Waiting on the Fed
All eyes are on the Fed.
After a wild couple of weeks where technology stocks corrected, down 10% or more from the high, and the S&P 500 fell 10% on an intraday basis, investors nervously await the Fed this afternoon. The chairman will show us the way. He knows everything.
Wall Street is waiting with bated breath to see if the Fed insinuates that it might raise rates and reduce its balance sheet faster, slower, or the same as currently anticipated. I doubt the Fed will be more aggressive after the market selloff. They tend to err toward dovishness. But you never know.
Faster or bigger rate hikes and bond tapering will probably send the market into a tailspin. Anything less will likely fuel a further rally. But regardless of what the Fed says today, the underlying problems aren’t going away. Inflation is high and persistent, and the Fed will have to be much more aggressive to combat it.
The problem is that it is now highly unlikely that inflation can be remedied seamlessly. That is, the Fed won’t be able to tighten in a way that doesn’t spook the market and still get rid of inflation. Only pain will solve this inflation. The economy will have to slow significantly to break its back.
That means that there will probably be either continued high inflation or a significant economic slowdown. Neither one of those things is good for stocks. Investors are starting to realize this. Of course, earnings could save the day in the near term. And stocks are still the only game in town to fetch a decent return. But this problem should periodically haunt the market throughout the year. Expect choppier waters.
Despite the less-than-stellar prognosis for the overall market, energy and financial stocks should have a good year. Those sectors actually thrive with inflation and rising interest rates. It’s already playing out so far this year. While 10 of the 11 S&P 500 sectors are negative for the year, the energy sector is up a whopping 18% already.
More volatility could drag even these favored sectors down in the near term. But the rally should continue when the market stabilizes.
High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 6.1%) – This covered call ETF has taken a bit of a hit in this down market. It’s a fund that is going to move along with the overall market in the near term, which has obviously been a bad thing lately. But the strong monthly income should make it desirable in a more sideways market this year. BUY
Enterprise Product Partners (EPD – yield 7.8%) – This undervalued high-yielding midstream energy company is looking very good. After months in the abyss, EPD got a move on again during the latest energy sector rally. But even when energy stocks sold off in the panic-stricken market earlier this week, EPD barely budged. It’s higher now than before the market selloff and appears on its way to the post-pandemic high and beyond. It’s a great company that has been neglected by the market for a long time. But now it’s in favor and on the move. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc. (GSL – yield 6.6%) – It got ugly there for a day with this shipping company stock. But it has since come roaring back. It fell 6.5% on Friday and further by mid-day on Monday. But it has since recovered most of the recent losses. The market turbulence may last longer. But profits at the company should be rock solid and growing. It should be a great year for GSL. BUY
ONEOK Inc. (OKE – yield 6.4%) – Relative performance for this midstream energy stock has slipped of late. While the energy sector, as measured by the Energy Select Sector SPDR Fund (XLE), is near the 52-week high, OKE is still 10% below its high. The lagging is probably due to its 60% total return in 2021. But the stock is still priced below pre-pandemic levels with much higher earnings. I expect more good things in the months ahead. BUY
Realty Income (O – yield 4.3%) – The REIT sector is having a rough year so far, but O is hanging mighty tough not far from the recent high. The relative strength is encouraging. O is still well below the pre-pandemic high for no good reason. I like the way the stock is situated going forward as earnings a growing at a better-than-average clip because of the recent acquisition, and investors should gravitate toward safer dividend stocks in a more volatile 2022. HOLD
STAG Industrial (STAG – yield 3.5%) – This industrial REIT has not held up as well as O through the REIT selloff, probably because it had been flying so high before. STAG returned 60% in 2021. It’s down 13% from the high. Hopefully it has leveled off and moves higher again from here. The industrial properties are in high demand and short supply. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 4.2%) – The biopharmaceutical company stock continues to outperform. It only fell a little from the high during the selloff and has been heading higher again in the past couple of days. The stock had a huge move in December, and I expect it to move sideways for a while like it did after the previous surge. The stock is still very cheap, and results have been stellar. This is one you just hang on to. HOLD
