JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of August 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 08/21/2017

Posted Saturday 08/19/2017 07:30 PM

Stocks rebounded on Monday, as the world did not end in a nuclear holocaust, but then crashed again later in the week on the latest media-orchestrated Trump debacle, and yet another European terrorist incident. Many pundits continue to point to indications that a major pull-back could be at hand, and they may be right. But after so many false head-fakes ending with stocks roaring back higher than ever, don’t bet the farm on it. In fact, don’t bet the farm on any one thing, that’s the key to staying in the game. The longer you play this game, the more you realize two things; anything can happen, and no one knows anything, with any certainty at least.

As close to certain as you’re going to get are recurring dividends payments from blue chips, and a little less certain, but regular until they aren’t, payments from firms rated a bit less than blue chip quality. Here are the stocks on my lists going ex-dividend this week:

Pitney Bowes (PBI), 8/23/2017, yield 5.91%. PBI has paid regularly for a long time, but is definitely not in the blue chip category.

3M Co (MMM), 8/23/2017, yield 2.29%. MMM is as blue as it gets, which is why the stock price is over $200, and the yield barely above 2%.

Diebold Nixdorf (DBD), 8/23/2017, yield 2.03%. DBD is now on my Tier4 (no longer recommended) list, based on the reduced dividend and yield, and middling performance in recent quarters. A storied past does not mean much in the present, sorry to say.

Hershey Co (HSY), 8/23/2017, yield 2.43%.

NextEra (NEE), 8/23/2017, yield 2.64%. A highly-loved utility, NEE has a stock price to match. A better choice than the common may be NEE preferreds. NEE has several preferreds yielding close to 5% and available for just a bit more than par ($25), specifically G, H, I, and J. I may look further into this later. Just remember, if you pay more than par for a $25 preferred, you are guaranteed a capital loss if the preferred is called. But, if you can get it fairly close to par, one or two quarters of dividend payments will make it a guaranteed winner, even if called. The only real risk of a preferred is the stability of the issuing firm and the ability to make the payments. NEE scores high on that scale.  

Johnson & Johnson (JNJ), 8/25/2017, yield 2.53%. Another deep blue stock, but perhaps ever so slightly less blue than MMM, since any firm in the health care sector could be impacted by an adverse government action. Remember, the government funds about 90% of health care in this worker’s paradise.

A noted omission from several weeks back, as far as dividends scheduled, was NuStar Energy L P (NS), which went ex-dividend on 8/3/2017, currently yielding 11.43%. I have owned 100 shares of NS since 2011, and have received nearly $2500 in dividends to-date. I wrote an article on the company (available on Seeking Alpha) back in 2012, when it didn’t look good for the firm. My faith has been rewarded, and while the current energy bust has hurt the stock price in recent months, I still believe NS is a good long-term hold, and worthy of remaining on my Tier2 list.     

All three firms listed last week as being scheduled to report did so as scheduled. That would be Sysco (SYY), Cisco Systems (CSCO), and Wal-Mart Stores (WMT). For earnings details, see the firms’ press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. As I have noted before, Seeking Alpha often provides a transcript of the earnings conference call.

One firm on my lists reporting results recently that I missed was Nestle S A (NSRGY), which reported “first half” results on 7/27/2017. A transcript is available on Seeking Alpha. Foreign firms often do not report results on a regular schedule like US firms, and it is easy to miss their presentations.

Only two firms I track will be reporting this week, JM Smucker (SJM) on 8/24/2017, and Seadrill (SDRL), also on 8/24/2017. Note that SDRL has long been on my Tier4 list as a lost cause, and it certainly isn’t getting any better for SDRL. I speculated early on in the current energy bust on several offshore drillers, as their reduced share prices seemed worthy of a modest speculation. Unfortunately, I under-estimated the magnitude and the duration of the current oil bust, and of the four drillers I wagered on, SDRL is in the most precarious position, and looks like it will soon go bankrupt or close-enough to it that it may as well be bankrupt. I will continue to follow it as long as it exists. Continuing to track my Tier4 firms serves a purpose, to keep me grounded and cautious. Ben Graham warned of the risks of speculation, and at least I can say I knew what I was doing and was aware of the risks, which is why I went in small, thank goodness!

My weekly round-up of upgrades / downgrades of stocks on my lists is next:

Kimco Realty (KIM) was downgraded from OutPerform to In-Line at Evercore ISI Group.

STAG Industrial (STAG) was upgraded from Hold to OutPerform at Evercore ISI Group.

Tanger Factory Outlet Centers (SKT) was downgraded from OutPerform to In-Line at Evercore ISI Group.

Calumet Specialty Products Partners L P (CLMT) was upgraded from Neutral to Buy at Janney Capital. Note that CLMT is on my Tier4 list, having eliminated the dividend some time ago. The firm may well survive and resume payouts at a more modest pace, but when, I can’t say. I bought and sold CLMT several times in 2013, always at a small gain, and fortunately I avoided the drop from the $30’s to the $5’s, where it is currently. I will keep an eye on it, and may get back in if dividends resume.

Transocean LTD (RIG) was upgraded from UnderPerform to Neutral at BofA/Merrill. RIG looks to be the most likely survivor of my offshore driller speculations. It remains to be seen if surviving will lead to prospering once again.

Energy Transfer Partners L P (ETP) was reiterated at Buy at Citigroup. ETP is priced for a dividend cut, currently yielding over 11%. If it doesn’t happen, investors getting in now will do very well. I have to admit I’m tempted, but still on the fence at this point.

Plains All American Pipeline L P (PAA) was reiterated at Buy at Citigroup. PAA has long been on the “dividend at risk” list, also yielding over 11%. Same comment as ETP applies. I bought into PAA just under $30 in 2015, as it had dropped precipitously, expecting a quick bounce. It didn’t happen, but I was able exit a year later at $32 on a short-lived rally, and obviously it was a good escape, as right after that the descent to the present $19 began. That memory is one thing that makes me hold back on ETP, or for that matter any MLP just now.

Freeport McMoRan (FCX) was initiated at Market Perform at Raymond James. FCX is on my Tier4 list, having eliminated the dividend, but I do own it, and I’m not selling, as I believe it is worth keeping as a precious metals miner that will eventually rebound.

Wal-Mart Stores (WMT) was reiterated at Neutral at Citigroup.   

Transocean LTD (RIG) was reiterated at Hold at Jeffries.

Paychex (PAYX) was upgraded from UnderWeight to Equal Weight at Morgan Stanley.

Hershey Co (HSY) was upgraded from Market Perform to OutPerform at Bernstein.

Nucor (NUE) was downgraded from OverWeight to Sector Weight at KeyBanc.

Eaton (ETN) was downgraded from Neutral to UnderWeight at JP Morgan.

Wal-Mart Stores (WMT) was reiterated at UnderPerform at RBC Capital Markets.

Plains All American Pipeline L P (PAA) was reiterated at Market Perform at BMO Capital Markets.

Right now, even as I have my doubts as to whether the recent weakness is the start of “the big one” that has been expected for so long, actually since 2009, as the rally that began then was dis-believed from the start, I am remaining in cash at an all-time high percentage for me. There just isn’t much out there available at an attractive price, other than select energy MLPs, a few of which have been discussed above. If I thought the present environment was going to continue for years, I could see buying some nice-yielding preferreds and Closed End Funds (CEFs), just to get some income, as cash yields effectively nothing these days. But I actually believe there is a chance that “the big one” could be coming, and with it a chance once again to pick up some true blue chips at a reasonable price, in six months to a year or two. If the market continues down, I advise to go in cautiously, starting small, even if prices are lower than seen in years in some cases. If the decline is anything like 2008, or even 2001, even better prices will be coming, so keep some dry powder in case that happens.

I’m currently re-reading two classics by my favorite living author, Nassim Taleb, “The Black Swan” and “Fooled by Randomness”, along with current market and economic guru Jim Rickard’s latest, “The Road to Ruin”. These three texts will definitely simulate your thinking and introduce you to the concept of risk in ways you might not have thought of before. The key take-away is risk is there, whether recognized or not. What you must avoid is being at risk but not being aware of it, such as the well-fed, comfortable life-style, complacent turkey the day before Thanksgiving.  

JT

1st Posting for Week Beginning Monday 08/14/2017

Posted Sunday 08/13/2017 06:00 PM

Fear returned to the markets last week, as all of the major averages posted declines, with a major one-day sell off occurring on Thursday, as the geopolitical rhetoric really heated up. Pundits have been saying for some time now that a correction is overdue, as the market exhibits many characteristics of a “tired” bull that have in the past preceded dips. Most agree that a pullback would be “healthy”, as long as it didn’t get out of control. I, for one, would certainly like to see some better entry points on top quality names than are currently available. Just remember, I’ve been waiting and waiting, for years now it seems, for such opportunities.

At least, I haven’t had to wait on dividends, as they just keep on coming. Stocks on my lists going ex-dividend this week are listed below, with the ex-dividend date and the current yield indicated. Assume a quarterly payout unless otherwise indicated.

MicroSoft (MSFT), 8/15/2017, 2.18%.  

Chevron (CVX), 8/16/2017, 3.92%.  

Kraft Heinz (KHC), 8/16/2017, 2.91%.  

Horizon Technology Finance (HRZN), 8/16/2017, 11.35%. HRZN is a monthly payer. 

Duke Energy (DUK), 8/16/2017, 4.12%.  

Gladstone Investment (GAIN), 8/17/2017, 8.14%. GAIN pays monthly.

Pan American Silver (PAAS), 8/17/2017, 0.57%. PAAS is obviously not owned for the dividend, but rather a bet on silver prices. PAAS jumped up $2.00 Thursday even as the market dipped.

Southern Co (SO), 8/17/2017, 4.75%. SO has been under pressure for over a year now as high-profile expansion projects continue to experience delays and cost overruns, but the stock has held up and the dividend appears safe, at least for now. 

Main Street Capital (MAIN), 8/17/2017, 5.72%. MAIN also pays monthly.

In reviewing various sources for firms with upcoming ex-dividend dates, I determined that I missed a couple in my most recent postings. Even though it is obviously too late now to buy and get the dividend, in the interest of completeness, here they are; Norfolk Southern went ex-dividend 8/3/2017, yielding 2.11%, and Buckeye Partners L P (BPL) went ex-dividend 8/10/2017, yielding 8.64%.

