUY | 1 |
| ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 7.00% | 55 | 3% | 7.0% | BUY | 1 |
| Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.1% | 69 | 11% | 4.1% | HOLD | 1 |
| STAG Industrial (STAG) | 03-21-18 | 24 | Monthly | 1.45 | 3.5% | 42 | 108% | 3.5% | HOLD | 1/2 |
| Verizon Communications (VZ) | 02-12-20 | 58 | Qtr. | 2.51 | 4.7% | 54 | 0% | 4.7% | HOLD | 1 |
| Current High Yield Tier Totals: | 5.5% | 23.6% | 5.5% | |||||||
| Dividend Growth Tier | ||||||||||
| AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 108 | 57% | 4.8% | BUY | 2/3 |
| Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.9% | 508 | 13% | 2.9% | BUY | 1 |
| Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 57 | 72% | 3.6% | HOLD | 2/3 |
| Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 5.5% | 98 | 8% | 5.5% | HOLD | 1 |
| Digital Realty Trust (DLR) | 09-09-20 | 147 | Qtr. | 4.64 | 2.9% | 156 | 9% | 3.0% | SELL 1/2 | 1/2 |
| Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 235 | 56% | 1.4% | HOLD | 1/3 |
| KKR & Co. Inc. (KKR) | 03-09-21 | 48 | Qtr. | 0.58 | 0.9% | 64 | 35% | 0.9% | HOLD | 1 |
| Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.9% | 138 | 75% | 1.9% | BUY | 1/3 |
| Spectrum Brands Holdings, Inc. (SPB) | 08-11-21 | 81 | Qtr. | 1.68 | 2.1% | 79 | 16% | 1.8% | BUY | 1 |
| U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.3% | 58 | 25% | 3.3% | HOLD | 1 |
| Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 6.0% | 66 | -13% | 6.2% | HOLD | 1/2 |
| Current Dividend Growth Tier Totals: | 3.2% | 32.1% | 3.2% | |||||||
| Safe Income Tier | ||||||||||
| Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 15 | 58% | 4.9% | HOLD | 1/2 |
| NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.8% | 85 | 104% | 1.8% | BUY | 1/2 |
| Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 66 | 170% | 2.8% | BUY | 2/3 |
| Current Safe Income Tier Totals: | 3.2% | 110.7% | 3.2% | |||||||
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