Roll the Ugliness
It’s one step forward and two steps back in this crummy market.
The indexes seem to stage an impressive rally at some point every week. But the S&P 500 has fallen for seven consecutive weeks, the longest such streak since 2001. It came within a whisker of a bear market (down 20% from the high on a closing basis) before the latest temporary rally on Monday.
Maybe stocks can avoid a bear market and we have already seen the low. Anything is possible. But this market appears to have one foot on a bear market and the other foot on a pile of dog doo. The indexes can’t generate any lasting traction because the issues driving stocks lower are not getting any better.
Inflation is persistent and the Fed will have to slow the economy to recession or near to it in response. Investors can’t find enough good news nuggets to shake that stench any longer than a few days. That’s the current market reality as I see it.
The good news is that half of the stocks in this portfolio are higher for the year and most are significantly outperforming the market. Dividend stocks have vastly outperformed the market indexes. And there are a lot of stocks that are now very attractively priced for the longer run.
It may be early to start buying aggressively. But things will change eventually and there will be a lot of opportunity when that happens. Be patient. These are the kind of markets that create great investments. And we’ll scoop them up when the time is right.
High Yield Tier
Enterprise Product Partners (EPD – yield 6.9%) – This midstream energy partnership is a great place to be right now. While the world is going to hell in a handbasket, EPD is flirting with the 52-week high, up 25% YTD. It has solid earnings growth and energy production is likely to rise. Meanwhile, EPD still sells below the pre-pandemic high with much higher earnings and strong prospects. Plus, that huge distribution is safe. It’s solid in a down market and should trend higher of the rest of the year. (This security generates a K-1 form at tax time). BUY
Global Ship Lease, Inc. (GSL – yield 6.8%) – Profits will rise because Global already locked in much higher rates for long-term contracts than have existed for many years and also greatly expanded their fleet. As well, container shipping demand and rates should stay buoyant even as the global economy slows.
It’s been knocked around in this market as global growth fears take everything international down. But the stock has risen every time fears wane for the last several years. It should take off when the market stabilizes. BUY
ONEOK Inc. (OKE – yield 5.9%) – 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 more than 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 remain very resilient. But conditions are strong in the industry anyway and ONEOK also has inflation adjustments built into its contracts. BUY
Realty Income (O – yield 4.3%) – The stock is doing OK in this market. Sure, it’s down about 3% for the year. But the market and the REIT sector are down a lot more. O is a legendary safe income stock and investors seek it out in this market. It should continue to slowly edge higher while paying a great income in the next phase of this market. O should rise again over the course of the year as investors re-evaluate. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.8%) – ABBV has leveled off after hitting a near-term bottom in April after pulling back from a surge that began in October. It’s normal for the stock to pull back after such a move. ABBV has returned about 12% YTD even after pulling back but it might continue to go sideways for a while longer. It’s a phenomenal drug company with one of the best pipelines in the business and the defensive nature of the business should help the stock endure further market downside very well. HOLD
Broadcom Inc. (AVGO – yield 3.1%) – There was big news for Broadcom this week. It is rumored to be acquiring cloud software company VMware (VMW) for $60 billion, although the deal has not been formally announced and isn’t official yet. VMW shares shot 25% higher on the news, near the rumored takeover share price. AVGO has fallen 5% since the news broke.
It would be one of the largest takeover deals of the year. Broadcom is likely seeking to diversify from the volatile semiconductor space by buying one of the biggest players in the cloud software business. Broadcom has built its business largely through acquisitions and this would fit in with what has been a successful formula. The fall in the stock reflects skepticism that the deal will go through as there will be some anti-trust concerns.
