Bargains Around the Corner
The market has rallied strongly off last week’s lows. Buy I’m not buying into it. Stocks are already floundering badly again today.
The S&P 500 came to within close to 1% of a bear market last week, down 20% from the high on a closing basis before several up days and a better than 4% rally off the low. The index has posted six consecutive weeks of decline, the longest such streak in more than a decade.
The problem is that the Fed will have to aggressively raise rates to tame the persistent high inflation, and it is becoming increasingly likely that the economy will have to slow to recession or near to it. The market anticipates. It’s now looking ahead to high inflation, rising interest rates, and a faltering economy. Investors can’t seem to shake that bummer.
For those reasons, there is a high chance that the index heads back near bear market territory and possibly beyond, perhaps in the next couple of weeks. It’s a very ornery market right now. It’s probably early to step in and buy stocks.
The good news is that the technology selloff is probably getting overdone. It’s a bear market already in that sector with many stocks down 40%, 50% or more. Several stocks do not deserve such a dubbing. While things may get worse before they get better, there are some very good stocks that should sell at much higher prices six months down the road.
We’ll see what this ugly market does over the next few weeks. But keep an eye out for updates and emails as great opportunities should soon emerge.
High Yield Tier
Enterprise Product Partners (EPD – yield 6.9%) – This midstream energy partnership has sort of leveled off while remaining near the 52-week high, like the rest of the energy sector. Everything looks good. Energy production is up and likely to rise going forward. They have built in inflation adjustments to the contracts. Plus, the high distribution is more valuable in a market that doesn’t rise, and such markets attract investors to value stocks. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc (GSL – yield 6.6%) – This cyclical international stock is going to get knocked around in the near term as the global growth story deteriorates. But profits will rise regardless because they already locked in much higher rates on long term contracts than have existed for many years. Also, container shipping demand and rates should stay buoyant even as the global economy slows. GSL should rise again when the market settles. BUY
ONEOK Inc. (OKE – yield 5.6%) – Ditto what I said about EPD. But the performance for OKE has not been as good as EPD this year. That’s because the stock returned over 68% last year. Plus, earnings and revenues are not moving up as much as with most energy stocks because they never fell very much during the pandemic. Natural gas and NGL demand remains very resilient. But conditions are strong nonetheless and ONEOK also has inflation adjustments built into its contracts. BUY
Realty Income (O – yield 4.3%) – This unforgiving market has taken just about everything down with it, including this legendary income REIT. REITs are actually the second-worst-performing S&P sector over the last month. The yields become less attractive as fixed income rates rise and many REITs have high levels of debt, and rising rates increase costs. But many REITs, including this one, are solid and don’t deserve to be dragged down. O should rise again over the course of the year as investors reevaluate. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.8%) – ABBV had a huge run from the beginning of December to early April while most of the rest of the market rolled over. It has pulled back from the high, which the stock almost always does after a surge. But it appears to have hit a support level around the 150 per share range and has been creeping high from there even in a troubled market. ABBV may have found its near-term bottom and is a solid defensive holding and a great play from here as economic news worsens. HOLD
Broadcom Inc. (AVGO – yield 2.7%) – It continues to be a tough market for technology. This exceptional technology stalwart is a good company that is hanging out with the wrong crowd right now. The crummy tech sector market is obscuring the fact that Broadcom is growing earnings very strongly and will likely continue to do so for some time. Many technology stocks have now been oversold and we are still amid a technological revolution. Things might get worse before they get better, but stocks like AVGO are likely to be a lot higher in six months. AVGO will have its day in the sun again and patience should be rewarded. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.6%) – Recent selling has taken everything down. Even a defensive company with bankable and growing earnings with a strong dividend hasn’t been safe. The stock is down about 12% from the recent high. Earnings were up 3% on a per share basis but 22% excluding weather-related effects for last year’s quarter. Everything is still solid. (This security generates a K1 form at tax time). HOLD
Discover Financial Services (DFS – yield 2.3%) – Earnings beat expectations, and the stock jumped 8% after the report. But it only offered a temporary reprieve in this nasty market. Discover also announced a 20% increase in the quarterly dividend to 0.60 per share. Even with a tentative consumer in this uncertain environment, Discover should have a good year as consumers are likely to increase credit purchases going forward as the high covid savings inevitably deplete. The stock has outperformed the overall market this year. HOLD
