JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of October 2017

Note: All previous month's posts are available in the archives, as noted above. 

All postings for the month are available here, sorted in descending order - i.e. most recent at the top.

1st Posting for Week Beginning Monday 10/16/2017

Posted Sunday 10/15/2017 12:00 PM

The opening comments from my last posting two weeks ago is applicable to the two week period just ended, re “It has been two weeks since my last post, but based on where all of the major stock averages are sitting, not much has changed. All are up modestly over the period, reflecting that stocks have gradually gained some ground, but not much. Another observation I have is that the venerable Dow Industrials average did not have a triple-digit move in either direction on any day of the two week period just ended. Considering that the average is now at [updated, 22872], and that a triple-digit move isn’t much of a move anyway these days, the take-away is that volatility has been minimal lately.”

One correction needed for the prior comments to apply completely to the most recent two week period is that there was one day during the prior two weeks that a triple-digit move in the Dow Industrials index occurred, 153 points to the upside on October 2nd.

Now, looking ahead just one week, which is my usual practice, here are the stocks on my lists going ex-dividend from tomorrow through the following Monday:

Horizon Technology Finance (HRZN), 10/18/2017, 10.54%. HRZN is a monthly payer.  

Main Street Capital (MAIN), 10/19/2017, 5.74%. MAIN is also a monthly payer.

Procter & Gamble (PG), 10/19/2017, 2.99%.

Gladstone Investment (GAIN), 10/19/2017, 7.98%. GAIN pays monthly.

Colgate Palmolive (CL), 10/20/2017, 2.13%.

Senior Housing Properties Trust (SNH), 10/20/2017, 7.97%.

Because of looking ahead two weeks instead of one, some late-announcing firms going ex-dividend in the prior two week period were missed in my previous posting. For completeness, even though it is of course too late to buy and get the dividend, here they are:

Kayne Anderson Energy Development (KED), 10/5/2017, 9.72%. KED is actually a Closed End Fund (CEF).

Raytheon (RTN), 10/11/2017, 1.69%.

ConocoPhillips (COP), 10/13/2017, 2.14%.

RPM International (RPM), 10/13/2017, 2.48%.

Earnings season is upon us once again. Although starting out slow, there will be the usual avalanche of earnings reports coming out in the next few weeks. Only three stocks I follow reported in the two week period just ended; Paychex (PAYX) on 10/3/2017, and Pepsico (PEP) and RPM International (RPM), both on 10/4/2017. All three reported satisfactory results, especially PEP, which continues to outperform.

Early reports from stocks I follow coming out next week are as follows:

Johnson & Johnson, 10/17/2017.

Crown Castle International (CCI), 10/18/2017.

Kinder Morgan Inc (KMI), 10/18/2017.

Nucor (NUE), 10/19/2017.

Phillip Morris (PM), 10/19/2017.

Verizon (VZ), 10/19/2017.

Although stocks haven’t moved much lately, with volatility at record lows, the same doesn’t hold true for the stock ratings firms, as a large number of new ratings have come out in the past two weeks on stocks I track. My usual admonition applies, which is:

While I’m always interested to learn of analysts’ opinions of stocks I follow, they are to be taken with a grain (or a whole shaker) of salt. That is, do not treat the ratings as actionable advice. For one thing, the ratings changes usually come far too late to be useful. If you haven’t bought or sold by the time the ratings to do so are out, you are way too late. Also, note that the ratings focus almost exclusively on the near-term expectation of the stock price movement, not the long-term value as an investment, with dividends considered. Another confusion factor is the fact that each firm has its own ratings terms and meanings, and sometimes different firms attach different nuances or meanings to the same term. I am also amused by the ratings that are effectively no rating, such as Neutral, Hold, Equal Weight, Sector Perform, Market Perform, or just plain old Perform. Perform? Yes the stock will Perform in some fashion, but such a rating is ridiculous – it means nothing at all. The best I can do with it is to consider it equivalent to Neutral. Still, most ratings terms are more or less self-explanatory. Hold, Neutral, Market Perform, Sector Perform are basically no-calls – it is as if the analyst cannot come to a conclusion on what the prognosis really is for the stock. Still, I always find it to be of interest when a firm indicates a view of a stock I am following, whatever the view. For upgrades/downgrades, I give the prior rating if available from my source. I formerly skipped reiterations, since these are not rating changes, but now I include them, as they represent a new evaluation result, even if the review did not result in an upgrade or downgrade. Thus, I now present all available new ratings.

