Russia Puts Stocks on Hold
The market is bouncing around a lot on a road to nowhere.
It rallies one day and then sells off again the next. The indexes fell into correction territory when Russia invaded Ukraine and have bounced around the same level since. The invasion didn’t cause much of a selloff. But the market can’t get any real traction as long as the uncertainly remains.
The general perception is that the situation will not have a big negative effect on the markets for very long. That’s why stocks didn’t sell off that much. However, things could still get worse. Until there is some resolution on the conflict, to the market’s satisfaction, it will be tough for stocks to sustain a rally.
Hopefully, this will fade as an issue soon. Then the market can get back to worrying about inflation and the Fed. There should be somewhat of a rally if this crisis abates and then there will be a tug-o-war between inflation and Fed concerns versus the strong economy and earnings. The prospects for the market are very murky for the near term, and then just plain old murky beyond that.
But energy stocks are booming. Oil just rose above $110 per barrel, the highest level in about a decade. While 10 of the 11 S&P 500 sectors are negative for the year, energy stocks continue to kill, up a whopping 28% YTD. These are good times for energy positions Chevron (CVX), Enterprise Product Partners (EPD), and ONEOK (OKE).
But some positions are struggling in the current environment. As of now, I expect those stocks to regain traction after the current situation changes.
High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 5.9%) – It’s been a volatile and uncertain market and now there’s this Russia thing. CII mimics the general direction of the market in the near term, so it’s down this year. But I don’t expect a bear market and CII is great way to play a flat and choppy one. The high income somewhat insulates us from the lack of appreciation. BUY
Enterprise Product Partners (EPD – yield 7.6%) – The midstream energy partnership had pulled back and moved sideways after a big move in December and January. But the upside has been reignited. It has benefited along with the rest of the energy sector and oil prices soar amidst the Russia/Ukraine conflict. It also sells at a cheap valuation. Business is strong. And the huge yield is very safe. I expect good performance over the course of the year. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc. (GSL – yield 3.8%) – The container ship company stock has been volatile. It has very bad days and very good days. But GSL is still higher while the market is down this year. It looks like a stock that wants to go higher and should move when the market stabilizes. Container ships remain in very high demand and those stratospheric shipping rates are likely not going down anytime soon. I expect more good things out of the stock.
The dividend has been confusing. The company raised the quarterly dividend from $0.25 per share to $0.375. But the increase won’t take place until the next dividend. For now, the yield is just 3.95%. But it will be adjusted upward after this dividend to 5.73%. BUY
ONEOK Inc. (OKE – yield 5.7%) – It’s a glorious market for conventional energy. The sector is up 28% YTD while every other sector is lower. OKE is benefitting and is now approaching the 52-week high. The energy rally has sputtered but started again after Russia invaded Ukraine. I don’t know how long this latest surge will last. But OKE is still below the pre-pandemic high while earnings are much higher. It should have a great year. BUY
Realty Income (O – yield 4.4%) – REITs are one of the worst performing market sectors YTD is a crummy market. But O has held up better than the sector as a whole and is only down about half as much this year. That’s because it’s a legendary and popular income stock. The yield is also sufficiently higher than fixed rate alternatives at this point. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.7%) – The stock is right about at the all-time high. In fact, ABBV has been by far the most reliable non-energy stock portfolio performer through the market tumult this year. ABBV is up about 30% over the last three months while the S&P is down 5% and the health care sector is also negative over the same period. Investors are becoming more confident that AbbVie can overcome the Humira patent expiration in 2023 as the new drugs and pipeline continue to impress. The stock also still sells at a cheap valuation of less than 11 times forward earnings. HOLD
Broadcom Inc. (AVGO – yield 2.8%) – Yeah, the stock has been floundering lately along with the tech sector. It’s down more than 14% YTD. But there is a catalyst in the offing. Broadcom reports earnings tomorrow. The stock got a huge boost after the last earnings report and there is no reason why this one should not be stellar as well. Business is booming as Broadcom benefits from the 5G rollout and should also benefit from increased internet usage further out. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.6%) – This defensive infrastructure partnership just continues to do its thing regardless of the market trends. It remains near the high and on a long-term slow and bouncy uptrend. Reliable and growing income and solid dividends never really go out of style. I expect more of the same going forward: slow and reliable appreciation and income. (This security generates a K1 form at tax time). HOLD
Chevron Corp. (CVX – yield 3.9%) – It’s yet another new high. Despite the fact that Chevron is a very large company and probably a more conservative play than the other energy positions, it is more levered to the price of oil. That’s a good thing in the current environment as oil has surged above $110 per barrel amidst the Russia situation, the highest level in more than a decade. Demand will likely remain strong as well. Let the good times roll. The stock is up about 40% in the last three months. HOLD
Eli Lilly and Company (LLY – yield 1.6%) – The big pharma company stock has been very bouncy. LLY had moved lower this year but it appears to be on its way up again lately. Earnings soundly beat expectations, but its Covid treatment drug, which is not approved for Omicron, will take a little off future earnings quarters. The long-term situation is still strong. It still has the likely approval of its potential mega-blockbuster Alzheimer’s drug later this year. HOLD
