The Bull Comes Back to Life
What a difference a few days can make. A little over a week ago the market looked like it was about to roll over and die. But since the close on March 14 the S&P 500 has soared more than 8% and the Nasdaq has spiked more than 12%. Will the magnificence last?
I doubt it.
Prior to March 14, markets were reeling, with the S&P down 12.44% YTD and the Nasdaq in bear market territory, more than 20% from the high. The problem was the Russia/Ukraine war, persistent high inflation, and a behind-the-curve and tightening Fed. Those problems haven’t gotten any better. There has just been some superficial relief in the near term.
The war still rages but the initial panic is over, and investors are used to the idea. The Fed will still have to raise rates aggressively, but they did the minimal 0.25% hike last week. Investors had feared a 0.50% hike and were relieved. But that just means they will have to raise rates more in the months ahead. And the war isn’t getting any better.
It is possible that the bottom is in, at least for a while. And the economy and earnings are still strong. Plus, money still has no place besides stocks to earn a decent return. When fear inevitably wanes, investors come back. But inflation and aggressive rate hikes are not going away and will haunt the market for the rest of the year.
I don’t expect gloom and doom for stocks. But it will be hard for the market to gain lasting traction while these problems loom. Expect more choppiness for the indexes. But certain individual stocks are killing it. The energy sector is up 38% YTD. Several portfolio positions are making new highs. And defensive stocks and dividends are back in vogue.
While the overall market may continue to sputter and spit at us, this portfolio continues to perform well.
High Yield Tier
Blackrock Enhanced Capital and Income Fund (CII – yield 6.0%) – What a difference a week makes. The high income covered call ETF moves along with the overall market in the near term. It was having a horrible year. But after the huge market rally over the last week CII is back to within one dollar per share of the high. I still don’t trust the market. So it remains a hold. HOLD
Enterprise Product Partners (EPD – yield 7.6%) – After a torrid start to the year, the energy sector came under pressure amidst fears of demand destruction from high prices and international turmoil. But the sector has recovered over the last few weeks and EPD is moving higher again. Yet, EPD is still priced below the 52-week high and way below the pre-pandemic high despite higher earnings. It’s still a great value with a rock solid and stratospheric distribution yield. Plus, now it has renewed momentum. (This security generates a K1 form at tax time). BUY
Global Ship Lease, Inc. (GSL – yield 3.5%) – This container ship company stock continues to amaze. GSL has managed to post a 28% YTD return despite the down market and the fact that most cyclical international stocks got clobbered amidst the geopolitical uncertainty from the war. It remains strong because the container ship business is killing it with high rates that should continue for a while. It’s been great in a down market and could really take off when things stabilize.
The dividend has been confusing. The company raised the quarterly dividend from $0.25 per share to$ 0.375. But the increase won’t take place until the next dividend. For now, the yield is just 3.5%. But it will be adjusted upward after this dividend to 5.5%. BUY
ONEOK Inc. (OKE – yield 5.5%) – It’s a similar story to EPD right now, although OKE can be more volatile. The midstream natural gas giant just made a new 52-week high. It has been trending sharply higher since late February, despite a temporary dip in March. This is another great stock. It’s in the right place as energy production is likely to increase and regulations are being relaxed amidst soaring prices and strong demand. But it’s still cheap, still below the pre-pandemic high. BUY
Realty Income (O – yield 4.4%) – REITs have been behaving much better relative to the overall market in the past month. They had taken a hit in the selling earlier this year but investors appear to be coming around to the stock’s more defensive nature and strong dividend yield. O is an income stalwart that investors love. It should do well in an increasingly defensive oriented market going forward. HOLD
Dividend Growth Tier