Here are the latest ratings for my stocks that came out in the previous two weeks:

Nucor (NUE) was downgraded from Buy to Neutral at Longbow research.

Pepsico (PEP) was downgraded from Buy to Hold at Jeffries. This must be a valuation downgrade, as PEP is performing magnificently.

3M Co (MMM) was reiterated at Underweight at Morgan Stanley.

General Electric (GE) was reiterated at Underweight at Morgan Stanley.

Calumet Specialty Products Partners L P (CLMT) was reiterated at OutPerform at Wells Fargo. It may outperform, but it remains an MLP with zero distributions, which doesn’t appeal to me or anyone else.

Darden Restaurants (DRI) was reiterated at Buy at Citigroup. DRI continues to defy the odds in the hopelessly over-crowded “formula restaurant” category, but the question is, for how much longer?

Emerson Electric (EMR) was reiterated at Overweight at Morgan Stanley.

Eaton (ETN) was reiterated at Overweight at Morgan Stanley.

Welltower (HCN) was reiterated at Neutral at UBS.

HCP Inc (HCP) was downgraded to Sell at UBS.

Norfolk Southern (NSC) was reiterated at Underweight at Morgan Stanley.

Senior Living Properties Trust (SNH) was reiterated at Neutral at UBS.

Ventas (VTR) was reiterated at Neutral at UBS.

Hercules Capital (HTGC) was resumed at Buy at FBR & Co.

Darden Restaurants (DRI) was reiterated at Buy at Stifel Nicolaus.

McDonalds (MCD) was initiated at Hold at Stifel Nicolaus.

Southern Co (SO) was reiterated at Sell at Citigroup. This is a bit of a surprise. I sold a covered call against my SO shares this week, which is as far as I will go towards parting with SO, a long-time dividend stalwart.

Waste Management (WM) was downgraded from Buy to Hold at Stifel Nicolaus.

CenturyLink (CTL) was reiterated at UnderWeight at Barclays. CTL has been on the dividend cut watch list for years. With a yield currently at 10.61%, I’m holding on to my small position I’ve had since re-acquiring CTL in 2015, but in recognition of the risk, I’m not planning to add to my holding, even as the stock tests the $20 level (to the downside).

Digital Realty (DLR) was reiterated at OutPerform at RBC Capital Markets. At $120, DLR is sky-high, with the yield now just 3%. Definitely not a “Ben Graham” buy candidate.

Paychex (PAYX) was reiterated at UnderPerform at RBC Capital Markets.

MicroSoft (MSFT) was upgraded from Hold to Buy at Canaccord Genuity. MSFT is another stock where “the train has already left the station”, currently at a ten-year high of over $77.50, and a yield of barely 2%.

Pepsico (PEP) was reiterated at Sector Perform at RBC Capital Markets. I agree, there’s not much risk in the “junk food/soda/snacks” sector these days, unless and until there is a transformation of America’s notoriously bad eating habits.

Valero (VLO) was downgraded from OverWeight to Neutral at JP Morgan. This must be a valuation issue, as VLO has exploded to the upside since the end of September. Great if you own it, avoid it if you don’t, it has become too rich, like so many names these days.

Johnson & Johnson (JNJ) was upgraded from Market Perform to OutPerform at Wells Fargo.

Energy Transfer Partners L P (ETP) was reiterated at Buy at Citigroup.

3M Co (MMM) was reiterated at Buy at Citigroup.

ONEOK (OKE) was initiated at Neutral at Mizuho.

Frontier Communications (FTR) was reiterated at Hold at Deutsche Bank. After a 1 for 10 split, FTR has regained (for the moment) the share price it had back when it was Citizens Communications (CZN). That’s the good news. The bad news is the number of shares now held, if you bought it back then, plus the outlook for this “poster child” rural telecom, which remains dismal, going forward.