All nine firms listed last week as being scheduled to report did so as scheduled. See last week’s posting for the firms that reported. For earnings details, see the firms’ press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. As I have noted before, Seeking Alpha often provides a transcript of the earnings conference call.

Earnings season is effectively over, but three stragglers on my lists will be reporting this week, Sysco (SYY) on 8/14/2017, Cisco Systems (CSCO) on 8/16/2017, and Wal-Mart Stores (WMT) on 8/17/2017.

Upgrades / downgrades coming out last week on stocks I follow are listed below. See last week’s posting for my usual cautionary stance on taking these opinions too seriously.

Eaton (ETN) was downgraded from OutPerform to In-Line at Evercore ISI.

Triangle Capital (TCAP) was downgraded from Buy to Neutral at Hilliard Lyons.

Hercules Capital (HTGC) was resumed at Market OutPerform at JMP Securities.

Transocean (RIG) was reiterated at UnderWeight at Barclays.

Plains All American Pipeline L P (PAA) was downgraded from Sector OutPerform to Sector Perform at Scotia Howard Weil, was reiterated at Hold at Stifel Nicolaus, and was downgraded from OutPerform to Neutral at Robert W Baird.

United Parcel Service (UPS) was upgraded from Neutral to Buy at Citigroup.

General Dynamics (GD) was initiated at UnderWeight at Morgan Stanley.

Frontier Communications (FTR) was reiterated at Sector Perform at RBC Capital Markets. That seems strangely favorable for a firm that just hammered shareholders with a 10:1 reverse split, until you realize that the sector is performing terribly for telecoms not named AT&T or Verizon.

Noble Corp PLC (NE) was downgraded from Buy to Hold at Societe Generale. The mystery here is how did NE ever rate a Buy previously?

Diebold Nixdorf (DBD) was downgraded from OverWeight to Neutral at JP Morgan.

Raytheon (RTN) was initiated at Equal Weight at Morgan Stanley.

Plains All American Pipeline L P (PAA) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

PennantPark Investment (PNNT) was upgraded from Neutral to OverWeight at JP Morgan.

Transocean (RIG) was upgraded from Sell to Neutral at Goldman.

Vodafone (VOD) was upgraded from Neutral to Buy at BofA/Merrill.

Unilever (UN, UL) was downgraded from Sector Perform to UnderPerform at RBC Capital Markets.

Monroe Capital (MRCC) was upgraded from Neutral to Buy at Ladenburg Thalmann.

Public Service Enterprise Group (PEG) was upgraded to Neutral at Goldman.

Wal-Mart Stores (WMT) was upgraded to OverWeight at Stephens & Co.

We are heading into the “dog days of summer”, with the only good thing about August I can appreciate is the NFL preseason begins, to end the long drought (from football). For me personally, I begin an annual “8 week break” from my employment with a national tax prep firm, which allows me more time than usual to focus on my blog and my stock lists, which are in great need of some pruning and reshuffling. I will be taking care of this in the remaining days of summer. I have too many stocks, and too many yielding so little that it isn’t worth it to track them. For these stocks, dropped because of valuation, I will drop them completely, as my point is there is no reason to continue to monitor them, not that they are poor performing companies. These stocks will just disappear from my lists, but may re-appear in the future if valuations come back down to earth. One stock that has treated holders very well, but may be past it’s “sell by” date is Altria (MO), as I agree with articles I have seen recently that posit the future with MO is unlikely to be rewarding as in the past. A dim view of tobacco stocks is not new thinking for me, actually, as I made clear in my 2012 Seeking Alpha article “Yield, Value, And Safety Limited with 'Consumer Indiscretionary' Stocks”. Other changes needed are several that I will give up on and move to Tier4. I will continue to track these for as long as they exist, and always there is a remote possibility they may turn things around and move up from Tier4. On a brighter note, there are some new additions that meet my criteria for at least Tier2 or Tier3, and I will also add some closed-end funds, a group  I have mostly avoided previously.

For now, until I get this rework done, pay more attention than usual to my buy-under prices, and it will be obvious which stocks to avoid because of valuation, even though the firms are mostly great companies doing very well. But with extended valuations and paltry dividends, they just are not attractive buys at this time.     

JT

1st Posting for Week Beginning Monday 08/07/2017

Posted Sunday 08/06/2017 05:00 PM

Occasionally, for the benefit of new readers, I preface my usual report with a quick recap of what the Facebook Page and my web site (www.optimumstockinvesting.com) are all about. Namely, to present a comprehensive approach to investing in stocks. I have an identified subset of stocks I follow, categorized into four lists, or tiers. I originally decreed that the number of stocks followed would be capped at 100, but currently the total is 130 plus. Tier1 stocks are the safest, strongest firms, the least likely to cut their dividends or go bankrupt. Tier1 yields are usually in the low single digits. Tier2 stocks are less safe, with risk factors that Tier1 stocks do not have, and while dividend cuts may occur, the firms are unlikely to go bankrupt, barring a severe economic downturn, or more likely, disastrous management decisions, such as an ill-advised acquisition. For example, MLPs are by definition in this category, as they have a built-in risk factor of an adverse change in the tax code. Tier3 stocks are either high-yield or high potential for capital gains, and can do very well if the economy remains strong and/or the fundamentals change for the better in their sector. Included here are BDCs, MREITs, rural telecoms, metals miners, and less substantial MLPs. Obviously, if hard times strike, these firms will cut or eliminate their dividends, and may go bankrupt. Tier4 stocks are the “walking dead”, stocks previously on the other lists, but now their dividends are absent or reduced, and bankruptcy is a real possibility. I have given up on these firms, but I will continue to track them as an exercise in masochism, as long as they continue to hang on. There is even a remote chance they may recover and get back to at least my Tier3 list. Also, occasionally a stock that is being acquired will move to Tier4, since it is no longer recommended, but will be followed for as long as it exists.  

My web site explains the approach I follow in detail, and contains a wealth of information and resources. My approach is based on the value investing approach outlined by Ben Graham in his classic works, updated a bit for the modern era, with just a hint of a trader’s mindset incorporated. The key take-away I want viewers to gain from the site is an understanding of the risks inherent in stocks, as well as the rewards, and the need for caution and diversification, and most of all, the realization that ANYTHING can happen, nothing is 100% safe or guaranteed!

My weekly update focuses mainly on news and events related to the stocks in the universe I track, to include upcoming ex-dividend dates, earnings reporting dates, analyst upgrades and downgrades, and any other noteworthy developments that might affect these stocks. 

Now, back to my regularly scheduled presentation.

Last week was mostly positive, with the headline Dow Industrials index again outperforming the other four indexes I track. (Note for English purists, the plural for stock index is indexes, not indices.) The Dow Industrials gained five days in a row, while the others gained overall on the week, but only slightly. See last week’s posting for details about the stock indexes I track. The week was punctuated by a better than expected monthly Jobs report on Friday, and it appears that the ongoing gnashing of teeth in Washington as well as internationally is being ignored by the market.

Stocks on my lists going ex-dividend this week are as follows:

Valero (VLO), ex-dividend date 8/7/2017, yield 4.09%.

Boardwalk Pipeline Partners L P (BWP), ex-dividend date 8/8/2017, yield 2.44%.

Amerigas Partners L P (APU), ex-dividend date 8/8/2017, yield 8.52%.

Entergy (ETR), ex-dividend date 8/8/2017, yield 4.53%.

American Electric Power (AEP), ex-dividend date 8/8/2017, yield 3.31%.

Statoil ASA (STO), ex-dividend date 8/8/2017, yield 4.03%.

Smucker JM Co (SJM), ex-dividend date 8/8/2017, yield 2.57%.

Wal-Mart Stores (WMT), ex-dividend date 8/9/2017, yield 2.52%.

Emerson Electric (EMR), ex-dividend date 8/9/2017, yield 3.16%.

Royal Dutch Shell (RDS.B), ex-dividend date 8/9/2017, yield 6.42%.

GlaxoSmithKline (GSK), ex-dividend date 8/9/2017, yield 4.84%.

Hercules Capital (HTGC), ex-dividend date 8/10/2017, yield 9.30%.

United Parcel Service (UPS), ex-dividend date 8/10/2017, yield 2.98%.

ExxonMobil (XOM), ex-dividend date 8/10/2017, yield 3.83%.

Spectra Energy Partners L P (SEP), ex-dividend date 8/11/2017, yield 8.24%.

Exelon (EXC), ex-dividend date 8/11/2017, yield 3.41%.

We are now past the hump of earnings season. Of 43 firms listed last week as being scheduled to report, 41 did so as scheduled. The two holdouts were TICC Capital (TICC), now scheduled for 8/8/2017, and Medical Properties Trust (MPW), now scheduled for 8/9/2017. See last week’s posting for the 41 firms that reported. For earnings details, see the firms’ press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. As I have noted before, Seeking Alpha often provides a transcript of the earnings conference call.

As for this week, we have a shorter list of firms I follow scheduled to report, tallied following by earnings reporting date.

8/07/2017

PennantPark Investment (PNNT) and Plains All American Pipeline L P (PAA).

8/08/2017

TICC Capital (TICC), Energy Transfer Partners L P (ETP), Energy Transfer Equity L P (ETE).

8/09/2017

Medical Properties Trust (MPW), National Health Investors (NHI), Pan America Silver (PAAS).

8/11/2017

Enerplus (ERF).

In other news, Windstream (WIN) moves to Tier4 as a consequence of eliminating its dividend entirely. While management probably had to do it, the only reason to hold the firm was the dividend, so with that gone, there is no reason to buy. Since there isn’t much capital to salvage, considering the stock price decline, holders might want to hold on, effectively a bet on survival and some share price recovery. It could happen, but not anytime soon.

Before I present my weekly tally of upgrades/downgrades, reiterations, and initiations / resumptions of coverage from the previous week on stocks I track, it is time to repeat my standard admonition on the topic. While I’m always interested to learn of analysts’ opinions of stocks I follow, they are to be taken with a grain (or sometimes 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 acted upon. 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, Perform, Market Perform, and 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 on my stocks.