AbbVie (ABBV – yield 3.5%) – This has been a wonderful stock. In a crummy year for the market ABBV is making a series of new highs. It has returned 20% so far this year, 56% over the last full year, and has averaged a return of 30% per year for the last three years. Investors have come to realize that AbbVie’s superior pipeline and newly launched drugs can more than make up for the future loss of American Humira revenue. The stock is still cheap too at just 11.3 times forward earnings. HOLD
Broadcom Inc. (AVGO – yield 2.8%) – This technology stalwart stock sold off at the very beginning of the year but has since rebounded and stabilized. Another stellar earnings quarter helped AVGO outperform the sector over the past couple of months. Business is booming as Broadcom benefits from the 5G rollout and should also benefit from increased internet usage further out. Although still well off the high, AVGO is back over 600 per share. I believe the selling in the tech sector is overdone. When the sector recovers AVGO should really move up. HOLD
Brookfield Infrastructure Partners (BIP – yield 3.6%) – Quietly, this infrastructure partnership has broken out to a new all-time high while the world goes to hell in a handbasket. Safety is back in vogue amidst the uncertainty. Utilities are the third best performing sector of the market YTD next to energy and financials. Brookfield has incredibly reliable crucial assets that bring in steady revenues no matter what, as well as an earnings boost for the new acquisition in energy infrastructure. (This security generates a K1 form at tax time). HOLD
Discover Financial Services (DFS – yield 1.7%) – This credit card company stock really took a beating after the Russian invasion of Ukraine. But the stock is rebounding strongly as the initial panic wanes. It’s all short-term noise and DFS remains a good buy at this level and is highly likely to see profits grow as more consumers charge an increasing amount of purchases. HOLD
Chevron Corp. (CVX – yield 3.3%) – We took a sizable profit on half of this position last week when oil prices were coming down. The stock has since rebounded along with oil prices. CVX has had an enormous spike. It’s up over 42% in the last three months and 23% in the last month. The environment remains uncertain and it’s possible that circumstances develop to bring the price back down fast. It’s also possible that the price keeps rising. It seemed prudent to secure some of the recent outsized profits. HOLD
Eli Lilly and Company (LLY – yield 1.6%) – LLY just made a new all-time high. The stock is a notorious bouncer (on a longer-term upward trend) and it was on the downside of a bounce earlier this year. But health care got popular again amidst the war uncertainty and LLY has surged. It’s up 20% in the last month and 55% in the past year. The long-term situation is still strong. It has a stellar pipeline and the likely approval of its potential mega blockbuster Alzheimer’s drug later this year. HOLD
Intel Corporation (INTC – yield 3.0%) – The beaten-down chip behemoth has had a very good week, along with the rest of the market and tech stocks in particular. I love the prospects of this stock over the longer term as new growth projects come to fruition. In the short term it could also benefit as the tech sector recovers from an oversold situation. BUY
Qualcomm Inc. (QCOM – yield 1.7%) – QCOM really got a case of the uglies in February and March as the tech selloff accelerated. But it has come back strong over the last week and a half. Hopefully, we get a rally in technology that continues the rebound. Business is booming from 5G and it raised earnings guidance as future prospects are stellar as well. The selling has been externally driven and when that environment improves, Qualcomm, with its rapidly growing earnings, should really shine. HOLD
U.S. Bancorp (USB – yield 3.5%) – Interest rates pulled back for a while after the Russian invasion and bank stocks sold down. But despite the apparently short-lived hysteria, the main pressure for interest rates remains higher amidst persistent high inflation. The 10-year rate has not only since recovered but shot to a new recent high at 2.37%. Bank stocks and USB are also recovering. It’s worth being patient through the current volatility because a bank-friendly environment should reemerge in a relatively short time. HOLD
Valero Energy Corp. (VLO – yield 4.7%) – This ship is coming in. It’s been in the portfolio for a long time without much of a positive return to show, especially when compared to some of the other positions with similar longevity. But it is busting out to new recent territory as sky-high gas and diesel prices along with strong demand is juicing profits with no end in sight. Despite the ideal refining environment now and ahead, VLO still sells below the pre-pandemic high and well below the 2018 high. It should have room to run more. HOLD