Broadcom Inc. (AVGO – yield 3.0%) – This legendary technology company stock did not hold up well during the recent tech sector weakness. It plunged over 20% since early January and gave back most of the recent surge since October. It’s up big so far today though. There isn’t an internal operational reason for the plunge. Technology is reeling from the prospect of higher interest rates and lower growth rates. But investors never sour on technology for too long. It’s where all the growth is. I still like this stock for 2022. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.4%) – This infrastructure partnership is still not far from the recent high. It is hanging strong in an environment that has been tough for defensive dividend payers, that’s good. BIP has been on an uptrend since the market bottom in March of 2020, albeit a slow and sometimes choppy one. It’s still looks solid, and earnings should be strong, reflecting the new acquisition. BIP was very resilient when the market was ugly. It’s a great stock to own in a more volatile market. (This security generates a K1 form at tax time). HOLD
Chevron Corp. (CVX – yield 4.0%) – It’s another new high. This may be a tough year so far for the overall market. But CVX loves it. It’s up over 14% YTD. The stock has eclipsed both the pre-pandemic high and the all-time high. Oil prices are rising with no end in sight. Demand is strong. Good volume at high prices will surely juice profits for this energy giant. It should have further to run. HOLD
Eli Lilly and Company (LLY – yield 1.6%) – This is a great company and a great stock. But it is awfully bouncy. LLY made new highs last month but has been pulling back so far this year. But that’s normal behavior for this stock. LLY returned about 70% in 2021 on the strength of its new drugs and pipeline as well as the prospect of an approval for its Alzheimer’s drug later this year. That story is intact. I expect LLY to move higher again after the recent pullback. HOLD
KKR & Co. Inc. (KKR – yield 0.9%) – This alternative asset investment manager stock has not been looking good. After being a superstar performer in 2021, it’s down over 20% from the high and 12% YTD. It also still has not broken the downtrend. But the stock has some technical support around the current level. I’ll keep a close eye on it going forward to see if it holds and hopefully starts moving higher again. HOLD
Qualcomm Inc. (QCOM – yield 1.5%) – The chipmaker stock finally capitulated to the technology sector weakness. The sector has been reeling for a while. But QCOM hung very tough around the high after its big surge in November. But the bottom fell out amidst increased selling in the sector and weakness in the overall market. It has fallen 12% over the past two weeks. But things remain quite strong internally at the company. Plus, Qualcomm reports earnings next week and the last couple of earnings reports have sparked rallies. HOLD
Spectrum Brands Holdings, Inc. (SPB – yield 1.9%) – The Consumer Discretionary sector is actually down more than technology so far this year and is the market’s worst performing sector YTD. SPB is feeling the brunt. It’s down 15% over the past two weeks. I think it is being taken down with the overall sector. But its home products should prove much more resilient than other consumer products. I still like the prospects longer term though. HOLD
U.S. Bancorp (USB – yield 3.2%) – This regional bank stock had been flourishing. Rising interest rates juice profits as the banks earns more net interest income. The other elements of the business have been strong and high interest rate spreads add the missing piece of the puzzle. But USB has been taken down along with the overall market over the past couple of weeks. The market is falling primarily because of the prospects of rising interest rates. But in markets like this it doesn’t even matter if a stock benefits. Everything falls in the near term. But I still expect a good year for USB. HOLD
Valero Energy Corp. (VLO – yield 5.0%) – Even energy stocks got taken down in the market selling over the past week. But as the panic is waning, energy stocks are right back in business, and so is VLO. It’s had a great bounce over the past couple of days. The environment is very favorable for refiners as prices are high and demand is strong. VLO is also a great inflation hedge. Despite the hospitable environment, this stock is still well below the pre-pandemic high and should have plenty more upside. HOLD
Visa Inc. (V – yield 0.7%) – The card company stock got clobbered and fell again to below 200 per share. But it has moved sharply higher in the past couple of days amidst the market rebound. Visa should benefit from the international recovery this year, which has lagged the U.S. recovery. As travel returns, the very profitable cross-border transactions should get a big boost while U.S. business is already booming. I expect V to resume moving higher if the market levels off. BUY
Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – After falling during the pandemic, this preferred stock ETF has recovered. 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 time to hold this ETF. HOLD
NextEra Energy (NEE – yield 1.8%) – This alternative energy utility stock plunged 8.33% yesterday after it announced fourth-quarter earnings and a management change. The fall was about the management change because earnings were stellar. NextEra exceeded expectations and grew adjusted earnings 10.3% for 2021. It also raised guidance to double-digit earnings growth for 2022 and 2023.