Sometimes it is possible to view the complete analyst report, either via brokerage websites or online sleuthing, if a rating is of enough interest that one desires to determine what is behind the rating. The full ratings report can indicate the analysts’ thinking, which can be valuable information.     

Here are the ratings that came out last week on the stocks I track:

Altria (MO) was upgraded from UnderPerform to Sector Perform at RBC Capital Markets.

Altria (MO) was also reiterated at Buy at Stifel, and reiterated at Neutral at UBS.

Verizon (VZ) was reiterated at Sector Perform at RBC Capital Markets.

Coca Cola (KO) was reiterated at Market Perform at BMO Capital.

Boardwalk Pipeline Partners L P (BWP) was downgraded from OutPerform to Sector Perform at RBC Capital Markets.

Kellogg (K) was reiterated at Sector Perform at RBC Capital Markets.

SCANA (SCG) was upgraded from Equal Weight to OverWeight at Barclays.

Southern Co (SO) was upgraded from Hold to Buy at Deutsche Bank.

Crestwood Equity Partners L P (CEQP) was upgraded from Hold to Buy at Stifel.

Statoil (STO) was reiterated at Sector Perform at RBC Capital Markets.

Pfizer (PFE) was upgraded from Market Perform to OutPerform at BMO Capital.

Wal-Mart Stores (WMT) was initiated at OutPerform at Oppenheimer.

Pitney Bowes (PBI) was upgraded from Neutral to Buy at Sidoti, and downgraded from Hold to Sell at Cross Research.

Frontier Communications (FTR) was reiterated at Neutral at UBS. Frontier completed a 15:1 reverse split 7/10/2017, then later declared a $.60 quarterly dividend on the new shares, with an ex-dividend date 9/13/2017. At Friday’s closing price, the forward yield is over 15%. The question is, will there be quarterly payments after the first at the announced rate? FTR is a troubled firm, and has been so for a long time.

Triangle Capital (TCAP) was downgraded to Market Perform at Keefe Bruyette & Woods.

Eni S p A (E) was downgraded from OutPerform to Neutral at Credit Suisse.

Horizon Financial (HRZN) was downgraded from Market Perform to UnderPerform at Raymond James.

Frontier Communications (FTR) was downgraded from Neutral to UnderPerform at Hilliard Lyons.

Kellogg (K) was upgraded from Neutral to OverWeight at JP Morgan.

Windstream Holdings (WIN) was downgraded from Buy to UnderPerform at BofA/Merrill.

Kellogg (K) was reiterated at Market Perform at BMO Capital, and at Sector Perform at RBC Capital Markets.

Enterprise Products Partners L P (EPD) was reiterated at OverWeight at Barclays.

Hercules Capital (HTGC) was downgraded to UnderPerform at Raymond James.

Raytheon (RTN) was reiterated at Buy at Argus Research.

Another week, another round of new highs on the Dow Industrials, at least, while the broader market mostly just churns in place. The next bogeyman on the agenda of things that might spook the market is the upcoming need for Congress to authorize an increase in the debt ceiling. This is about the only time that anyone ever expresses any concerns about the mushrooming national debt. While the extension will almost certainly happen, what about the date, maybe not all that far away, when the Treasury is authorized to issue more debt, but there are no buyers? That’s when the real crunch will come, when practically overnight, the government will have to rein in spending to match income. At that point, nothing will be safe or guaranteed. It is not likely to happen soon, but it is definitely coming at some point, if nothing changes.

JT

1st Posting for Week Beginning Monday 07/31/2017

Posted Sunday 07/30/2017 06:00 PM

The Dow Industrials Index surged to new highs last week, as the widely-followed but narrowly-focused stock average was boosted by positive earnings reports from some big names. The other four more broadly-based indexes I follow, to get a picture of the overall market, did not fare nearly so well, barely holding on to the levels they were at when the week began, or even losing ground slightly. For reference, the five indexes I track and the number of stocks in each index is as follows:

Dow Jones Industrials (INDU), 30 stocks, the largest and most influential US firms.

New York Composite (NYA), all stocks trading on the NYSE, over 1900 stocks, including around 400 foreign stocks with American Depositary Receipts trading on the NYSE.

S&P 500 (SPX), let’s see, let me guess, is it 500 stocks? Yes! This index is considered by students of the market to be much more representative of the US stock market, at least the blue-chips, and consists of 500 of the largest companies trading on US exchanges. The stocks in the index represent an estimated 80% of the capitalization of all stocks trading.

Nasdaq Composite (COMPQ), about 3100 stocks, all stocks trading on the NASDAQ.

Russell 2000 (RUT), around 2000 stocks, consisting of the leading small-cap stocks.

There are numerous additional indexes one could follow, but if you keep up with these five, you will know how the US market is faring overall. 

My dividend payers are faring quite well, it seems, with another batch from the universe of stocks I track scheduled to go ex-dividend this week.

Williams Partners (WPZ), ex-dividend date 8/2/2017, yield 5.87%.

Eaton (ETN), ex-dividend date 8/2/2017, yield 3.06%.

Pfizer (PFE), ex-dividend date 8/2/2017, yield 3.88%.

Unilever (UL), ex-dividend date 8/2/2017, yield 2.58%.

Energy Transfer Partners L P (ETP), ex-dividend date 8/3/2017, yield 10.54%.

American Midstream Partners L P (AMID), ex-dividend date 8/3/2017, yield 12.68%.

Crestwood Equity Partners L P (CEQP), ex-dividend date 8/3/2017, yield 9.78%.

ONEOK (OKE), ex-dividend date 8/3/2017, yield 5.26%. With the disappearance of OKS, I have substituted OKE (which acquired OKS) into my Tier2 list, as OKE has an attractive dividend and decent fundamentals.

Martin Midstream Partners L P (MMLP), ex-dividend date 8/3/2017, yield 10.26%.

Energy Transfer Equity L P (ETE), ex-dividend date 8/3/2017, yield 6.36%.

HCP Inc (HCP), ex-dividend date 8/3/2017, yield 4.64%.

Intel (INTC), ex-dividend date 8/3/2017, yield 3.12%.

Archrock Partners L P (APLP), ex-dividend date 8/4/2017, yield 7.80%.

Welltower (HCN), ex-dividend date 8/4/2017, yield 4.78%.

Valero (VLO), ex-dividend date 8/7/2017, yield 4.14%.

We are now deeply into earnings season. All 38 of the firms listed last week as being scheduled to report did so, with no real surprises. See last week’s posting for the 38 firms. In addition to the firms listed last week, another stock on my lists also reported, ENI S p A (E), the Italian integrated oil company. For earnings details, see the firms’ press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. As I have noted before, Seeking Alpha often provides a transcript of the earnings conference call.

As for this week, we have an even longer list of firms I follow scheduled to report, tallied following by earnings reporting date.

7/31/2017

Boardwalk Pipeline Partners L P (BWP), Sanofi (SNY).

8/1/2017

Archrock Partners L P (APLP), Crestwood Equity Partners L P (CEQP), Eaton (ETN), Emerson Electric (EMR), HCP Inc (HCP), Pfizer (PFE), Horizon Technology Finance (HRZN), ONEOK (OKE), STAG Industrial (STAG), Tanger Factory Outlet Centers (SKT), Pitney Bowes (PBI).

8/2/2017

Ares Capital (ARCC), Entergy (ETR), Exelon (EXC), Magellan Midstream Partners L P (MMP), Southern Co (SO), Amerigas Partners L P (APU), Annaly Capital Management (NLY), BlackRock Investment (BKCC), CenturyLink (CTL), Legacy Reserves L P (LGCY), Spectra Energy Partners L P (SEP), Transocean (RIG), Triangle Capital (TCAP).

8/3/2017

Consolidated Communications Holdings (CNSL), Duke Energy (DUK), Enterprise Products Partners L P (EPD), Kellogg (K), Medical Properties Trust (MPW), MFA Financial (MFA), Senior Properties Housing Trust (MPW), SCANA (SCG), TICC Capital (TICC), Windstream Holdings (WIN), Alliant Energy (LNT), Hercules Capital (HTGC), Main Street Capital (MAIN), Noble Corp PLC (NE), Kraft Heinz (KHC).

8/4/2017

Apollo Investment (AINV), Buckeye Partners L P (BPL).

Here are the ratings that came out last week on the stocks I track:

HCP Inc (HCP) was downgraded from Buy to Neutral at Goldman.

NextEra Energy (NEE) was reinstated at Buy at Goldman.

General Electric (GE) was reiterated at Buy at Stifel.

Novartis (NVS) was upgraded from UnderWeight to OverWeight at Morgan Stanley.

Roche Holdings LTD (RHHBY) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

Freeport McMorAn (FCX) was reiterated at OutPerform at Cowen & Co.

Newmont Mining (NEM) was upgraded from Hold to Buy at Argus.

Kinder Morgan (KMI) was initiated at Neutral at Mizuho.

Coca Cola (KO) was reiterated at Buy at UBS.

Hershey (HSY) was reiterated at Sector Perform at RBC Capital Markets.

Pitnew Bowes (PBI) was initiated at Hold at Loop Capital.

ConocoPhillips (COP) was upgraded from Neutral to Buy at BofA/Merrill.

DrPepper Snapple (DPS) was reiterated at Neutral at UBS.

J M Smucker (SJM) was upgraded from Hold to Buy at Jeffries.

SCANA (SCG) was downgraded from Buy to Hold at Gabelli & Co, and from Buy to Sell at Guggenheim.

I have been looking at Closed-End Funds (CEFs) lately as an alternative to stocks for some of my funds, since all quality companies have been bid up to the sky, which causes yields to be at multi-year lows. The only choices for attractive yields from specific companies come packaged with outsized risks, it seems. CEFs may be a safer way to get an attractive yield. I will be adding some CEFs to my lists soon. I learned enough about CEFs in my research that I decided to write an article on the topic, which has now been published on Seeking Alpha. The article title is “Yield, Value, Safety: Available With Closed-End Funds?”, and can be selected from the heading “Published Articles” at my website, www.OptimumStockInvesting.com. While I have always disdained mutual funds and ETFs/ETNs in favor of individual stocks, which can be evaluated, my frustration with the present environment causes me to consider alternatives to individual stocks, and at this point, CEFs seem to me to be the best alternative available. If you are interested in learning more, I suggest you take a look at the article.

