Big News Could Change this Market
Many are dubbing this week the most important of the year in terms of financial and market news. There are a slew of important earnings reports, a Fed meeting and likely rate hike, and the second-quarter GDP report.
Big news can bring great change. Change can bring good things when the current environment stinks. After all, if you live in Siberia, you’re not worried about climate change.
The most important news will be the GDP report, because it will determine if we are already in a recession. First-quarter GDP was negative at -1.6% and the consensus estimate for this second quarter is -1.5%. Any negative number for two consecutive quarters means recession.
Being in a recession could be the best news the market has had in a long time. A recession is much better for investing than a “looming recession.” Markets usually fall the most before recessions and in the earlier stages. They also tend to recover before the economy because markets anticipate six months or so into the future.
If investors learn that we are already in a recession that started near the beginning of the year, buyers could soon start sniffing around for the market turning point. We could be much closer to the end of the market pain than the beginning. There might be light visible at the end of the tunnel.
Of course, there’s no guarantee of that scenario. A recession might be avoided now and still happen later. Or a current recession could get a lot worse before it gets better. The recent rally off the lows could be a bear market rally or the beginning of the end of the bear market. We’ll see.
The recent rally in technology is encouraging. That sector led the market lower earlier this year and should lead it higher ahead of a recovery. A tech sector rally could foreshadow an overall market recovery.
High Yield Tier
Enterprise Product Partners (EPD – yield 7.3%) – This midstream energy partnership fell off the high last month when the energy sector got clobbered because of recession fears. The stock has been steadily trending higher all July. Enterprise has revenue that rely on volumes and not commodity prices. While prices could do anything, volumes are more certain as prices soar and supplies are short. The solid revenue supports the high distribution which is quite safe. A defensive high-income stock with inflation built into its contracts could be an ideal holding over the rest of this year. (This security generates a K-1 form at tax time). BUY
ONEOK Inc. (OKE – yield 6.3%) – This midstream energy is also moving higher since last month, albeit in a less convincing fashion. The same things about EPD are true for OKE but the stock was up 65% in 2021 and the growth isn’t as impressive because it never declined much even during the pandemic. But it has stable revenues, a rock-solid dividend, and inflation adjustments built into its contracts. OKE should be a good place to be going forward BUY
Realty Income (O – yield 4.1%) – In this crummy market this legendary income REIT is just a couple bucks off the high. O has been a star performer in this recession-fearing environment. Although it deals in retail properties, most tenants are staples like supermarkets and drug stores. It is seen as a defensive income stock. This stock is a great place to be in the current market environment. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.7%) – The biopharmaceutical company stock is still well off the highs it made in the spring. But it’s also right around the same price as before the market selloff in June. ABBV has also returned about 15% YTD in a bear market and 33% over the past year. Health care will continue to thrive regardless of the state of the economy. Despite the strong performance, ABBV continue to sell at dirt-cheap valuations. The company also reports earnings on Friday. Hopefully that gets the stock going. HOLD
Broadcom Inc. (AVGO – yield 3.2%) – Recent performance among tech stocks has been encouraging. After leading the overall market lower earlier this year, the sector has outperformed the index for the last several months. The sector should turn around before the overall market. Broadcom is also very well positioned to benefit in a fundamental way from the 5G rollout and the proliferation of cloud computing and should have continued strong earnings. BUY
Brookfield Infrastructure Partners (BIP – yield 3.7%) – This defensive infrastructure partnership took a hit along with everything else in June. But it has been solid in the absence of market panic, although it is still well off the high of this spring. BIP should be ideally suited for this market over the rest of the year. Its earnings are highly recession resistant, and Brookfield has inflation adjustments built into its contracts. Earnings are growing at a higher-than-normal clip because of the recent midstream energy acquisition and the stock is a very reliable dividend payer. (This security generates a K-1 form at tax time). HOLD