NuStar Energy L P (NS) was reiterated at Neutral at Citigroup. I’ve owned 100 shares of NS since 2011, and even though I’m currently “underwater” based on my cost vs the current share price, I’m somewhat placated by having received over $2500 in distributions since acquiring NS. Plus, management has stated that the current 11% yield is covered.

Wal-Mart Stores (WMT) was reiterated at UnderPerform at RBC Capital Markets, and at OutPerform at Telsey Advisory Group.

Colgate Palmolove (CL) was upgraded from Hold to Buy at SunTrust Robinson Humphrey.

Wal-Mart was reiterated at Hold at Stifel Nicolaus.

Exelon (EXC) was downgraded from Neutral to Sell at Goldman Sachs.

General Electric (GE) was reiterated at UnderWeight at JP Morgan. GE will be reporting on 10/20/2017 for the first time since Jeff Immelt stepped down as CEO. With the stock price sliding from $32 to $24 since the first of the year, GE holders definitely could use some good news, but they may not get any. Count me as one of those (currently not happy) holders.

Johnson & Johnson (JNJ) was upgraded from Hold to Buy at Jeffries.

National Health Investors (NHI) was initiated at Hold at SunTrust Robinson Humphrey.

American Electric Power (AEP) was reiterated at Neutral at JP Morgan.

Entergy (ETR) was reiterated at Neutral at JP Morgan.

United Parcel Service (UPS) was reiterated at Neutral at JP Morgan.

Merck (MRK) was reiterated at OutPerform at BMO Capital.

Transocean (RIG) was upgraded from Neutral to Buy at Citigroup.

Duke Energy (DUK) was reiterated at Neutral at JP Morgan.

Exelon (EXC) was reiterated at OverWeight at JP Morgan.

NextEra Energy (NEE) was reiterated at Neutral at JP Morgan.

Norfolk Southern (NSC) was reiterated at Neutral at JP Morgan.

Public Service Enterprise Group (PEG) was reiterated at OverWeight at JP Morgan.

Phillip Morris (PM) was reiterated at Hold at Stifel Nicolaus.

McDonalds (MCD) was reiterated at OutPerform at RBC Capital Markets.

Entergy (ETR) was upgraded from Neutral to Buy at Citigroup.

Darden Restaurants (DRI) was initiated at Neutral at Longbow Research.

Whew! As noted at the outset, there have been more ratings changes in the past two weeks than we’ve seen for awhile.

As for my parting comments, there isn’t much more to say beyond what I’ve been saying for what seems like years now. That is, to hold on to a significant percentage of “dry powder” for redeployment when the downturn finally comes, yet be reluctant to part with good stocks because of high valuations, since it may be a long time before they come back down. If this seems contradictory, that’s because a “middle of the road” approach is advisable in times like now. There are some bargains available, such as retail REITs, some energy stocks, and most recently, GE. In each case, one must ask, is this a value, is the selloff overdone, or is it a value trap, low now, but going lower, perhaps to oblivion? Make your decision and act accordingly on a case by case basis, but never overweight any particular position such that a wrong choice will do serious damage to your overall portfolio.

JT

1st Posting for Week Beginning Monday 10/02/2017

Posted Sunday 10/01/2017 08:00 PM

It has been two weeks since my last post, but based on where all of the major stock averages are sitting, not much has changed. All are up modestly over the period, reflecting that stocks have gradually gained some ground, but not much. Another observation I have is that the venerable Dow Industrials average did not have a triple-digit move in either direction on any day of the two week period just ended. Considering that the average is now at 22405, and that a triple-digit move isn’t much of a move anyway these days, the take-away is that volatility has been minimal lately. It was a good time to take a little time off.

Since that worked out so well, I’m going to try for an encore, Thus, I won’t be posting again for another two weeks, and my look-ahead for dividends and earnings will be for the next two weeks instead of just one.

So, looking ahead two weeks, here are the announced upcoming ex-dividend dates for the stocks on my lists, and current yields based on Friday’s closing prices:

Kimco Realty (KIM), 10/3/2017, 5.54%.

Cisco Systems (CSCO), 10/4/2017, 3.48%.

Sysco (SYY), 10/5/2017, 2.44%.

General Dynamics (GD), 10/5/2017, 1.64%. All the defense stocks have run up so far that, based on yields, they no longer qualify as dividend stocks. GD will likely be purged when I update my lists, which will happen eventually, but not soon.