JT

1st Posting for Week Beginning Monday 07/24/2017

Posted Sunday 07/23/2017 06:00 PM

Stocks basically churned in place last week, with the venerable Dow Industrials index declining 4 days out of 5, but only by modest amounts, while the NASDAQ gained 4 days out of 5, by equally modest amounts. Earnings season is now in full swing, but seems to be having a minimal effect on the market thus far.

Dividends just keep on coming from my payers, thank goodness! Stocks on my lists scheduled to go ex-dividend this week are listed following, with the ex-dividend date and current yield shown. Assume frequency is quarterly unless otherwise indicated.

AGNC Investment (AGNC), 7/27/2017, 10.29%. The mortgage REIT pays monthly.

Enterprise Products Partners L P (EPD), 7/27/2017, 6.07%.

Magellan Midstream Partners L P (MMP), 7/27/2017, 5.08%.

Plains All American Pipeline L P (PAA), 7/27/2017, 8.31%.

Tanger Factory Outlet Centers (SKT), 7/27/2017, 5.06%.

STAG Industrial (STAG), 7/27/2017, 5.06%. STAG is a monthly payer.

Kinder Morgan (KMI), 7/27/2017, 2.43%. KMI excited the market this week when, during the earnings press conference, management indicated increasing the dividend will be a priority going forward. It will have to increase a lot to make up for the dividend cut shareholders endured a couple of years ago.

Alliant Energy (LNT), 7/27/2017, 3.07%.

Enerplus (ERF), 7/27/2017, 1.12%. My lament is, “oh, how can the one-time high-yielding Canadian Trust pacemaker yield so little these days”? The answer is, “it’s easy when you only pay out one cent Canadian monthly”.

Prospect Capital (PSEC), 7/27/2017, 12.18%. The BDC pays monthly. I must note that PSEC’s dividend is on the endangered list, in the opinion of some pundits.

ConAgra (CAG), 7/27/2017, 2.52%.

Blackstone Group L P (BX), 7/27/2017, 6.68%.

Realty Income (O), 7/28/2017, 4.43%. O pays monthly. The consensus seems to be that O is over-loved, and thus over-priced, in spite of (or because of) the firm’s sterling record, and that it must come back down eventually as it faces numerous headwinds going forward. Yet, all pundits seem to agree that the firm’s management is first-rate, and is doing the best that can be expected in the current environment.

Paychex (PAYX), 7/28/2017, 3.50%.

As noted in the opening remarks, we are now into earnings season. All 11 of the firms listed last week as being scheduled to report did so, with no real surprises. See last week’s posting for the 11 firms. For earnings details, see the firms’ press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. As I have noted before, Seeking Alpha often provides a transcript of the earnings conference call.

As for this week, we have an even longer list of firms I follow scheduled to report, tallied following by earnings reporting date.

7/24/2017

RPM International (RPM).

7/25/2017

3M Co (MMM), Freeport-McMoRan (FCX), Kimberly Clark (KMB), McDonalds (MCD), Newmont Mining (NEM), Potlatch (PCH), AT&T (T).

7/26/2017

Coca Cola (KO), General Dynamics (GD), Hershey Co (HSY), NextEra Energy (NEE), Norfolk Southern (NSC), Waste Management (WM), AGNC Investment (AGNC), Barrick Gold (ABX), Ensco (ESV), Kimco Realty (KIM), Mid America Apartment Communities (MAA), Realty Income (O).

7/27/2017

Altria Group (MO), American Electric Power (AEP), ConocoPhillips (COP), DrPepper Snapple (DPS), Procter & Gamble (PG), Raytheon (RTN), Royal Dutch Shell (RDS.B), United Parcel Service (UPS), Valero Energy (VLO), Verizon (VZ), Digital Realty (DLR), Intel (INTC).

7/28/2017

Exxon Mobil (XOM), Iron Mountain (IRM), NuStar Energy L P (NS), Public Service Enterprise Group (PEG), Ventas (VTR), Welltower (HCN).

It always seems strange to me that the REIT formerly known as Health Care REIT changed their name to Welltower, but kept the prior symbol HCN. I just don’t expect a firm’s name to be totally unrelated to the stock symbol, which is usually some form of abbreviation of the company name. Not that it matters.

Before I present my weekly tally of upgrades/downgrades, reiterations, and initiations/resumptions of coverage from the previous week on stocks I track, it is time to repeat my standard admonition on the topic. While I’m always interested to learn of analysts’ opinions of stocks I follow, they are to be taken with a grain (or sometimes 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 acted upon. 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. 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. Sometimes it is possible to view the complete analyst report, either via brokerage websites or online sleuthing, if a rating is of enough interest that one desires to determine what is behind the rating. The full ratings report can indicate the analysts’ thinking, which can be valuable information.    

Here are the ratings that came out last week on the stocks I track:

Realty Income (O) was initiated at Market Perform at FBR & Co.

Fifth Street Finance (FSC) was upgraded from Market Perform to Market OutPerform at JMP Securities.

Medical Properties Trust (MPW) was upgraded from Market Perform to Market OutPerform at JMP Securities.

General Electric (GE) was reinstated at Equal Weight at Morgan Stanley.

NuStar Energy L P (NS) was downgraded from OutPerform to Market Perform at Wells Fargo.

MicroSoft (MSFT) was reiterated at OutPerform at Credit Suisse.

Waste Management (WM) was reiterated at Buy at Stifel.

Fifth Street Finance (FSC) was upgraded from Hold to Buy at Deutsche Bank.

Realty Income (O) was initiated at Buy at Canaccord Genuity.

Hershey (HSY) was reiterated at Equal Weight at Morgan Stanley.

Magellan Midstream Partners L P (MMP) was downgraded to Equal Weight at Barclays, and upgraded to Buy at UBS.

Plains All American Pipeline (PAA) was upgraded to OverWeight at Barclays.

Mid America Apartment Communities (MAA) was reiterated at OverWeight at Barclays.

McDonalds (MCD) was reiterated at Buy at Nomura.

JM Smuckers (SJM) was downgraded to Equal Weight at Stephens & Co.

Johnson & Johnson (JNJ) was reinstated at OutPerform at Credit Suisse.

Pfizer was downgraded from OutPerform to Neutral at Credit Suisse.

Johnson & Johnson (JNJ) was downgraded from Neutral to Sell at BTIG Research, and from Neutral to UnderWeight at Atlantic Equities. It must be valuation perceived to be too high, as the company is performing magnificently, as usual.

MicroSoft (MSFT) was reiterated at OutPerform at BMO Capital Markets, and at Hold at Canaccord Genuity.

SCANA (SCG) was upgraded to Neutral at Goldman.

Upon review, I have noticed I inadvertently omitted my weekly ratings update for the previous two weeks. I kept track of the ratings, which I tabulate daily, I just forgot to list them. In the interest of completeness, I will list them now.

First, ratings updates for the week beginning July 10:

Intel (INTC) was downgraded from Hold to UnderPerform at Jeffries.

Magellan Midstream Partners L P (MMP) was downgraded to UnderPerform at Mizuho.

Plains All American Pipeline (PAA) was upgraded from Neutral to Buy at Mizuho.

Southern Co (SO) was upgraded from Neutral to OutPerform at Macquarie.

Enerplus (ERF) was initiated at OverWeight at Capital One.

Freeport-McMoRan (FCX) was downgraded from Hold to Sell at Berenberg.

Williams Partners (WPZ) was upgraded to Buy at Jeffries.

General Dynamics (GD) was initiated at Buy at Berenberg.

Energy Transfer Equity L P (ETE) was initiated at Buy at Maxim Group, and at Buy at Stifel Nicolaus.

PennantPark (PNNT) was initiated at Buy at Compass Point.

AT&T (T) was downgraded from Buy to Neutral at BofA/Merrill.

Wal-Mart Stores (WMT) was upgraded from Neutral to Conviction Buy at Goldman.

AT&T (T) and Verizon (VZ) were both reiterated at Equal Weight at Barclays.

Vodafone (VOD) was initiated at Add at Numis.

And finally, ratings updates for the week beginning July 3:

JM Smucker (SJM) was reiterated at Neutral at Credit Suisse.

GlaxoSmithKline (GSK) was downgraded from Buy to Neutral at Citigroup.

Novartis (NVS) was downgraded from Neutral to UnderPerform at Credit Suisse.

Chevron (CVX) was resumed at UnderPerform at RBC Capital Markets.

ExxonMobil (XOM) was resumed at OutPerform at RBC Capital Markets.

Diebold (DBD) was reiterated at Buy at Lake Street.

Noble Corp PLC (NE) was downgraded from Market Perform to UnderPerform at Bernstein.

Transocean (RIG) was downgraded from OutPerform to Market Perform at Bernstein.

Barrick Gold (ABX) was downgraded to Market Perform at BMO Capital.

ConocoPhillips (COP) was downgraded from OutPerform to Market Perform at Bernstein.

Mid America Apartment Communities (MAA) was downgraded from Buy to Neutral at UBS.

Norfolk Southern (NSC) was downgraded to Sector Perform at Scotiabank.

General Electric (GE) was reiterated at UnderWeight at JP Morgan.

SCANA (SCG) was reiterated at UnderPerform at Mizuho.

Roche Holdings LTD (RHHBY) was downgraded from Buy to Hold at Deutsche Bank.

There isn’t much more to say about the current state of affairs. Politics has dominated the news flow for effectively years now, and seems likely to continue to do so. The nation has festering problems that the previous administrations failed to address back when it would have been easier, though still far from easy, and sooner or later things will come to a head. The three biggest, in my opinion, are immigration and border/visa enforcement, the debt bomb facing all levels of government, and the threat to national security posed by a nuclear North Korea/Iran. After these comes the national health care fiasco, excessive regulations and governmental overreach, the need for income tax reform to address our job-killing tax code, and the recurring problems related to law enforcement. The police need public support, but there also in some cases needs to be reform of police department procedures and improved relations with the public.