Chevron Corp. (CVX – yield 3.3%) – The energy giant is off to the races again and came within a whisker of the high. The company is highly levered to oil prices and has exposure American shales and the fastest growing oil producing region in the world. That’s why earnings increased nearly fourfold on 70% higher revenue. The risk to oil price remains to the upside. Chevron is also expected to grow earnings more than 100% this year. HOLD
Eli Lilly and Company (LLY – yield 1.4%) – LLY had been pulling back after a huge surge. Then earnings killed it. Lilly beat expectations and raised guidance with earnings growth of 63%. There was also good news on its obesity drug in late-stage trials. The drug could be a blockbuster along with the Alzheimer’s drug which could be approved by the end of the year. The stock has regained momentum and is again flirting with the high. It’s also a good defensive play in this market. HOLD
Intel Corporation (INTC – yield 3.2%) – It’s been an awful year for technology, but INTC is down less than the sector. That’s because the stock crashed before the sector selloff and didn’t have any excess to burn off. INTC is oversold and undervalued ahead of what is likely to a strong several years for earnings growth. Things could get worse in the near term, but I like the stock very much as a longer-term play. BUY
Qualcomm Inc. (QCOM – yield 2.1%) – Revenues and earnings continue to grow at a fever clip and will likely continue to do so for the rest of the year at least. It’s just in the wrong sector at the wrong time. But the company continues to deliver despite supply disruptions and other concerns and sells at a cheap valuation considering the growth rate. The good should outweigh the bad, especially considering the stock already got the stuffing kicked out of it. Certain tech stocks have been way oversold already, and QCOM is one of them. These things get straightened out over time. HOLD
Valero Energy Corp. (VLO – yield 3.1%) – There are good times and bad times to be in the refining business. This is one of the best times. Valero reported earnings last week that showed profit growth of better than 40% over last year’s quarter on rising volumes and the highest refining margins since 2015. The company is also benefitting from cheap U.S. natural gas inputs which gives it a huge advantage over foreign competitors. Refiners continue to enjoy high prices and high demand. We’ll see how high it goes. HOLD
Visa Inc. (V – yield 0.8%) – This global payments company stock is getting creamed in this market. It fell below 200 per share again but appears to be recovering even in a down market. Growth concerns damage this stock whenever the market selling gets intense. But this stock should recover and remain strong this year. The tremendous earnings boost it gets globally from the removal of covid restrictions easily outweighs slower global growth of geopolitical uncertainty. Visa’s earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth. HOLD
Safe Income Tier
NextEra Energy (NEE – yield 2.2%) – Utility stocks have leveled off over the last month or so and NextEra also has its own issues. It fell after the earnings report revealed that delays from solar panels in Asia will slow solar projects. The stock has never really recovered since. But earnings were solid, and the main story is intact. This is a great utility and a phenomenal way for conservative investors to play the growth in clean energy. HOLD
Xcel Energy (XEL – yield 2.6%) – This is one of the very few non-energy-sector stocks that has continued to thrive in the recent market. True, the stock price has leveled off since making a high in early April. But it has been hanging tough and is still within just pennies of the high. Utilities have been strong as has alternative energy. XEL is a great stock for the future as clean energy should remain popular and it is also good in case of continuing market selling. HOLD
| High Yield Tier | |||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 5/17/22 | Total Return | Current Yield | CDI Opinion | Pos. Size | |
| EPD | Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 27 | 22% | 6.9% | BUY | 1 |
| GSL | Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 23 | -2% | 6.6% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 67 | 35% | 5.6% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 69 | 19% | 4.30% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 18.5% | 5.9% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 155 | 136% | 3.6% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 608 | 39% | 2.7% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 61 | 87% | 3.6% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 174 | 100% | 3.3% | HOLD | 1/2 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 108 | -13% | 2.3% | HOLD | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 301 | 104% | 1.3% | HOLD | 2/3 |
| INTC | Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 44 | -6% | 3.4% | BUY | 1 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 140 | 74% | 2.2% | HOLD | 1/3 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 128 | 77% | 3.1% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 204 | -2% | 0.80% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 3.0% | 40.3% | 2.6% | ||||||||
| Safe Income Tier | |||||||||||
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 72 | 75% | 2.3% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 75 | 211% | 2.6% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 2.3% | 143.0% | 2.5% | ||||||||
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