March 24, 2021

An Indecisive Market
The market looks like it wants to change its stripes and morph into something else. But it’s not there yet.

The market’s biggest recent drivers are running out of steam. The long dominant technology sector has lost its mojo for now. In fact, technology is the worst performing S&P 500 sector over the past month. The sector corrected over 10%, got about half of the down move back on the rebound, and has been bouncing around since.

The furious recent surge in energy stocks has ended, or at least taken a break. After soaring over 36% since the beginning of February, the Energy Select Sector SPDR Fund (XLE) pulled back over 10% in the last couple of weeks.

Meanwhile, long neglected defensive stocks are starting to show signs of life. Utilities are actually the best performing S&P sector over the past month. Many market sectors have been floundering in recent months and the market could rotate back to some of the recently neglected plays.

But we aren’t cashing out of the technology and energy stocks in the portfolio. Technology won’t be out for long. Soon, the market will smoke out the rest of the sellers, and will likely be off to the races again. Energy stocks had to take a breather after that torrid surge. But most of these stocks are still below pre-pandemic levels ahead of a very promising environment.

The market is trying to make up its mind on the next leg. A new direction could be very good news for some of the recent lackluster performers. But technology and cyclical stocks probably won’t be down for long.

High Yield Tier
Rating change “BUY” to “HOLD”
Altria (MO – yield 6.8%) – This cigarette maker has been hot. The stock had risen 16% in March, 27% since the beginning of February, and 43% since early November. But it pulled back more than 2% yesterday and is roughly flat in mid-afternoon trading today. A pullback of some sort is normal after such a rapid rise. The recent move is interesting and the stock could be breaking a downtrend that has been in place since 2017.

But there hasn’t been any game-changing news at the company. Altria weathered the pandemic well and grew earnings with plenty of cashflow to maintain and raise the dividend. But that was evident well before November when the stock was floundering. It could be that Altria is viewed as a stimulus beneficiary, or perhaps investors are realizing the value. We’ll see how the stock behaves going forward. HOLD

Enterprise Product Partners (EPD – yield 8.1%) – Although this midstream energy partnership is trending higher, it hasn’t had nearly the upside move as the rest of the energy sector recently. Profits aren’t rebounding as quickly because they were never down that much. The good news is that EPD has not gotten nearly as overextended as most energy plays and likely won’t experience the consolidation we’re seeing in the more commodity price-dependent stocks. BUY

Realty Income (O – yield 4.5%) – The sideways funk continues for this legendary income REIT. It’s gone nowhere since last June. The good news is that its relative value is getting better all the time. Hopefully someday soon the market will reinvent itself into one that likes this stock again. In the meantime, it pays a solid and secure yield and should hold up if the market turns south. BUY

STAG Industrial (STAG – yield 4.3%) – This industrial REIT’s performance has been somewhat similar to O’s, but a little better. STAG just made new 52-week highs last week. It might break out of the funk sooner than most REITs because its industrial properties are more cyclical. In fact, the breakout may have already begun. We’ll see what happens in the next couple of weeks. BUY

Verizon Communications (VZ – yield 4.4%) – This wireless giant pays a solid and reliable dividend while the stock price is on the express train to Nowheresville. It should at least recover to the higher point of the range in the months ahead. At that point, I’ll decide if it’s worth waiting for the Promise Land of 5G. HOLD

Dividend Growth Tier
AbbVie (ABBV – yield 5.0%) – This biopharmaceutical stock tumbled more than 6% last week as the FDA requested more information before approving its rheumatoid arthritis drug for psoriatic arthritis also, causing a three-month delay. Big deal. Stuff like this happens with drug companies all the time. And the stock is still hanging tough around this higher point of the recent range despite lackluster performance for the health care sector during the cyclical stock rally. Nothing has changed except ABBV is a few dollars cheaper. HOLD

Broadcom Inc. (AVGO – yield 3.1%) – I’m not sure about this one in the near term. Performance is somewhat dependent on the tech sector, and I don’t know if it has more downside in the weeks ahead. But even if there is weakness over the next few weeks, I like AVGO’s prospects very much in the months ahead. The company will benefit from the 5G rollout as that inevitably becomes a bigger story in the market down the road a little bit. BUY

Brookfield Infrastructure Partners (BIP – yield 3.9%) – Someday soon BIP will break out to higher price level. BIP has been bouncing around and getting nowhere for months now. It’s a defensive income stock holding its own while investors neglect such plays during the cyclical stock rally. But the market always changes stipes eventually. Profits should soar as cyclical areas in transportation and energy rebound. New assets purchased on the cheap last year will come online and boost earnings. And infrastructure will likely be an increasingly popular subsector as Washington increases the focus. BUY