Qualcomm Inc. (QCOM – yield 1.6%) – The chip maker stock is still wallowing in Nowheresville. It leveled off after a huge move late last year but still hovered near the recent high. Since the market got ugly QCOM has been dipping lower and then recovering. This is a tough time for technology stocks but QCOM is a standout with huge earnings growth from the 5G rollout and terrific prospects for beyond. It should take off when tech stocks rally again. HOLD
Spectrum Brands Holdings, Inc. (SPB – yield 1.8%) – We sold half of this position several weeks ago as shares had been very weak in the tough market. But SPB has since trended higher. Spectrum is a standout consumer stock because of its high-growth, home-centric focus. But it has had some difficulty maintaining margins in this inflationary environment. I like the stock and will give the remaining one-half position a chance to recover. It looks good as SPB has been trending higher again since late January. HOLD
U.S. Bancorp (USB – yield 3.2%) – This regional bank stock has been indecisively bouncing around. It took a hit in the recent down market and is attempting a recovery from there. But I think the environment should be very supportive this year as the economy still grows above trend and interest rates likely rise. It’s tough to say what the stock will do in the near term, but I expect it to be higher six months from now. HOLD
Valero Energy Corp. (VLO – yield 4.7%) – The refiner stock is not rallying along with the rest of the energy sector lately. It’s down sharply since early February and has gone the other way since the energy rally reignited. The reason is that profits do not necessarily increase with crude oil prices, but rather the spread between costs and prices for refined product. The spreads have decreased as crude prices (the main cost) have soared and gasoline and diesel prices have not yet risen proportionately. But the situation should resolve itself over time as demand remains strong. HOLD
Rating change: “BUY” to “HOLD”
Visa Inc. (V – yield 0.7%) – The payment processing company has taken it on the chin amidst the Russia/Ukraine situation. The next leg of the pandemic recovery was well underway as international business is strongly recovering. But the crisis has cast doubt on the viability of that international recovery. Everybody sours on anything international when geopolitical tensions rise. The situation will probably get resolved without much damage to the global economy. But I will watch closely as events unfold. The stock will be downgraded to a HOLD amidst the current high level of geopolitical uncertainty. HOLD
Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – The ETF has fallen a bit in price over the past several months as rising interest rates and inflation have affected it. Preferred stocks tend to hold up relatively well in those conditions, but they are not immune. We will watch PGX for further weakness going forward. Only half of the position remains but any further weakness from here will likely prompt selling the shares. HOLD
NextEra Energy (NEE – yield 2.0%) – It’s a rough market for alternative energy stocks as conventional energy stages an epic rally. It’s also a rotten market for low-paying dividend stocks as interest rates rise. NEE is in the crosshairs and has behaved accordingly. It’s down over 16% YTD. That’s the bad news. The good news is that this is about as ugly as it gets for this normally reliable conservative utility and play on clean energy. I believe NEE will have its day in the sun again before too long. HOLD
Xcel Energy (XEL – yield 2.9%) – Ditto the stuff I just said about NEE. But this smaller alternative energy utility stock had been on a sustained uptrend for several months until it rolled over a few weeks ago. Hopefully, XEL can get some traction and start trending higher again in the next several weeks. But XEL was recently downgraded to a HOLD until it shows more evidence of reversing the recent downside. I love the stock longer term as clean energy should come back in vogue eventually. HOLD
| High Yield Tier | |||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 3/1/22 | Total Return | Current Yield | CDI Opinion | Pos. Size | |
| CII | Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.6% | 20 | -2% | 5.9% | BUY | 1 |
| EPD | Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 25 | 10% | 7.6% | BUY | 1 |
| GSL | Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 25 | 9% | 3.8% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 67 | 27% | 5.7% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 66 | 13% | 4.5% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 14.8% | 5.4% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 151 | 123% | 3.9% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 570 | 30% | 2.8% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 61 | 83% | 3.6% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 150 | 72% | 3.9% | HOLD | 1 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 114 | -8% | 1.6% | BUY | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 250 | 68% | 1.6% | HOLD | 2/3 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 164 | 104% | 1.6% | HOLD | 1/3 |
| SPB | Spectrum Brands Holdings, Inc. (SPB) | 08-11-21 | 81 | Qtr. | 1.68 | 1.6% | 92 | 16% | 1.8% | HOLD | 1/2 |
| USB | U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.2% | 56 | 22% | 3.2% | HOLD | 1 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 83 | 11% | 4.7% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 209 | 0% | 0.70% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 2.8% | 40.3% | 2.7% | ||||||||
| Safe Income Tier | |||||||||||
| PGX | Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 14 | 46% | 4.9% | HOLD | 1/2 |
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 78 | 89% | 2.0% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 68 | 173% | 2.9% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 3.1% | 102.7% | 3.3% | ||||||||
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