Darden Restaurants (DRI), 10/6/2017, 3.19%.

General Mills (GIS), 10/6/2017, 3.75%.

Verizon (VZ), 10/6/2017, 4.78%.

Universal (UVV), 10/6/2017, 3.76%.

AT&T (T), 10/6/2017, 5.02%.

Mid America Apartment Communities (MAA), 10/12/2017, 3.28%.

Consolidated Communications (CNSL), 10/12/2017, 7.95%.

All three stocks I listed in my prior post as being expected to report did so as planned. General Mills (GIS) continues to lag expectations, as the stock languishes in the low $50’s. Darden Restaurants (DRI) continues its high-wire balancing act, meeting expectations once again, even though it is in the intensively competitive “formula” restaurant business. ConAgra (CAG), like GIS, in the packaged foods business, with a similarly declining stock price chart, beat estimates and maintained full-year guidance, lifting the stock modestly after the report.  

As for the next two weeks, again I have three firms I follow scheduled to report: Paychex (PAYX) on 10/3/2017, Pepsico (PEP) on 10/4/2017, and RPM International (RPM), also on 10/4/2017.

Upgrades / downgrades on my stocks for the prior two weeks were as follows:

SCANA (SCG) was downgraded from Buy to Hold at Williams Capital Group.

Kellogg (K) was downgraded from OverWeight to Neutral at Piper Jaffray.

Procter & Gamble (PG) was reiterated at Buy at BofA/Merrill.

Johnson & Johnson (JNJ) was downgraded from Neutral to Sell at Goldman.

3M Co (MMM) was downgraded from Neutral to UnderWeight at JP Morgan.

Pfizer was upgraded from Equal Weight to OverWeight at Morgan Stanley.

General Mills (GIS) was reiterated at Sector Perform at RBC Capital Markets.

Magellan Midstream Partners L P (MMP) was upgraded from Neutral to Buy at Citigroup.

Public Service Enterprise Group (PEG) was upgraded from Equal Weight to OverWeight at Morgan Stanley.

Ares Capital (ARCC) was initiated at OutPerform at Oppenheimer.

HCP Inc (HCP) was downgraded from Buy to Neutral at BofA/Merrill.

Public Service Enterprise Group (PEG) was upgraded from Equal Weight to OverWeight at Barclays.

Digital Realty (DLR) was initiated at Market Perform at William Blair.

Ventas (VTR) was initiated at Equal Weight at Capital One.  

Welltower (HCN) was initiated at Equal Weight at Capital One. 

Johnson & Johnson (JNJ) was initiated at Neutral at Citigroup.

KCAP Financial (KCAP) was initiated at Neutral at Ladenburg Thalmann.

Colgate Palmolive (CL) was upgraded from Equal Weight to OverWeight at Morgan Stanley.

Ensco (ESV), Noble Corp PLC (NE), and Transocean (RIG) were all upgraded from Neutral to Buy at UBS. These offshore drillers are certainly in buy territory if there is ever going to be a recovery for these firms. UBS evidently thinks it will happen.

Public Service Enterprise Group (PEG) was upgraded from Inline to Buy at Evercore ISI Group.

HCP Inc (HCP) was upgraded from UnderPerform to Inline at Evercore ISI Group.

Total S A (TOT) was downgraded from OutPerform to Sector Perform at RBC Capital Markets.

Kimco Realty (KIM) was upgraded from Neutral to OverWeight at JP Morgan.

Statoil (STO) was upgraded from UnderPerform to Neutral at Exane BNP Paribas.

Digital Realty (DLR) was resumed at Neutral at Citigroup.

Altria (MO) was upgraded to OutPerform at Cowen & Co.

Darden Restaurants (DRI) was upgraded from Neutral to OutPerform at Robert W Baird.

Darden Restaurants (DRI) was upgraded from Hold to Buy at Maxim Group.

Darden Restaurants (DRI) was reiterated at Neutral at Credit Suisse.

Darden Restaurants (DRI) was reiterated at Equal Weight at Morgan Stanley.

Darden Restaurants (DRI) was reiterated at Sector Perform at RBC Capital Markets.