Chevron Corp. (CVX – yield 5.0%) – The relentless rally since the beginning of February finally hit a roadblock. It was bound to happen. CVX needed a breather. At the same time, oil had a bad day yesterday as Germany announced it is locking down again. I choose not to take profits around the near-term high because I believe the stock will move higher over the course of the year. It still isn’t back to pre-pandemic levels. And things weren’t great then. The prognosis from here is short-term choppy, and longer-term good. HOLD

Digital Realty Trust (DLR – yield 3.5%) – This data center REIT is cheap and likely has much better days ahead in the not-too-distant future. The market hasn’t liked REITs or pandemic beneficiaries. DLR is both. It’s hanging around at the low point of the range for longer and lower than usual. But it’s still a great technology REIT in a rapidly growing business. I think several months from now it will have been worth it to stick with DLR. BUY

Eli Lilly and Company (LLY – yield 1.9%) – This big pharmaceutical company was red hot and now it’s not. The catalyst for the recent downturn was the less-than-stellar trial for its potential mega blockbuster Alzheimer’s drug. But I’ve owned this stock a long time and this is a familiar pattern. It has a huge move higher and then pulls back. LLY does this while trending much higher over time. That’s why we took some profits when it was riding high. But I still like the stock very much for the longer term regardless of what happens with this drug. HOLD

KKR & Co. Inc. (KKR – yield 1.2%) – I love the financial sector ahead of rising rates and a booming economy. As well, the alternative investing trend is a big deal. And KKR is the best in that industry. Because of those two things, this stock should perform well for the rest of this year and beyond. BUY

Qualcomm Inc. (QCOM – yield 2.0%) – This once high-flying 5G chip maker lost its mojo big time after first-quarter earnings. It’s also been getting knocked around with the rest of the technology sector recently. But fortunes are likely to change. The technology sector will soon smoke out the rest of the sellers. And the industry-wide shortage of smartphone supplies that caused QCOM to pull back will end after the first half. In market time, that’s right around the corner. HOLD

U.S. Bancorp (USB – yield 3.1%) – This is a top-notch bank and a great time to own it. The economy will likely boom in the months ahead. And interest rates are all but certain to trend higher. The stock is still a great value as the price is still below pre-pandemic levels ahead of an ideal environment for banks. USB offers the rare combination of value and momentum. BUY

Valero Energy Corp. (VLO – yield 5.4%) – This refiner and high leverage play on a full recovery rose very high very fast, even for an energy stock. Now, it’s pulling back a lot, even for an energy stock. That’s what this stock is. You get high doses of both the good and the bad. A pullback was inevitable after the torrid rise of 50% since February and 120% since November. But VLO will likely get its groove back on before too long. It’s still well below pre-pandemic levels. The refining environment stunk then and should be much better in the months ahead. HOLD

Safe Income Tier
Rating change “BUY” to “HOLD”
Invesco BulletShares 2021 Corporate Bond ETF (BSCL – yield 2.0%) – This short-term bond fund is a safe port. While the market is promising for the rest of the year, there are still a lot of uncertainties out there. It’s nice to have something in the portfolio that you don’t have to worry about. That said, the bonds in this ETF matures at the end of this year. In the near future, I will find a more sustainable alternative. HOLD

Invesco Preferred ETF (PGX – yield 5.1%) – This preferred stock ETF is much less volatile than the stock market while providing a big yield. It also adds diversification as preferred stock performance is historically not correlated to the stock and bond markets. It’s a great place to generate a solid yield while rounding out your portfolio. HOLD

NextEra Energy (NEE – yield 2.0%) – This combination regulated and alternative energy utility stock is a simple story right now. Its normally relentless rise ever higher has been interrupted by investors focus on cyclical stocks. It has been a rare blip for NEE. But defensive stocks investing will come back in vogue. And alternative energy will also come back and likely accelerate with the increased focus from Washington. BUY

Xcel Energy (XEL – yield 2.8%) – XEL is a mirror situation of NEE. But the stock fell more and for longer, as a smaller and lesser-known alternative energy utility. But XEL has been moving higher over the past couple of weeks. It’s still a great buy point for this stock ahead of a market that is likely to be friendlier to its ilk in the not-too-distant future. BUY