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Income Advisor
Conservative investing. Double-digit income.

November 4, 2020

There should be a strong recovery and bull market on the other side of this election and pandemic. Any market spooking shenanigans in the meantime should present a buying opportunity.

The Market Rallies on Divided Government

It looks like the election is finally – still not over.

We still don’t know who the next president will be. And we probably won’t know for days and maybe weeks. A contested election was always a risk. It looks like that risk is being realized. But the market is soaring.

The Dow is up 600 points and the S&P 500 is almost 3% higher on the day. The election is contested and things might drag on for a while with no clear winner. What is the market so happy about?

The market doesn’t care who wins. It only cares about money. And a major uncertainty about this election has been resolved, in the market’s eyes. There will be divided government. It seems clear that Democrats will keep the House and Republicans will keep the Senate.

In the absence of one-party rule, it is unlikely that anything draconian gets done. Neither president can really screw things up too badly. Healthcare stocks are on fire. The indexes are up more than 5%. ABBV is almost 10% higher on the day. It’s because the risk of game-changing legislation is now off the table. Technology stocks are also rallying on a much lower chance of antitrust legislation.

That’s the way the market is seeing things anyway. We might not be out of the woods yet, depending on how ugly things get or how long the battle drags on. But we’ll get through this at some point in the not-too-distant future. Then the market can focus on the virus and a vaccine.

There should be a strong recovery and bull market on the other side of this election and pandemic. Any market spooking shenanigans in the meantime should present a buying opportunity.

Stock Portfolio Recap

AbbVie Inc. (ABBV) Yield 5.6%
Wow! This stock has come soaring back to life. After floundering for months, ABBV is up 20% in less than a week. ABBV has gone from about 80 per share last Thursday to over 96 today. First, the earnings killed it. Earnings beat expectations and rose 21.5% over last year’s quarter. The company also raised the dividend by 10.2%. Then, the election eliminated the possibility of draconian health care legislation. The fundamental story and the valuation were always great. Now, ABBV has momentum too. BUY

Altria (MO) Yield 9.2%
Earnings were good but Altria wrote off another $2.6 billion from E-cigarette acquisition JUUL. The original $12.8 billion investment is down to $1.6 billion. But that is already baked into the stock price. In the meantime, revenue was up 5% and cigarette volumes increased for the quarter. It sells at an epically absurd valuation and that dividend is rock solid. At the very least MO should be a great high income stock. But the low valuation has the possibility of capital appreciation as well. BUY

B&G Foods, Inc. (BGS) Yield 6.8%
This newly added packaged food company stock announces earnings tomorrow that should be very good. Sales are expected to grow 31% for the year as more people eat at home during the pandemic. I’m hoping the earnings report can catapult the stock price to a higher level. After the report, I will look to write a call on the stock. BUY

Enterprise Product Partners (EPD) Yield 10.4%
Well, the 10.7% yield is safe. That’s a double digit annual income just from holding the stock and nothing else. The earnings were great and showed growth even in this recessionary environment. But the market didn’t care. The market is going to have to see undeniable evidence of a robust recovery on the ground and surging energy demand to really get this thing moving. But that should definitely happen on the other side of this pandemic. BUY

Valero Energy (VLO) Yield 9.60%
This story is similar to that of EPD. The market is unlikely to give this stock anything until the recovery kicks into the next gear. VLO has technical support at this level and Armageddon is already factored into the price. The continued recovery must include rising demand for gasoline and diesel and likely improved pricing and margins. When this stock does start to move, it will move fast. BUY

Visa (V) Yield 0.60%
V took a beating over the past couple of weeks but has come back to where it was when initially recommended. The business isn’t bulletproof. Business suffers during a recession as the volume of transactions decreases. And Visa is taking it on the chin in this pandemic. Third quarter revenue fell 17% after a bad second quarter. The reason was a fall in high profit margin cross border transactions as travel is restricted during the pandemic. That said, overall transactions were actually higher even in this economy. One of the reasons I like this stock is the confidence that it will bounce back from any selloff because business prospect are so good longer term. BUY

Existing Call Trades

V Nov 20 $200 call at $10.00 or higher

The stock has pulled back from over 200 to about 180 in the past month. A combination of a down market and disappointing third quarter earnings drove it down. But the stock has rapidly recovered to 196 as of today. The price of the calls is well below the targeted 10 price at 3.10. These calls expire in a little over two weeks. We’ll see what the price does.