Eli Lilly and Company (LLY – yield 1.2%) – LLY continues to buck the trend in a bear market. The stock is up over 20% YTD, and it continues to hover near the high. It’s a fantastic company to own anytime because of its superior drugs and spectacular pipeline. But the relative performance accelerates in a tough market like this. It’s a superstar of a great sector to be in these days. HOLD
Intel Corporation (INTC – yield 3.8%) – The trouble with buying undervalued companies is that they can stay undervalued for a while, and even sell down more in markets like these. While INTC has outperformed its peers YTD and has moved off the lows, the performance is still uninspired. The stock was already way down before the rest of the sector started falling and it still hasn’t fared much better than the sector this year. It’s set up well for the longer term but investors don’t seem to care yet. Hopefully tomorrow’s earnings report and/or a recovery in the tech sector will give it some lasting upward traction. BUY
Qualcomm Inc. (QCOM – yield 2.0%) – QCOM has performed beautifully since the market lows of June. It’s up over 25% in the past month. That’s way better than the tech sector. The outperformance is because Qualcomm’s earnings should continue to grow strongly for some time because of the 5G rollout and increased cloud applications. The stock still sells well below what the fundamentals justify. If the sector recovery gets traction QCOM could really take off. BUY
Visa Inc. (V – yield 0.7%) – V got knocked back amidst all this recession talk and the downgrading of global growth projections. But the stock is always very quick to rebound when the market selling abates. It seems that the price is only held artificially low with intense market pressure. That bodes well for how the stock might behave when the market recovers. Visa continues to get a huge benefit from the removal of Covid restrictions globally despite slowing global growth. This transactions business is a winner, and the stock should find its way a lot higher in the future. HOLD
Safe Income Tier
NextEra Energy (NEE – yield 2.0%) – NEE struggled for a while despite the solid performance of the utility sector after the earnings report revealed that delays from solar panels in Asia will slow solar projects. But the stock bottomed and has been solid in the recent market environment, having recovered all the June losses and then some. NEE is now at a higher price than before the market fell into bear territory. This is a great utility and a phenomenal way for conservative investors to play the growth in clean energy. It’s also in two timely sectors: utilities and clean energy. NEE has been trending consistently higher since May, despite the interruption from the market selloff in June. HOLD
Xcel Energy (XEL – yield 2.8%) – After superior performance all year long where the stock was hovering near the high in a tanking market, the recent tumult finally took XEL down a peg or two. But the weakness isn’t lasting. XEL has come back over the last month, albeit in a bouncy fashion. XEL should gravitate higher or at least hold steady in an inflationary environment. Plus, it’s in two timely sectors and should be well positioned for the longer term. HOLD
| High Yield Tier | ||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 7/26/22 | Total Return | Current Yield | CDI Opinion | Pos. Size |
| Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 26 | 19% | 7.3% | BUY | 1 |
| ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 60 | 22% | 6.3% | BUY | 1 |
| Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 72 | 27% | 4.10% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 22.7% | 5.9% | |||||||
| Dividend Growth Tier | ||||||||||
| AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 151 | 132% | 3.70% | HOLD | 2/3 |
| Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 511 | 18% | 3.2% | BUY | 1 |
| Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 14 | Qtr. | 2.04 | 3.6% | 39 | 80% | 3.7% | HOLD | 2/3 |
| Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 332 | 125% | 1.2% | HOLD | 2/3 |
| Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 39 | -18% | 3.8% | BUY | 1 |
| Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 150 | 88% | 2.0% | BUY | 1/3 |
| Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 212 | 2% | 0.70% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 2.5% | 40.3% | 2.6% | |||||||
| Safe Income Tier | ||||||||||
| NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 80 | 96% | 2.0% | HOLD | 1/2 |
| Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 70 | 192% | 2.8% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 2.3% | 144.0% | 2.4% | |||||||
1) Please tell me about a time you made money on one of my trades – how much? How fast? What did you do with your profits?
2) How would you describe Cabot Dividend Investor to a friend?
You can simply send your response by email to CDI@cabotwealth.com. We’ll share interesting responses, anonymously, with you on the website.