When you look out over the landscape of the problems we face, it’s hard to get worked up about an earnings disappointment causing a sell off of a stock, or even a dividend cut. But I digress. The topic of this blog is how to generate income from a stock portfolio consisting of a subset of the stocks I follow, with the composition of the subset depending upon the risk tolerance of the investor. What I bring to the table is information regarding these stocks, as events occur or are scheduled, that I obtain from a weekly scan of various news sources and web sites, summarized in a regular weekly format, presented in a light-hearted manner, with occasionally some opinionated commentary. I realize no income from this blog, and I often wonder if anyone besides me is looking at it. Regardless, the exercise is worthwhile for me, because it forces me to keep up with the 100 + stocks in a way I probably would not do if not for the blog. So, for at least as long as I deem it necessary for my own purposes, JT’s weekly stock blog will continue.

JT

1st Posting for Week Beginning Monday 07/17/2017

Posted Sunday 07/16/2017 07:00 AM

Stocks advanced steadily all last week, with the Dow, the S&P 500, and the New York Composite all posting new highs, while the NASDAQ came very close to doing the same. As usual at the onset of earnings season, there are some predictions of a market decline triggered by disappointing earnings, but if recent experience is any guide, it won’t happen. Some earnings will be up and some will be down, but nothing towards the downside severe enough to trigger a major sell off is likely in the present environment of “managed earnings”.

One item that can’t be managed is dividends. As a shareholder, you either receive them or you don’t. Shareholders of the following firms on my lists will be receiving soon:

Main Street Capital (MAIN), ex-dividend date 7/18/2017, yield 5.75%. MAIN pays monthly.

Horizon Technology Finance (HRZN), ex-dividend date 7/18/2017, yield 10.75%. HRZN is also a monthly payer.

Gladstone Investment (GAIN), ex-dividend date 7/19/2017, yield 8.18%. GAIN is another monthly payer.

Procter & Gamble (PG), ex-dividend date 7/19/2017, yield 3.18%.

ConocoPhillips (COP), ex-dividend date 7/20/2017, yield 2.45%. COP cut its dividend for the first time in 25 years back in February 2016. While most if not all analysts concurred that it was necessary, it still is a reminder of the double-whammy a dividend cut delivers – a drop in income and also a drop in the stock price. COP was a $70 stock in 2014, and even after a modest recovery from the lows of early 2016, is still in the low $40s.

Senior Housing Properties Trust (SNH), ex-dividend date 7/20/2017, yield 7.83%.

Pepsico (PEP) reported last week as scheduled on 7/11/2017. For earnings details, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha.

As noted in my opening paragraph, another quarterly earnings season is here. For this first week, the following firms on my lists are scheduled to report, in order by reporting date:

Johnson & Johnson (JNJ), 7/18/2017.

Novartis (NVS), 7/18/2017.

Diebold (DBD), 7/19/2017.

Crown Castle (CCI), 7/19/2017.

Kinder Morgan (KMI). 7/19/2017.

Blackstone Group L P (BX), 7/20/2017.

Nucor (NUE), 7/20/2017.

Phillip Morris (PM), 7/20/2017.

MicroSoft (MSFT), 7/20/2017.

Colgate Palmolive (CL), 7/21/2017.

General Electric (GE), 7/21/2017.

There isn’t much to say about the market at this point. The status quo remains, stocks are generally over-priced, except for energy, which presents lower prices for good reason, the oil supply glut shows no signs of easing anytime soon. Earnings season is here once again, and while not likely to be great, it is not expected to be a disaster, either. Time to very selectively buy or sell as opportunities arise, but mostly just stand aside and be ready for whatever comes.

JT

1st Posting for Week Beginning Monday 07/10/2017

Posted Saturday 07/08/2017 05:00 PM

Stocks did not really go anywhere last week, with minimal action until Thursday, when a decline of some magnitude occurred, after which more than half of the loss was regained the next day. The purported reason for the dip was geopolitical concerns, while a better than expected monthly Jobs report on Friday was credited for the recovery.

Stocks on my lists going ex-dividend this week are as follows:

Mid America Apartment Communities (MAA), 7/12/2017, yield 3.43%.

Consolidated Communications Holdings (CNSL), 7/12/2017, yield 7.27%.

RPM International (RPM), 7/13/2017, yield 2.21%.

Colgate Palmolive (CL), 7/14/2017, yield 2.18%.

It is a pretty short list this week.

Also, note that Closed-End Fund (CEF) Kayne Anderson Energy Development (KED), on my Tier3 list, was missed last week. It went ex-dividend 7/6/2017, yielding 9.85%. CEFs are looking better all the time to me as yield plays. I am currently researching the sector, and will likely be adding several to my high-yield Tier3 group in the next few weeks. 

None of my stocks reported earnings last week. Only one firm is scheduled to report this week, Pepsico (PEP), on 7/11/2017.

Consolidated Communications (CNSL) seems to me to be the best telecom stock not named AT&T (T) or Verizon (VZ) to own. It has been a survivor. I note that it has recently acquired Fairpoint Communications (FRP). FRP was at one time a successful regional player, until the management made a disastrous acquisition of facilities from AT&T, which ended up leading to the bankruptcy of FRP. The entire episode was a case study of how an ill-conceived acquisition can sink a viable firm. FRP eventually emerged from bankruptcy and soldiered on, I suppose. I really lost interest after they went bankrupt. Analysts have not sounded any alarm bells over the FRP acquisition by CNSL, so I still recommend CNSL, which incidentally is now available at just over $20, after dropping from over $28 in late 2016.  

REITs are another sector that has some buyable names. The “Amazonation” of retail, especially malls, has led to panic selling of REITs deemed exposed to this negative force. But not all REITs affected are as vulnerable to this shift as the entire group. I am adding one of the firms I believe will be a survivor, Tanger Factory Outlet Centers (SKT), to my Tier2 list. SKT goes ex-dividend 7/27/2017, yields over 5%, and is priced in the mid-twenties currently, after being over $40 in mid-2016. I started a position last week, paying $25.90 per share for my initial purchase.

We are definitely into the summer doldrums. I don’t expect much to happen, barring some major geopolitical development, until 2nd Quarter earnings reports start to come out. In fact, it won’t be long, as we are now into the 3rd quarter. The 2nd quarter earnings season will be here soon. In another two or three weeks, we’ll have reports starting to come out.

JT

1st Posting for Week Beginning Monday 07/03/2017

Posted Saturday 07/01/2017 08:00 PM

Last week was a real see-saw, up, down, up, down, ending the week slightly lower overall for the week on most of the major averages. The NASDAQ was an exception to the see-saw, declining four days out of five, ending down by over 100 points, as technology stocks continued to sell off. Crude oil managed a modest rebound from the lows of the prior week, yet WTI remains under $50. (WTI = West Texas Intermediate)

Stocks on my lists going ex-dividend this holiday week are as follows:

Kimco Realty (KIM), 07/03/2017, yield 5.76%.

Cisco Systems (CSCO), 07/05/2017, yield 3.69%.

Sysco (SYY), 07/05/2017, yield 2.65%.

General Dynamics (GD), 07/05/2017, yield 1.71%.

Darden Restaurants (DRI), 07/06/2017, yield 2.75%.

General Mills (GIS), 07/06/2017, yield 3.57%.

AT&T (T), 07/06/2017, yield 5.21%.

Verizon (VZ), 07/06/2017, yield 5.20%.

Universal (UVV), 07/06/2017, yield 3.39%.

Four stocks on my list expected to report last week did so as scheduled, Darden Restaurants (DRI), General Mills (GIS), Paychex (PAYX), and ConAgra (CAG). For earnings details, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha.

 As for the week ahead, none of the firms I track are scheduled to report.

 Ratings updates from last week on the stocks I follow were as follows:

Duke Energy (DUK) was upgraded from Neutral to Buy at Goldman.

American Electric Power (AEP) was downgraded from Buy to Neutral at Goldman.

Kimco Realty (KIM) was reiterated at OverWeight at Barclays.

McDonalds (MCD) was reiterated at OutPerform at Wells Fargo.

Potlatch (PCH) was downgraded from OutPerform to Market Perform at Raymond James.

Kinder Morgan Inc (KMI) was reiterated at Sector Perform at RBC Capital Markets.

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

General Electric (GE) was upgraded from Sell to Hold at Standpoint Research.

McDonalds (MCD) was reiterated at Buy at Stifel.

General Mills (GIS) was reiterated at Sector Perform at RBC Capital Markets, and at Hold at Stifel.

CenturyLink (CTL) was reiterated at UnderWeight at Barclays.

Barrick Gold (ABX) was upgraded from Sell to Hold at Berenberg.

The Fourth of July week is usually a slow week for the stock market, and the week ahead looks like it will fit that pattern. I’m in the mood to ignore Trump and his detractors, hear some good Sousa marching band music, have a few brews, and see some fireworks. I haven’t shot off any firecrackers myself since they banned Cherry Bombs, TNTs, and the most powerful (then) legal firecracker, M-80s. They were the fun ones. Typical of government regulations – with their safety fuses, they were the safest fireworks, much less likely to explode pre-maturely, like the “Black Cats” and other Chinese firecrackers. Of course, any firecracker is unsafe if proper procedures are not followed.

You may ask, what does that have to do with stocks? Absolutely nothing! Just another rant from me on how things have changed, and not for the better. But anyway, this week is a good time to take a week off from obsessing about the over-valued stock market – valuations will come down in good time, my friends, of that I’m confident, even though I can’t say when.

JT  

1st Posting for Week Beginning Monday 06/26/2017

Posted Sunday 06/25/2017 05:00 PM

Stocks posted a nice gain on Monday last week, then gave it back over the remainder of the week, as far as most of the major indexes were concerned. The NASDAQ was an exception. It declined along with everything else Tuesday, but then posted gains the rest of the week, to close above where it had been the week before. As usual, the news flow was dominated by politics, with two special elections occurring to fill House seats vacated by Trump appointees. Unless you have been away, perhaps to Mars, you know the results. It does appear that cooler heads may be coming to the fore on the Dems side, but there probably aren’t enough of them to wrest control of the party from the “far left”, which remains in charge of the party.  It’s not the party of FDR or JFK anymore, but some have not figured that out yet, it seems.

