Investors Party Like It’s 2021
What a rally off the bottom! After flirting with a severe correction and possibly a bear market, stocks have soared over the past two weeks. The S&P 500 is now down less than 3% YTD. What happened?
Panic waned and investors realized that the economy is still strong, interest rates are still low, and money has no place else to go but stocks to fetch a decent return. The initial panic from the Russia/Ukraine war subsided. Then the Fed hiked rates by a measly 0.25% and pleased short-sighted investors.
Of course, the war isn’t over. There are still risks there. And the Fed’s tepidness just means they will have to be more aggressive going forward. The problems haven’t gone anywhere. Investors just got more used to them, for now.
The market may rally if there is some resolution to the war. Earnings season, which starts next week, could prompt a rally, as they should be strong. But the inflation and Fed problems won’t go away, and the market will eventually have to come to terms with the fact that the Fed won’t be able to stop inflation without significantly slowing the economy and likely spooking stocks.
It will be difficult for the stock indexes to sustain meaningful upside traction this year under the circumstances. But certain pockets of the market are thriving and will likely continue to do so.
There are now three S&P 500 sectors out of 11 in positive territory for the year so far: energy (up an astounding 38%), utilities and financials. Fortunately, the portfolio is well endowed with the winners as those sectors account for 11 portfolio positions. Also, there are three other positions behaving very strongly of late.
It may be a rough year for the market indices. But this portfolio continues to thrive.
High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 5.8%) – The market is back in business and so is CII. The high-income covered call ETF moves along with the overall market in the near term. It was having a horrible year. But after the huge market rally CII is back to within a little over a dollar per share of the high. I still don’t trust the market. So, it remains a hold. HOLD
Enterprise Product Partners (EPD – yield 7.6%) – EPD is firmly on the move again. After a brief stumble, the midstream energy partnership resumed its move higher, along with the rest of the energy sector. It’s now within pennies of the 52-week high and appears poised to break new upside ground. Yet, EPD is still priced below the 52-week high and way below the pre-pandemic high despite higher earnings. It’s still a great value with a rock solid and stratospheric distribution yield. Plus, now it has renewed momentum. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc (GSL – yield 5.2%) – True, this containership company stock has been sideways for the past couple of weeks while the overall market has moved sharply higher. But it is up a remarkable 28% YTD while the market is down despite it being a tough environment for similar types of stocks with the geopolitical tensions. The containership business is booming, and the good times will likely continue. GSL could take off when it starts moving again. BUY
ONEOK Inc. (OKE – yield 5.3%) – It’s a new 52-week high. OKE has continue trending higher this year amidst a strong energy sector and booming business for its gas assets. This is another great stock. It’s in the right place as energy production is likely to increase and regulations are being relaxed amidst soaring prices and strong demand. But it’s still cheap, below the pre-pandemic high. BUY
Realty Income (O – yield 4.3%) – It’s been boring. O is about even YTD while the market and REIT sector is down. It chugs along in most any kind of market with no startling downside and tends to trend higher over time. This is a reliable income stock and is behaving true to form. You’ll be bored all the way to the bank. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.5%) – It’s another new high. It seems like I say that every week. ABBV decided in September that it was going to move slowly higher and higher regardless of what goes on in the overall market. And I love it. It’s up over 20% YTD and 57% for the last year. And despite such performance the stock still trades at less than 12 times forward earnings. Investors have come around to realize that AbbVie’s superior pipeline and newly launched drugs can more than make up for the future loss of American Humira revenue. Go baby go. HOLD
Broadcom Inc. (AVGO – yield 2.6%) – The recent tech recovery sure lit a fire under AVGO’s butt. It’s up about 20% in the last couple of months while the market has floundered. Business is booming as Broadcom benefits from the 5G rollout and should also benefit from increased internet usage further out. Although still well off the high, AVGO has gained momentum. I believe selling in the tech sector got overdone and expect more good things from the stock in a more friendly environment. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.4%) – BIP is also a member of the new-high club. It is making another new high today. The stock had been trending very slowly higher for over a year but recently the pace of ascent has accelerated and BIP has broken out. Safety is back in vogue amidst the uncertainty. Utilities are the second-best performing sector of the market YTD next to energy. Brookfield has incredibly reliable crucial assets that bring in steady revenues no matter what, as well as an earning boost for the new acquisition in energy infrastructure. (This security generates a K1 form at tax time). HOLD
Discover Financial Services (DFS – yield 1.7%) – I’m disappointed. This credit card company stock has been in a sideways funk for nearly a year. The rationale for owning it is that consumer savings will deplete and buying habits will persist as the recovery continues. Therefore, consumers will have higher balances and Discover will generate larger profits. We’ll see if that story has traction at earnings in a few weeks. If it doesn’t, we may look to sell DFS. HOLD