Visa Inc. (V – yield 0.7%) – Visa is back. V crashed after the initial shock of the Russian invasion as investors soured on anything international. This year looked very promising. It got clobbered after the initial invasion but has been moving higher recently as investors recognize V as a good place to bottom fish in the panic phase of the crisis. I expect business to remain strongly growing this year and the stock should take off again if this crisis fades. It’s up sharply off the bottom. HOLD
Safe Income Tier
Invesco Preferred ETF (PGX – yield 4.9%) – The ETF has fallen a bit in price over the past several months as rising interest rates and inflation have affected it. Preferred stocks tend to hold up relatively well in those conditions, but they are not immune. We will watch PGX for further weakness going forward. Only half of the position remains but any further weakness from here will likely prompt selling the shares. HOLD
NextEra Energy (NEE – yield 2.0%) – The alternative energy utility stock spiked a lot higher after an awful start to the year. It’s up 14% over the last month. Utility stocks then began to outperform the market as investors sought more safety in the turbulent market. Then oil prices soared, and clean energy benefitted as the high prices made it a better alternative. It’s still a great stock longer term. We’ll see how the next few weeks unfold. HOLD
Xcel Energy (XEL – yield 2.8%) – This alternative energy utility stock has had a similar spike as NEE amidst strength in utilities and alternative energy. It had been on a strong uptrend until things got ugly for utilities in February. But it appears that uptrend is resuming. I like the stock longer term and the recent wild swings are externally induced in a crazy market. And it is technically stronger than NEE in the near term. HOLD
| High Yield Tier | |||||||||||
| Security (Symbol) | Date Added | Price Added | Div Freq. | Indicated Annual Dividend | Yield On Cost | Price on close 3/22/22 | Total Return | Current Yield | CDI Opinion | Pos. Size | |
| CII | Blackrock Enhanced Cap & Inc. (CII) | 07-13-21 | 21 | Monthly | 1,12 | 5.6% | 21 | 3% | 5.8% | HOLD | 1 |
| EPD | Enterprise Product Partners (EPD) | 02-25-19 | 28 | Qtr. | 1.80 | 8.30% | 25 | 10% | 7.6% | BUY | 1 |
| GSL | Global Ship Lease. Inc. (GSL) | 01-12-22 | 23 | Qtr. | 1.50 | 6,41% | 29 | 25% | 3.5% | BUY | 1 |
| OKE | ONEOK Inc. (OKE) | 05-12-21 | 53 | Qtr. | 3.74 | 6.00% | 68 | 36% | 5.5% | BUY | 1 |
| O | Realty Income (O) | 11-11-20 | 62 | Monthly | 2.81 | 4.2% | 67 | 12% | 4.4% | HOLD | 1 |
| Current High Yield Tier Totals: | 6.2% | 20.8% | 5.3% | ||||||||
| Dividend Growth Tier | |||||||||||
| ABBV | AbbVie (ABBV) | 01-28-19 | 78 | Qtr. | 5.20 | 4.8% | 160 | 142% | 3.5% | HOLD | 2/3 |
| AVGO | Broadcom Inc. (AVGO) | 01-14-21 | 455 | Qtr. | 14.40 | 2.6% | 611 | 40% | 2.7% | HOLD | 1 |
| BIP | Brookfield Infrastucture Ptrs (BIP) | 03-26-19 | 41 | Qtr. | 2.04 | 3.6% | 64 | 95% | 3.4% | HOLD | 2/3 |
| CVX | Chevron Corporation (CVX) | 02-10-21 | 90 | Qtr. | 5.16 | 4.7% | 164 | 89% | 3.5% | HOLD | 1/2 |
| DFS | Discover Financial Services (DFS) | 02-09-22 | 125 | Qtr. | 2.00 | 1.6% | 115 | -6% | 1.7% | HOLD | 1 |
| LLY | Eli Lily and Company (LLY) | 08-12-20 | 152 | Qtr. | 3.40 | 1.3% | 285 | 92% | 1.4% | HOLD | 2/3 |
| INTC | Intel Corporation (INTC) | 03-09-22 | 48 | Qtr. | 1.46 | 3.1% | 48 | 2% | 3.1% | BUY | 1 |
| QCOM | Qualcomm (QCOM) | 11-26-19 | 85 | Qtr. | 2.60 | 1.5% | 158 | 97% | 1.7% | HOLD | 1/3 |
| USB | U.S. Bancorp (USB) | 12-09-20 | 45 | Qtr. | 1.68 | 3.2% | 57 | 29% | 3.2% | HOLD | 1 |
| VLO | Valero Energy Corp (VLO) | 06-26-19 | 84 | Qtr. | 3.92 | 5.7% | 94 | 28% | 4.2% | HOLD | 1/2 |
| V | Visa Inc. (V) | 12-08-21 | 209 | Qtr. | 1.50 | 0.7% | 218 | 5% | 0.70% | HOLD | 1 |
| Current Dividend Growth Tier Totals: | 3.0% | 40.3% | 2.6% | ||||||||
| Safe Income Tier | |||||||||||
| PGX | Invesco Preferred (PGX) | 04-01-14 | 14 | Monthly | 0.74 | 4.9% | 13 | 42% | 4.9% | HOLD | 1/2 |
| NEE | NextEra Energy (NEE) | 11-29-18 | 44 | Qtr. | 1.54 | 1.7% | 83 | 101% | 1.9% | HOLD | 1/2 |
| XEL | Xcel Energy (XEL) | 10-01-14 | 31 | Qtr. | 1.83 | 2.8% | 69 | 186% | 2.8% | HOLD | 2/3 |
| Current Safe Income Tier Totals: | 3.1% | 109.7% | 3.2% | ||||||||
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