The tally of stocks I follow going ex-dividend this week is longer than last week’s list, but not by a lot. I extended my look-ahead to July 5, so readers will have more time to make any purchases before the ex-dividend date. Remember, just because a stock is going ex-dividend soon is not a reason to buy, but if it is a stock you have been following for a while, and you know you want in, and the price is reasonable (a big if these days), getting in just before the ex-dividend date is a sweetener, because you will start getting paid right away. Assume payouts occur quarterly unless otherwise indicated.   

Enerplus (ERF), 06/27/2017, yield 1.12%. ERF pays its miserly stipend monthly. Unless you are a true believer in a rebound of the Canadian oil & gas sector, there is no reason to buy ERF. It is on my Tier4 (not recommended) list.

MFA Financial (MFA), 06/27/2017, yield 9.39%. 

Main Street Capital (MAIN), 06/28/2017, yield 5.77%. MAIN is a monthly payer.

Stag Industrial (STAG), 06/28/2017, yield 5.12%. STAG also pays monthly.

Windstream Holdings (WIN), 06/28/2017, yield 14.93%. The market does not believe WIN can keep paying out at the current level, $.15 per share per quarter. Unless you believe otherwise, based upon facts others are overlooking, stay away. If you own it, you might as well hang on and see what happens, you will be lucky to get more than $4 per share if you sell now.

Prospect Capital (PSEC), 06/28/2017, yield 12.30%. PSEC pays monthly. PSEC is probably a better ultra-high yield bet than WIN, but not by much.

Annaly Capital Management (NLY), 06/28/2017, yield 9.64%.

Nucor (NUE), 06/28/2017, yield 2.66%.

Realty Income (O), 06/29/2017, yield 4.63%. Everybody’s favorite monthly dividend payer has been the subject of a lot of articles on Seeking Alpha lately. While the track record is amazing, I do believe O is overvalued a little right now (at $55), and way overvalued above $60. If you could get it closer to $50, say $52 or so, I would pull the trigger and make a buy.

Raytheon (RTN), 06/30/2017, yield 1.98%. Barring a breakout of world peace, the defense contractors are a safe bet, but don’t expect much in the way of yield, these stocks have been bid up to the moon (which perhaps RTN will be able to shoot down some day).

Kimco Realty (KIM), 07/03/2017, yield 6.05%. This REIT is at five-year lows, based on the Amazon-induced fear factor that “all brick & mortar retail” is doomed. No doubt, “brick & mortar retail” is challenged as never before, but it is not going away entirely. KIM is a buy under $20, and an even better buy under $18, where it closed Friday.

Cisco Systems (CSCO), 07/05/2017, yield 3.64%. CSCO isn’t cheap, but it is probably as good of a yield as you’re going to find in Tech, with any safety included.

Sysco (SYY), 07/05/2017, yield 2.50%. The “other cisco” has been a solid dividend stock for a long time, but based on today’s prices, yields, and outlook, I believe CSCO is a much better bet today. SYY is dependent to some degree on the restaurant sector, which someday is going to encounter hard times, just when I don’t know. It has been predicted for years, but so far, all have underestimated how much the American public will spend eating out, spending money they can’t afford on food they shouldn’t be eating.

General Dynamics (GD), 07/05/2017, yield 1.67%. Same comment as RTN above applies here as well.

None of my stocks reported earnings last week, but four are on tap to report this week, as follows:

Darden Restaurants (DRI) on 6/27/2017. DRI has defied gravity for so long it is practically a non-event when it happens. We’ll see if it continues.

General Mills (GIS) on 6/28/2017. The “Cheerios Kid” has been in a slump for a year now. Perhaps a turn-around will begin this week.

Paychex (PAYX) on 6/28/2017.

ConAgra (CAG) on 6/29/2017.

Here are the ratings that came out last week on the stocks I track:

Ensco PLC (ESV) was upgraded to OverWeight at Piper Jaffray.

Emerson Electric (EMR) was initiated at Market OutPerform at JMP Securities.

Eaton (ETN) was initiated at Market Perform at JMP Securities.

Nucor (NUE) was upgraded to Buy at Longbow.

Kimco (KIM) was upgraded from Sell to Neutral at Goldman.

Statoil (STO) was downgraded from Buy to Hold at Societe Generale.

Paychex (PAYX) was downgraded from Buy to Neutral at Goldman.

Roche Holdings LTD (RHHBY) was downgraded from OutPerform to Neutral at Exane BNP Paribas.

Ensco PLC (ESV) was downgraded from Neutral to Sell at Seaport Global Securities.

Noble Corp PLC (NE) was downgraded from Buy to Neutral at Seaport Global Securities.

ENI S p A (E) was downgraded from OutPerform to Neutral at Macquarie.

Chevron (CVX) was downgraded from OutPerform to Neutral at Macquarie.

Royal Dutch Shell (RDS.A, RDS.B) was downgraded from OutPerform to Neutral at Macquarie.

Intel (INTC) was downgraded from Buy to Neutral at BofA/Merrill.

Valero (VLO) was upgraded from Hold to Buy at Jeffries.

Magellan Midstream Partners L P (MMP) was initiated at Hold at Jeffries.

MicroSoft (MSFT) was initiated at Buy at Cleveland Research.

ConocoPhillips (COP) was resumed at Neutral at Goldman.

Spectra Energy Partners L P (SEP) was resumed at OverWeight at JP Morgan.

Last week I sold Welltower (HCN) and Ventas (VTR), two solid healthcare REITs, because of valuation. Thus far, it does not appear to have been a wise decision, as both advanced further since I sold. My rationale was I had a $10/share gain in each case, and both had recently paid a dividend. Plus, I had sold both in an earlier run-up, both had dropped precipitously after I sold, allowing me to get back in at a good price, and now both had returned to their prior peaks. It seemed like it was time to sell. Even though three days later it doesn’t look so smart, recall the trader’s saying, “it is better to get out several days early than one day late”. Of course, the saying is “days early”, not “weeks early”, or worse yet, “months or years early”. Think “Technology stocks in 1997”. Time will tell. Anyway, my cash position is at a five-year high, so I am ready if a dip comes along.

JT 

1st Posting for Week Beginning Monday 06/19/2017

Posted Sunday 06/18/2017 07:00 AM

Occasionally, for the benefit of new readers, I preface my usual report with a quick recap of what this Facebook Page and my related web site (www.optimumstockinvesting.com) are all about. Namely, to present a comprehensive approach to investing in stocks. I have an identified subset of stocks I follow, categorized into four lists, or tiers. I originally decreed that the number of stocks followed would be capped at 100, but currently the total is 134. Tier1 stocks are the safest, strongest firms, the least likely to cut their dividends or go bankrupt. Tier1 yields are usually in the low single digits. Tier2 stocks are less safe, with risk factors that Tier1 stocks do not have, and while dividend cuts may occur, the firms are unlikely to go bankrupt, barring a severe economic downturn, or more likely, disastrous management decisions, such as an ill-advised acquisition. For example, MLPs are by definition in this category, as they have a built-in risk factor of an adverse change in the tax code. Tier3 stocks are either high-yield or high potential for capital gains, and can do very well if the economy remains strong and/or the fundamentals change for the better in their sector. Included here are BDCs, MREITs, rural telecoms, metals miners, and less substantial MLPs. Obviously, if hard times strike, these firms will cut or eliminate their dividends, and may go bankrupt. Tier4 stocks are the “walking dead”, stocks previously on the other lists, but now their dividends are absent or reduced, and bankruptcy is a real possibility. I have given up on these firms, but I will continue to track them as an exercise in masochism, as long as they continue to hang on. There is even a remote chance they may recover and get back to at least my Tier3 list. Also, occasionally a stock that is being acquired will move to Tier4, since it is no longer recommended, but will be followed for as long as it exists.  

My web site explains the approach I follow in detail, and contains a wealth of information and resources. My approach is based on the value investing approach outlined by Ben Graham in his classic works, updated a bit for the modern era, with just a hint of a trader’s mindset incorporated. The key take-away I want viewers to gain from the site is an understanding of the risks inherent in stocks, as well as the rewards, and the need for caution and diversification, and most of all, the realization that ANYTHING can happen, nothing is 100% safe or guaranteed!

Now, back to my regularly scheduled presentation.

Stocks did not do much last week, except for Tuesday, when all of the major averages posted respectable gains. The blue chips gained overall on the week, while the tech-heavy NASDAQ lost ground overall, led by the so-called FANGs (Facebook, Amazon, Netflix, and Google). The economic data has been mediocre at best lately, with the usual pundits predicting the end of the Bull Run is nigh. And strange as it may seem, in that it is only an afterthought, let us not overlook the fact that the Fed increased the overnight lending rate by 25 basis points last week.

Only five stocks on my lists will be going ex-dividend this week:

Gladstone Investment (GAIN), 6/19/2017, yield 8.18%. GAIN pays monthly.

PennantPark Investment (PNNT), 6/19/2017, yield 9.51%.

Apollo Investment (AINV), 6/19/2017, yield 9.42%.

Solar Capital (SLRC), 6/20/2017, yield 7.34%.

Phillip Morris (PM), 6/21/2017, yield 3.45%.

None of my stocks reported earnings last week, and none are scheduled to report this week.

Before I present my weekly tally of upgrades/downgrades, reiterations, and initiations/resumptions of coverage from the previous week on stocks I track, it is time to repeat my standard admonition on the topic. While I’m always interested to learn of analysts’ opinions of stocks I follow, they are to be taken with a grain (or sometimes 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 acted upon. 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, Perform, Market Perform, and 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 on my stocks.

Sometimes it is possible to view the complete analyst report, either via brokerage websites or online sleuthing, if a rating is of enough interest that one desires to determine what is behind the rating. The full ratings report can indicate the analysts’ thinking, which can be valuable information.     

Here are the ratings that came out last week on the stocks I track:

Vodafone (VOD) was upgraded from Hold to Buy at Argus.

Crown Castle International (CCI) was downgraded from OutPerform to Market Perform at Raymond James.

Digital Realty (DLR) was upgraded to OutPerform at Cowen & Co.

Coca Cola (KO) was initiated at OutPerform at Daiwa Capital.