Chevron Corp. (CVX – yield 3.3%) – Energy is hot and so is CVX. It is highly levered to oil prices and oil is soaring. CVX is up over 40% YTD in a down market. But it peaked early this month and has been bouncing around since. We sold half of the position a couple of weeks ago to lock in some profits. We’ll see if oil prices and energy stocks have another leg higher in the weeks and months ahead. HOLD
Eli Lilly and Company (LLY – yield 1.3%) – This biopharmaceutical giant stock is making new highs again this week. The stock has been bouncing and we’ll see how much more this latest upward bounce has. It’s only up 6% for the year but it has returned 58% over the last year. The long-term situation is still strong. It has a stellar pipeline and the likely approval of its potential mega-blockbuster Alzheimer’s drug later this year. HOLD
Intel Corporation (INTC – yield 2.8%) – The timing looks good so far. INTC is up 10% since being added to the portfolio earlier this month. Tech stocks are recovering, and semiconductor stocks in particular have been strong. But the main attraction here is the longer-term story as Intel is still dirt cheap ahead of what is likely to be several years of escalating growth. BUY
Qualcomm Inc. (QCOM – yield 1.7%) – What’s happened to QCOM? It’s down 13% year to date, which is worse than the overall market and much worse than the semiconductor group. This is the company that blew away earnings estimates, sharply raised guidance and enjoyed a slew of analysts upgrades just a few months ago. The ugly tech sector market happened. QCOM had soared over 40% in a month and was ripe for comeuppance. But none of that changes the fact that business is booming. Earnings win in the end. HOLD
U.S. Bancorp (USB – yield 3.2%) – This regional bank stock has gone sideways for about a year. It should be benefiting from higher rates and spreads as well as a still-strong economy. I don’t know why it isn’t. It should benefit from the environment over the rest of the year. Let’s see how things are going in the quarterly earnings report in a few weeks. If it’s not encouraging, we may have to take a good hard look at this one too. HOLD
Valero Energy Corp. (VLO – yield 4.1%) – The is the Promised Land. This ship is coming in. VLO broke the 100 per share barrier to another new high. This time it has finally exceeded the pre-pandemic high. It’s up 48% since the middle of December as sky-high gas and diesel prices along with strong demand is juicing profits with no end in sight. It should have room to run more. HOLD
Visa Inc. (V – yield 0.7%) – Visa is back. V crashed after the initial shock of the Russian invasion as investors soured on anything international. This year looked very promising. It got clobbered after the initial invasion but has been moving higher recently as investors recognize V as a good place to bottom fish in the panic phase of the crisis. I expect business to remain strongly growing this year, and the stock should take off again if this crisis fades. It’s up sharply off the bottom. HOLD
Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – The ETF has fallen a bit in price over the past several month 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 1.9%) – It’s good days indeed. The alternative energy utility stock spiked a lot higher after an awful start to the year. It’s up 18% over the last month. Utility stocks then began to outperform the market as investors sought more safety in the turbulent market. Then oil prices soared, and clean energy benefitted as the high prices made it a better alternative. It’s still a great stock longer term. The stock could be poised to make a run at the 52-week high. We’ll see how the next few weeks unfold. HOLD
Xcel Energy (XEL – yield 2.7%) – This alternative energy utility stock has had a similar spike as NEE amidst strength in utilities and alternative energy. But XEL has been rebounding for longer and is now within bad-breath distance of the high. I like the stock longer term, and the recent wild swings are externally induced in a crazy market. I don’t expect safety to go out of vogue anytime soon. HOLD
| High Yield Tier | |||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 3/29/22 | Total Return | Current Yield | CDI Opinion | Pos. Size | |
| CII | Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.6% | 21 | 4% | 5.8% | HOLD | 1 |
| EPD | Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 26 | 15% | 7.3% | BUY | 1 |
| GSL | Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 29 | 24% | 3.4% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 71 | 42% | 5.3% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 71 | 22% | 4.3% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 25.8% | 5.1% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 162 | 145% | 3.5% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 641 | 47% | 2.6% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 64 | 98% | 3.4% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 164 | 89% | 3.3% | HOLD | 1/2 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 114 | -8% | 1.8% | HOLD | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 288 | 95% | 1.3% | HOLD | 2/3 |
| INTC | Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 52 | 10% | 2.8% | BUY | 1 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 161 | 101% | 1.7% | HOLD | 1/3 |
| USB | U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.2% | 57 | 29% | 3.2% | HOLD | 1 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 97 | 32% | 4.1% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 228 | 9% | 0.70% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 3.0% | 40.3% | 2.6% | ||||||||
| Safe Income Tier | |||||||||||
| PGX | Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 13 | 43% | 4.9% | HOLD | 1/2 |
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 85 | 106% | 1.9% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 72 | 197% | 2.7% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 3.1% | 115.3% | 3.2% | ||||||||
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