It’s been a rough market for the technology sector and AVGO had taken a big fall before the announcement. But this is a good time to shop for takeovers. Although the takeover offer is rumored to be about $140 per share, VMW was trading higher than that last fall. We’ll see how the news unfolds. But I believe such a deal would be good news for the long-term prospects of Broadcom. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.6%) – Earnings were solid for this bankable infrastructure asset owner. It operates a very defensive and reliable business that generates a nice dividend. BIP had been a star of the dismal year so far but it recently pulled back more than 10% from the high. However, it has been moving higher again lately. I expect solid performance going forward. BIP should continue to prove resilient if there is further market downside and perform well on the other side of the selling as well. (This security generates a K-1 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 strongly outperformed the overall market this year. HOLD
Chevron Corp. (CVX – yield 3.3%) – The energy giant is off to the races again and it’s just about back at the high. The company is highly levered to oil prices and has exposure to American shale, the fastest-growing oil producing region in the world. That’s why earnings increased nearly four-fold on 70% higher revenue. The risk to the price of oil remains to the upside from here, at least in the foreseeable future. Chevron is also expected to grow earnings more than 100% this year. It could surge to new highs in the weeks ahead. Go baby, go. HOLD
Eli Lilly and Company (LLY – yield 1.3%) – After killing it on earnings, there is more great news from Lilly’s phenomenal pipeline. One of its existing Diabetes drugs (Mounjaro) posted impressive late-stage trial results for weight loss. That’s a huge market and another potential game-changer for the drug company. LLY soared 7% in less than a week following the news, even in this awful market. And the stock is again approaching the high. The good news seems to keep coming, but that’s because Lilly has the best pipeline in the business. HOLD
Innovative Industrial Properties, Inc. (IIPR – yield 5.3%) - It has been ugly indeed for the marijuana REIT. The market has been particularly unforgiving for the high-growth superstars of last year. But this stock can move higher very quickly when the market settles down. The company is projected to grow earnings 37% this year and it sells at a price/earnings ratio close to that of the overall market.
It also pays a large and rapidly growing dividend. With those attributes, IIPR doesn’t deserve to be down over 50% from the high. It’s a little higher than it was when added to the portfolio two weeks ago. It could fall further. But it should be a lot higher six months to a year from now. BUY
Intel Corporation (INTC – yield 3.5%) – 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 are likely to be a strong several years for earnings growth. Things could get a little worse in the near term, but I like the stock very much as a longer-term play. BUY
Qualcomm Inc. (QCOM – yield 2.3%) – 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 3.2%) – This is one of the best times to be in the refining business. Valero reported rapidly rising profits 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. The stock is not far from the high and may overtake it in the weeks ahead. HOLD
Visa Inc. (V – yield 0.8%) – V is getting knocked around. It has spent most of the last several weeks below 200 per share. But earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth as the profit boost it gets globally from the removal of Covid restrictions easily outweighs slower global growth or war issues. Profits win in the end. At some point the market will settle down. And V will be poised to start rising again. HOLD
Safe Income Tier
NextEra Energy (NEE – yield 2.2%) – NEE plunged 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. The stock also appears to have bottomed out earlier this month and has some solid support around the current levels. 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. The stock price had leveled off since making a high in early April. But now it’s back to a new all-time high. That’s a powerful statement for a non-traditional energy stock in this market. 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 5/24/22 | 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% | 22 | -2% | 6.8% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 64 | 35% | 5.9% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 69 | 19% | 4.40% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 18.5% | 6.0% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 149 | 136% | 3.80% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 524 | 39% | 3.1% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 62 | 87% | 3.5% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 174 | 100% | 3.4% | HOLD | 1/2 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 104 | -13% | 2.3% | HOLD | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 306 | 104% | 1.3% | HOLD | 2/3 |
| IIPR | Innovative Industrial Props. (IIPR) | 05-11-22 | 123 | Qtr. | 7.00 | 5.4% | 124 | 5.4% | BUY | 1 | |
| INTC | Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 42 | -6% | 3.5% | BUY | 1 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 129 | 74% | 2.3% | HOLD | 1/3 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 124 | 77% | 3.2% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 203 | -2% | 0.80% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 3.2% | 40.3% | 3.0% | ||||||||
| Safe Income Tier | |||||||||||
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 75 | 75% | 2.2% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 76 | 211% | 2.6% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 2.3% | 143.0% | 2.4% | ||||||||
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