The current CEO is being replaced by a 19-year veteran at the company. But the current CEO guided the company to 9% average earnings growth over the past decade compared to an average of 3% earnings growth for its 10 largest rivals over the same period. The market didn’t want to see him go. But I think it’s a big overreaction as the utility will continue a similar track. The recent selloff is a buying opportunity. BUY
Xcel Energy (XEL – yield 2.7%) – This alternative energy utility has been solid and barely budged during the market turmoil of the last week. Utilities have been a solid-performing market sector since things got ugly as investors seek defense and safe havens. It’s a good market to have utilities. But XEL also has the added benefit of being on an uptrend and providing a safe way to play the growth in alternative energy. XEL is strong for now and probably stronger later in the year as investors rediscover clean energy growth. BUY
| High Yield Tier | ||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on 1/26/22 | Total Return | Current Yield | CDI Opinion | Pos. Size |
| Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.6% | 21 | -5% | 6.1% | BUY | 1 |
| Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 25 | 6% | 7.9% | BUY | 1 |
| Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 23 | -3% | 6.6% | BUY | 1 |
| ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 61 | 17% | 6.4% | BUY | 1 |
| Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 69 | 18% | 4.3% | HOLD | 1 |
| STAG Industrial (STAG) | 03-21-18 | 24 | Monthly | 1.45 | 3.3% | 42 | 108% | 3.5% | HOLD | 1/2 |
| Current High Yield Tier Totals: | 5.5% | 29.2% | 5.7% | |||||||
| Dividend Growth Tier | ||||||||||
| AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 135 | 101% | 4.2% | HOLD | 2/3 |
| Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 590 | 22% | 3.0% | HOLD | 1 |
| Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 60 | 81% | 3.4% | HOLD | 2/3 |
| Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 118 | 51% | 4.0% | HOLD | 1 |
| Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 266 | 61% | 1.6% | HOLD | 2/3 |
| KKR & Co. Inc. (KKR) | 03-09-21 | 48 | Qtr. | 0.58 | 0.8% | 67 | 38% | 0.9% | HOLD | 1/2 |
| Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 184 | 106% | 1.6% | HOLD | 1/3 |
| Spectrum Brands Holdings, Inc. (SPB) | 08-11-21 | 81 | Qtr. | 1.68 | 1.6% | 87 | 7% | 1.9% | HOLD | 1 |
| U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.2% | 57 | 30% | 3.2% | HOLD | 1 |
| Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 83 | 10% | 5.0% | HOLD | 1/2 |
| Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 215 | -3% | 0.7% | BUY | 1 |
| Current Dividend Growth Tier Totals: | 2.8% | 40.3% | 2.7% | |||||||
| Safe Income Tier | ||||||||||
| Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 15 | 54% | 4.9% | HOLD | 1/2 |
| NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 74 | 82% | 1.9% | BUY | 1/2 |
| Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 68 | 179% | 2.7% | BUY | 2/3 |
| Current Safe Income Tier Totals: | 3.1% | 105.0% | 3.2% | |||||||
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