Coca Cola (KO) was reiterated at Buy at HSBC Securities.

AT&T (T) was reiterated at Equal Weight at Morgan Stanley.

SCANA (SCG) was reiterated at Hold at Williams Capital Group.

Valero (VLO) was reiterated at OutPerform at Cowen & Co.

McDonalds (MCD) was upgraded from Neutral to Buy at Longbow.

Southern Co (SO) was upgraded from Sector Perform to OutPerform at RBC Capital Markets.

SCANA (SCG) was downgraded from Hold to Sell at Williams Capital Group. The analyst(s) at that firm have been all over the place on SCG in just the last two weeks, even as nothing has changed at SCG.

Raytheon (RTN) was upgraded from Hold to Buy at Deutsche Bank.

It sure seems like a lot of upgrade / downgrade action occurred for such a low-volatility two week period!  

The market certainly has proven the doom-sayers wrong, at least so far, even as stock prices continue to climb to (in the view of some) unsustainable levels. There are, of course, many ways to evaluate stock prices, but one of my favorites is dividend yield. Most firms have a set dividend policy, and one way to evaluate a firm with a long dividend history is by average (or median) yield, compared to the current yield. If the yield is substantially below where it has historically been, the stock is probably over-priced. Many fall into this category today. As I have noted previously, there are some bargains still available, but you can bet that they are bargains for a reason. And for firms that are NOT bargains, they are likely performing well, but one must consider, what is the return going to be if acquired at the current (high) price? Investing is never easy, but these days, it seems harder than ever. I’m holding cash and waiting for it to get easier!

JT

1st Posting for Week Beginning Monday 09/18/2017

Posted Sunday 09/17/2017 08:00 PM

Stocks resumed their climb after the minimal setback of a couple of weeks ago, as the Dow Industrials and the NASDAQ indexes both set new record highs. North Korea, hurricanes, $20 trillion national debt, whatever, nothing seems to discourage stock buyers. It will end someday, no doubt, but apparently not for a while yet.

In reviewing last week’s update, I realized that I had been off a whole week, reporting upcoming earnings and dividends for the week ahead based on a starting date of September 18, not September 11. At my age, I sometimes forget what year it is, or what month we’re in, but never what week is coming up! Further, I will be out of town next weekend, so this posting will look ahead two weeks instead of just one, as is my usual practice, and thus this will be my last posting for the month of September 2017. So with all that said, here are the ex-dividend dates on stocks I follow that I missed reporting last week, plus the known ex-dividend dates coming up for my stocks in the next two weeks.

Ventas (VTR), 9/11/2017, yield 4.50%.

Newmont Mining (NEM), 9/13/2017, yield 0.59%. 

Dr Pepper Snapple Group (DPS), 9/13/2017, yield 2.53%. 

Medical Properties Trust (MPW), 9/13/2017, yield 7.35%. 

Fifth Street Finance (FSC), 9/14/2017, yield 5.07%. 

Frontier Communications (FTR), 9/14/2017, yield 18.58%. 

Ares Capital (ARCC), 9/14/2017, yield 9.64%. 

Potlatch (PCH), 9/14/2017, yield 3.13%. 

TICC Capital (TICC), 9/14/2017, yield 12.07%. 

Coca Cola (KO), 9/14/2017, yield 3.21%. 

Iron Mountain (IRM), 9/14/2017, yield 5.62%.

Merck (MRK), 9/14/2017, yield 2.84%. 

Altria Group (MO), 9/14/2017, yield 4.24%. 

Greif Cl A (GEF), 9/15/2017, yield 2.96%. 

General Electric (GE), 9/14/2017, yield 4.00%. GE has declined over $7 since the first of this year, for no good reason that I have seen. When GE yields 4% or more, it is in buy territory, in my opinion.

That’s it for the dividends that should have been noted in last week’s post. Now, looking ahead two weeks, here are the payouts currently scheduled.

Eni S p A (E), 9/18/2017, yield 4.79%. E pays twice a year. Note that the yield is before Italy’s 28% withholding. Actual yield based on what you actually receive is about 3.50%. If held in a non-retirement account, the amount withheld is potentially eligible for the foreign tax credit on a US Tax Return. If held in an IRA, no tax credit is allowed.