McDonalds (MCD) was reiterated at Buy at BofA/Merrill.

HCP Inc (HCP) was upgraded from UnderPerform to OutPerform at Raymond James.

Gladstone Investment (GAIN) was initiated at OutPerform at Wedbush.

Enterprise Products Partners L P (EPD) was upgraded from Equal Weight to OverWeight at Morgan Stanley.

Intel (INTC) was reinstated at UnderPerform at Raymond James.

Noble Corp PLC (NE) was downgraded from Buy to Neutral at Citigroup.

I’m happy to announce that my (roughly) annual rework of my stock lists has been completed. For definitions of my “tiers”, and more regarding these lists, see the “Stocks” selection at my website. Changes by list are as follows:

Tier1 (45 Stocks)

Hershey Co (HSY) is a new addition to Tier1.

Merck (MRK), GlaxoSmithKline (GSK), and Pfizer (PFE) were all moved from Tier1 to Tier2, reflecting my view that the “glory days” of “big pharma” are over. 

Tier2 (44 Stocks)

My new arrivals to this tier, Merck (MRK), GlaxoSmithKline (GSK), and Pfizer (PFE) are still solid firms, just not as solid as they used to be.

Valero (VLO) is a new entry on this list.  

Spectra Energy (SE) is gone, as it was acquired by Enbridge Energy (ENB), and has ceased to exist.

Tier3 (34 Stocks)

Fifth Street Finance (FSC) moves from Tier3 to Tier4, as the shrinking dividend is matched only by the shrinking share price. Ditto for Frontier Communications (FTR), which has fought the good fight for many years now, but has not been able to overcome the trends in the telecom industry working against the firm.

American Midstream Partners LP (AMID) is a new addition to Tier3. A 15% yield makes AMID a reasonable speculation.

Senior Housing Properties Trust (SNH) has improved its outlook recently, and with a 7% yield, as worth a wager, so is added to Tier3.

Pitney Bowes (PBI) is a classic example of a “buggy whip” business, but it can last a long time on the business it has, and is making progress on some new initiatives, all the while paying out a near 5% dividend. Another Tier3 add-on.

Monroe Capital (MRCC) is a BDC that has held up well for years now, while paying out a 9% yield. Another addition to Tier3.

Tier4 (11 Stocks)

Fifth Street Finance (FSC) and Frontier Communications (FTR) join Tier4 as fully-qualified “walking dead” stocks.

Reynolds American (RAI) is slated to disappear soon, being acquired by British American Tobacco (BAT). Since the price is basically frozen at the takeover level, it is no longer recommended, but will be tracked until it is gone.

Note that Breitburn Energy (BBEQ), though bankrupt, is still trading, so it remains for now.

Linn Energy LLC (LINEQ) has completed bankruptcy, and the common unit-holders received nothing. LINEQ is therefore consigned to the dustbin of failed enterprises, and is gone from the list. The new Linn Energy (LNGG) is a C-Corp, formed out of the remains of the failed partnership. It has yet to pay a dividend, and is not a candidate for any of my lists. 

Memorial Production Partners LP (MEMP) was acquired out of bankruptcy, with unit holders receiving a (very) modest holding in a new firm created out of the ruins, Amplify Energy (APFY). So MEMP is gone as well.

It might seem strange that my offshore drilling contractor speculations, Transocean LTD (RIG), Noble PLC (NE), and Ensco PLC (ESV) are still on Tier3, while Seadrill (SDRL) and all oil production MLPs have ended up on Tier4. The answer is, these three drillers are close to demotion, but I haven’t given up just yet. These firms have (or at least had) respectable balance sheets and may yet be able to ride out the storm if there is a recovery of any kind in 2017 and 2018. It certainly looks dim at the moment, but the eventual cure for low oil prices has always been low oil prices, in that demand will ramp up eventually in response. Pickup truck and SUV sales are hitting new records, and vehicle growth in China continues apace. The fat lady hasn’t sung yet for these three firms, in my opinion, although she may be warming up!

My “minimum yield required” guidelines remain: 3% for solid blue-chips, 4% for utilities, 5% for REITs, 4% for AT&T (T) or Verizon (VZ), 5% for all other telecoms, 6% for quality MLPs, 7% for less solid MLPs, 7% for BDCs, and 8% for Mortgage REITs. The effects of the Fed’s ZIRP policy, the energy collapse, the “nowhere else to go” valuations, and the “imminent collapse” valuations have skewed today’s yields somewhat in both directions from these guidelines. These guidelines are just that, guidelines, not hard rules. I also allow a small portion of my portfolio to be allocated to stocks with a minimal yield but high potential for gains, such as precious metals miners after the huge selloff a couple of years ago. Life goes on, even though it seems to be getting tougher and tougher for value-seeking dividend investors like myself. Undaunted, I plan to keep on keeping on. Stay tuned.

JT

1st Posting for Week Beginning Monday 06/12/2017

Posted Sunday 06/11/2017 11:00 AM

Stocks mostly just churned in place last week, with no triple-digit moves on the headline Dow Industrials index on any day. The tech-heavy NASDAQ average did post a rare triple-digit loss on Friday, as technology stocks swooned after the average posted a new high early in the session. One theory is that investors, upon the NASDAQ reaching a new peak, feared valuations were stretched, and decided to take profits and redeploy elsewhere. Of course, no one really knows why the selloff happened, but that explanation sounds good.

Stocks on my lists going ex-dividend this week are listed following:

Monroe Capital (MRCC), 6/13/2017, yield 9.08%.

Frontier Communications (FTR), 6/13/2017, yield 13.01%. How can a quarterly dividend of four cents generate a 13% yield, you may wonder – when the share price is $1.23, that’s how. FTR is an example of the pitfalls of buying into a declining business because of the high yield. No one, at least among stock buyers, can see any way that the picture for FTR will improve anytime soon.

Fifth Street Finance (FSC), 6/13/2017, 1.97%. Formerly a high-yield monthly payer, the BDC has fallen upon hard times as well. The yield cannot be propped up even with a $4 share price when the payout is only two cents a quarter,

Digital Realty (DLR), 6/13/2017, yield 3.19%. The yield is at a historical low for DLR, which like many attractive firms, is trading at or near its all-time high.

Washington Real Estate (WRE), 6/13/2017, yield 3.68%.

Iron Mountain (IRM), 6/13/2017, yield 6.58%. The paper-less office is more in the future than the present, and much of the paper generated contains confidential data, which must be disposed of by shredding, one of the services provided by IRM. Admittedly, IRM is in the “buggy whip” category, but it isn’t going away anytime soon. If only Enron had a contract with IRM back in 2001, some folks might ponder.

Coca Cola (KO), 6/13/2017, yield 3.28%.

Merck (MRK), 6/13/2017, yield 2.97%. My gut instinct is that the “glory days” of “big pharma” are over, and any drug stock yielding less than 4% is not worth the risk.

Altria (MO), 6/13/2017, yield 3.24%. Big Tobacco’s “glory days” are definitely over, and while MO has been a huge winner for investors these past few years, I don’t see that same result occurring for anyone buying in at today’s prices.

Medical Properties Trust (MPW), 6/13/2017, yield 7.25%. The hospital REIT has definitely been well-managed over the past few years. The uncertainty over the whole health care spectrum is weighing on the share price, but based on the history and the yield, MPW is worth taking a risk on, just don’t bet the farm on MPW, or any one stock.

Crown Castle (CCI), 6/14/2017, yield 3.76%.

TICC Capital (TICC), 6/14/2017, yield 10.93%. The BDC has recovered from lows hit in early 2016, and with this yield, it is worth a small wager if you are looking to add a high-yield BDC to your portfolio.

Main Street Capital (MAIN), 6/28/2017, yield 5.81%. MAIN pays a regular monthly dividend of $0.185/mo, and that generates the yield shown. MAIN, however, is a noted payer of “special, one-time, or extra” dividends, the most recent being a dividend of $0.275, with an ex-dividend date of 6/15/2017. MAIN is considered one of the strongest, safest BDCs, and has been a winner for several years now. Before buying in at today’s prices, however, note that the price you will pay is greatly extended, and MAIN is a BDC, which is to say, it is not Kimberly Clark (KMB), Procter & Gamble (PG), 3M Co (MMM), and so on, to name three “bluest of the blue chips”, if you get my drift.

Greif (GEF), 6/15/2017, yield 3.05%. GEF has been on a tear since reaching lows in early 2016, extending above $60 until just last week when an earnings miss knocked four dollars and change off the price. The containers and packaging firm is exposed to the world economy, which may be slowing down just now. I consider GEF ripe for further declines in the near-term, but a strong firm long term. If buying in soon, start small, and plan to average down.   

BlackRock Capital Investment (BKCC), 6/15/2017, yield 10.33%. This high-yielding BDC is available at the lowest prices seen in five years.

General Electric (GE), 6/15/2017, yield 3.48%. What more can be said – GE is doing well, and the yield is back up above 3%, where it was before the 2008-2009 financial crisis. GE below $28 is a low risk bet over the long term, in my view.

Horizon Technology Finance (HRZN), 6/16/2017, yield 11.17%. If you are into BDCs, own several, not just one or two. HRZN would be a good one to have in the mix. HRZN is a monthly payer.

Gladstone Investment (GAIN), 6/15/2017, yield 8.29%. Same comment as preceding for GAIN. GAIN is also a monthly payer. GAIN was a steal up until about the 2nd Quarter of 2016, when the stock price advanced from the $7.00-$7.50 range to above $9.00, where it is now.

PennantPark Investment (PNNT), 6/19/2017, yield 9.57%. Yep, you guessed it, another BDC. But wait, there’s more….

Apollo Investment (AINV), 6/19/2017, yield 9.36%. Yet another BDC. AINV kept paying even during the financial crisis, although it did reduce the payout. I have owned it off and on since 2007.

PNNT and AINV, as well as TICC, MAIN, GAIN and HRZN, are definitely candidates for acquisition as part of a strategy to acquire a “basket” of 6 to 10 BDCs for a portion (not to exceed 15%) of a portfolio allocated to “high-yield, higher-risk” securities. This assumes the remainder of the portfolio consists of lower risk holdings.