Gladstone Investment (GAIN), 9/19/2017, yield 8.33%. GAIN pays monthly.

PennantPark Investment (PNNT), 9/19/2017, yield 9.49%.

Horizon Technology Finance (HRZN), 9/19/2017, yield 11.15%. HRZN pays monthly.

Apollo Investment (AINV), 9/20/2017, yield 9.98%.

Main Street Capital (MAIN), 9/20/2017, yield 5.70%. MAIN pays monthly.

Total S A (TOT), 9/21/2017, yield 5.02%. Note that the yield is before France’s 30% withholding. Actual yield based on what you actually receive is about 3.50%. Same situation as Eni, above.

Phillip Morris International (PM), 9/26/2017, yield 3.67%. A tobacco stock yielding less than 4% is a no go in my opinion.

MFA Financial (MFA), 9/27/2017, yield 9.21%.  

AGNC Investment (AGNC), 9/28/2017, yield 10.29%. AGNC is a monthly payer.

STAG Industrial (STAG), 9/28/2017, yield 5.01%. STAG pays monthly.

Prospect Capital (PSEC), 9/28/2017, yield 10.71%. PSEC is another monthly payer.

Annaly Capital (NLY), 9/28/2017, yield 9.80%.

Nucor (NUE), 9/28/2017, yield 2.80%.

Realty Income (O), 9/29/2017, yield 4.28%. O is the most famous monthly payer of all.  

As for earnings, none of my stocks reported last week. General Mills (GIS) is still scheduled to report 9/20/2017, as noted in last week’s post. As for the following week, Darden Restaurants (DRI) is scheduled to report on 9/26/2017, and ConAgra (CAG) on 9/28/2017.

It was another slow week for upgrades / downgrades, other than for the Macquarie Group.  Stocks on my lists receiving attention from analysts last week are noted following. As I frequently remind readers, these recommendations are presented for informational purposes only, and are not to be considered actionable advice.

ONEOK (OKE) was resumed at Neutral at JP Morgan.

Energy Transfer Equity L P (ETE) was reiterated at Buy at Jeffries.

Nucor (NUE) was downgraded from OverWeight to Equal Weight at Morgan Stanley, and upgraded from Neutral to Buy at Citigroup.

Southern Co (SO) was upgraded from Neutral to Buy at Guggenheim.

Colgate Palmolive (CL) was initiated at Neutral at Macquarie.

Coca Cola (KO) was initiated at Neutral at Macquarie.

Dr Pepper Snapple (DPS) was initiated at Neutral at Macquarie.

Pepsico (PEP) was initiated at OutPerform at Macquarie.

Procter & Gamble (PG) was initiated at OutPerform at Macquarie.

Kimberly Clark (KMB) was initiated at Neutral at Macquarie.

Freeport-McMoRan (FCX) was initiated at Sector OutPerform at CIBC.

Like many investors, I have a sense of impending doom about the markets, and the country as a whole. The latest weekly update from John Mauldin presenting the dire condition of local and state government pension funding is sobering reading indeed, especially if you are retired or approaching retirement from any governmental position. Of course, part of the problem is the many abusive practices that would never be allowed by a responsible pension sponsor, such as inflating the final benefit by counting overtime pay or bonuses in the formula. A “hard money” newsletter I subscribe to has presented the best summarization of the root problem I have ever read. I don’t have room to reproduce it completely, but I will try to do it justice by condensing it as follows:

“The larger problem is that we have been going socialistic for over a hundred years, and the result is an intractable problem caused by money and credit expansion, and the fact that it cannot be corrected or even slowed down without an economic depression that would likely end what’s left of the American experiment in representative democracy and limited government. That is because the social welfare system has created a huge population of criminals, addicts, crazies, governmental dependents, and people of low character that are sympathetic to the goals of the far left, and who would certainly support the end of the constitution and the rule of law in pursuit of their social goals.”

You can see it getting worse daily, as formerly outrageous behavior becomes increasingly tolerated and accepted by apologists of all stripes.   

It is hard to stay focused on the minutiae of earnings, dividends, economic releases, and market swings with the backdrop as described unfolding. If the free market disappears, none of these data points will much matter.

JT