As for earnings, as already noted, Greif (GEF) reported on 6/7/2017 as scheduled, and the results were disappointing, adding to fears of a world-wide economic slowdown.

None of my stocks are scheduled to report this week.

A tally of upgrades/downgrades, reiterations, and initiations/resumptions of coverage from the previous week on stocks I track is presented following. For upgrades/downgrades, the previous rating is given, if available from my source.

Chevron (CVX) was upgraded from Hold to Buy at HSBC.

ExxonMobil (XOM) was upgraded to Sector OutPerform at Scotia Howard Weil.

United Parcel Service (UPS) was initiated at Neutral at Seaport Global Securities.

Consolidated Communications (CNSL) was upgraded from Sell to Neutral at Citigroup. I had owned CNSL for years, but I sold out in late 2016 at $26.75, as the valuation got ridiculous, in my opinion. As is typical, the valuation got even more ridiculous after that, reaching above $28 late in 2017. CNSL is back down to earth now, and I would consider starting a new position under $20, or only slightly above that level.

Iron Mountain (IRM) was downgraded from Hold to Sell at Deutsche Bank. A snapshot summary indicates the downgrade is based on valuation, with a $30 stock price forecast, after seeing the stock drop from above $40 in mid-2016, to under $33 currently. So typical of analyst upgrades/downgrades, it is all about the near-term price action, not the long-term value as an investment, including dividends. If IRM drops to $30, I’ll be buying, not selling.

ExxonMobil (XOM) was initiated at Long-Term Buy at Hilliard Lyons.

Coca Cola (KO) was downgraded to Market Perform at BMO Capital.

DrPepper Snapple (DPS) was upgraded to OutPerform at BMO Capital.

Pepsico (PEP) was downgraded to Market Perform at BMO Capital.

Legacy Reserves LP (LGCY) was downgraded from Hold to Sell at Stifel Nicolaus. LGCY was one of four upstream (i.e. oil production) energy MLPs I bought into at what seemed to be bargain prices when the oil price initially dropped in 2014 & 2015, the other three being Linn Energy LLC (LINE), Breitburn Energy Partners LP (BBEP), and Memorial Production Partners LP (MEMP), all of which have gone bankrupt. Fortunately, these were all acquired as part of a limited speculation on an oil price recovery that did not happen, at least not quickly enough nor extensive enough for these firms to avoid bankruptcy. The lesson here is just because these firms all weathered the financial crisis and related oil price drop in 2008-2009, did not foretell how they would fare in the 2014-2015 oil price drop. The latter drop, as we now know, was not a temporary situation. I knew this could happen, but determined the potential for major gains was worth the risk, which considering the prices I bought in at, was not all that high.

McDonalds (MCD) was reiterated at OutPerform at Credit Suisse.

Consolidated Communications (CNSL) was upgraded from OutPerform to Strong Buy at Raymond James.

Kimberly Clark (KMB) was initiated at Hold at Berenberg.

Medical Properties Trust (MPW) was reiterated at Buy at Jeffries.

I read a great article last week on value investing, and I forgot to mark it, and darn, I can’t find it. But I can share with the reader the essence of the article, which is this: do not become impatient or over-wrought about holding cash “earning nothing”, and give in to the frustration of nothing available to buy at a value price, and end up buying in at today’s mostly over-extended prices. Grantham’s commentary from last week’s posting notwithstanding, prices will come down at some point. The strongest, most solid, best managed firms in the world will produce mediocre results if purchased at ridiculously-extended prices. Observe where price has been over the last five years or so, and what the yield has been historically, and do not overpay. When the opportunity comes, you want to have cash available to take advantage of it. That is the challenge for the value investor in a market such as we have today.

JT

1st Posting for Week Beginning Monday 06/05/2017

Posted Sunday 06/04/2017 08:00 AM

Stocks posted a modest gain last week following the Memorial Day holiday, with the decline over the last two days of May bested by gains over the first two days of June. The monthly employment report on Friday laid an egg, with a disappointing count of jobs created, but the unemployment rate continued to decline, coming in at 4.3%, and the market did not exhibit much concern. The figures are bogus, of course, since huge numbers of unemployed and underemployed are not counted, per the government’s methodology. A confirmation of this can be seen in that historically, an unemployment rate at the current level has resulted in substantial wage inflation, which is totally absent just now.   

Stocks on my lists going ex-dividend this week are as follows:

Triangle Capital (TCAP), 6/5/2017, yield 9.94%.

Potlatch (PCH), 6/5/2017, yield 3.23%.

Newmont Mining (NEM), 6/5/2017, yield 0.51%. Some time ago NEM pegged the dividend to the gold price, and the dividend is pretty much negligible at current prices.

Waste Management (WM), 6/7/2017, yield 2.31%.

Kimberly Clark (KMB), 6/7/2017, yield 2.98%.

Vodafone (VOD), 6/7/2017, yield 4.98%. VOD pays semi-annually.

SCANA (SCG), 6/8/2017, yield 3.57%.

Public Service Enterprise Group (PEG), 6/7/2017, yield 3.78%.

Reynolds American (RAI), 6/8/2017, yield 3.03%. Note that RAI is being acquired by British American Tobacco (BTI), and by all accounts the deal is on track to close this year. I will continue to report on RAI as long as it exists, but it is no longer recommended.

DrPepperSnapple (DPS), 6/7/2017, yield 2.50%.

None of my stocks reported last week. Greif (GEF) is the only stock I track scheduled to report this week, on 6/7/2017.

A tally of upgrades/downgrades, reiterations, and initiations/resumptions of coverage from the previous week on stocks I track is presented following. For upgrades/downgrades, the previous rating is given, if available from my source.

Valero (VLO) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

Vodafone (VOD) was upgraded to Market Perform at Bernstein.

AT&T (T) was upgraded from Sell to Neutral at MoffettNathanson.

McDonalds (MCD) was reiterated at OutPerform at Telsey Advisory Group.

Vodafone (VOD) was downgraded from Accumulate to Reduce at Standpoint Research.

It was a very slow week for upgrades/downgrades last week.

An interesting article on MarketWatch by author Anora Mahmudova came out recently, wherein she reports on the latest thinking of noted asset manager Jeremy Grantham, as expressed in his most recent quarterly letter to investors. After a concise summary of “value investing”, as defined by Ben Graham in the classic “The Intelligent Investor”, the author notes that Grantham, in his remarks, believes that the metrics of value investing, such as price-to-earnings, price-to-book, and profit margin are no longer following previous rules, making it difficult to determine if stocks are cheap or expensive. If you can’t determine that, you cannot apply value investing principles. Most observers believe stocks are richly valued at present, myself included. A true value investor cannot find much to buy these days, if purchase is to be limited to stocks presenting good value. Grantham may have determined why that is the case, and why it is not likely to get better anytime soon.   

JT 

1st Posting for Week Beginning Tuesday 05/30/2017

Posted Monday 05/29/2017 07:00 AM

Complacency has returned, for another week at least. The Dow Industrials index did not get to triple digits on any day last week, and posted modest gains four days out of five. The index is now above where it was two weeks ago, before things got exciting last week. The political news is as depressing as ever, but the market seems to be handling it well, certainly better than I am.

Stocks on my lists going ex-dividend this week are as follows:

Kellogg (K), 5/30/2017, yield 2.86%.

Realty Income (O), 5/30/2017, yield 4.59%. O pays monthly.

Safety Insurance Group (SAFT), 5/30/2017, yield 4.18%.

Total S A (TOT), 5/31/2017, yield 2.86%.

Pepsico (PEP), 5/31/2017, yield 2.74%.

Gladstone Investment (GAIN), 6/01/2017, yield 8.35%. GAIN pays monthly.

CenturyLink (CTL), 6/01/2017, yield 8.66%.

Ensco (ESV), 6/01/2017, yield 0.59%. Paying $.01/mo, about the only purpose for ESV’s dividend is to keep the machinery working, just in case fortunes should change and a reasonable dividend can be paid once again.

McDonalds (MCD), 6/01/2017, yield 2.51%.

Ventas (VTR), 6/02/2017, yield 4.61%.

Triangle Capital (TCAP), 6/05/2017, yield 9.84%.

Potlatch (PCH), 6/05/2017, yield 3.33%.

None of my stocks reported last week, and none are scheduled to report this week.

A tally of upgrades/downgrades, reiterations, and initiations/resumptions of coverage from the previous week on stocks I track is presented following. For upgrades/downgrades, the previous rating is given, if available from my source.

Blackstone Group L P (BX) was upgraded from Neutral to Buy at Citigroup.

Plains All American Pipeline L P (PAA) was upgraded from Market Perform to OutPerform at Raymond James.

Nucor (NUE) was upgraded from Neutral to OutPerform at Credit Suisse.

Kraft Heinz (KHC) was initiated at Neutral at Piper Jaffray.

Kellogg (K) was initiated at OverWeight at Piper Jaffray.

Reynolds American (RAI) was initiated at Neutral at Piper Jaffray.

Altria (MO) was initiated at OverWeight at Piper Jaffray.

General Mills (GIS) was initiated at UnderWeight at Piper Jaffray.

GlaxoSmithKline (GSK) was upgraded from Hold to Buy at Berenberg.

Chevron (CVX) was downgraded from Neutral to UnderPerform at Exane BNP Paribas.

Alliant Energy (LNT) was initiated at Hold at Jeffries.

That’s it! Last week was a slow week for upgrades / downgrades.

Well, I wish I had some cutting edge market insights to share, but unfortunately, I don’t. Stocks continue to levitate, seemingly held up by some unseen, inexplicable force. A downturn is coming, but no one knows when, and it may be a long way off. Realty Income did not remain in the bargain bin for long. Immediately after I bought at $53, it bounced back up above $55. I regret being too cautious. I now wish I had bought more than I did. But I did find an interesting article on O on Seeking Alpha. The gist of the article is that O is priced for a higher pace of dividend growth than is likely to occur. The author concedes that O is well-run and has stable tenants, but that O will not see the favorable lease renewals that it has been able to achieve historically, as the top-flight tenants O typically has will have much more bargaining power amidst a retail depression than they have had historically. The author may well have a valid point. I like O under $53, and I like it even more under $50. I’ll hold what I bought, and wait until I can average down before buying more.

JT