For the second time since starting this blog in 2011, I will be suspending publication for a time. I will be away from my home office from February through the end of the Income Tax Filing season, April 17, 2019, and will not be able to post until I return, plus I probably won’t have time to do so anyway during this period. I will continue to monitor the markets and the stocks on my lists, and the website will remain online. I remain convinced that the strategy espoused by OPTIMUMSTOCKINVESTING.COM remains the correct strategy for the patient investor, particularly if retired or nearing retirement. My anticipated time frame for restarting weekly posting is May 2019, although this might slip to June or even later, depending upon events. For today, I will first present my normal weekly posting following, then in closing, I will reiterate what this website and the investing strategy espoused is, and what can be expected when I resume weekly posting.

First, regarding the market activity for the week just ended, stocks gained and lost in yet another see-saw week, ending up about where they began. The big news of the week was the partial government shut-down ended, for the moment at least, with what the gleeful press is proclaiming was a great victory for the Democrats and Speaker Pelosi, and a huge defeat for Trump and the hated (by the press) Republicans. As the prez frequently says, “we’ll see”. As far as the markets have been concerned, the shutdown had minimal effect, although that might have changed if it had continued.

Meanwhile, my dividend payers are continuing to pay, with upcoming ex-dividend dates as follows:

Enterprise Products Partners LP (EPD), 1/30/2019, yield 6.36%.

AGNC Investment (AGNC), 1/30/2019, yield 11.99%. AGNC pays monthly.

Plains All American Pipeline LP (PAA), 1/30/2019, yield 5.15%.

Omega Healthcare Investors (OHI), 1/30/2019, yield 6.84%. OHI will be added to my Tier 2 list upon my next update of my stock lists. The shares are actually a bit pricey just now, having risen from the mid-$20s to nearly $39 since the beginning of 2018. I will be watching for an entry opportunity at $35 or so.

Tanger Factory Outlet Centers (SKT), 1/30/2019, yield 6.22%. As the perception continues that all of Retail is doomed, along with REITs associated with Retail (by Amazon, of course), now is a good time to initiate a position in SKT.

STAG Industrial (STAG), 1/30/2019, yield 5.37%. STAG is also a monthly payer.

Alliant Energy (LNT), 1/30/2019, yield 3.23%. LNT is a solid utility, and popular, as indicated by the yield, disappointing for a utility. I look for at least 4% for utility stocks, considering the limited growth potential and the regulatory and other risks.

Kinder Morgan (KMI), 1/30/2019, yield 4.58%. KMI is slowly climbing back to dividend yield respectability, with the possibility that the stock price will recover along with the growth of the dividend. So far so good, as far as the plan being followed since the unfortunate dividend cut of a few years’ back, which was not confined to just this energy stock during the energy sector collapse that began in earnest in mid-2015.

Enerplus (ERF), 1/30/2019, yield 1.04%. Unfortunately, the recovery prospects for this one-time high yielding Canadian Trust are none too rosy, as the Canadian government at all levels seems determined to destroy this industry, and is succeeding. For what it’s worth, which isn’t much, ERF pays one cent Canadian monthly, which further reduces the minimal yield, due to exchange rates.

Hoegh LNG Partners LP (HMLP), 1/31/2019, yield 10.27%.

Realty Income (O), 1/31/2019, yield 4.21%. O is a well-known monthly payer.

Paychex (PAYX), 1/31/2019, yield 3.22%.

Pfizer (PFE), 1/31/2019, yield 3.52%.

Quite a few of my stocks will be reporting in the week ahead, as earnings season continues, picking up steam. They are listed following, by the announced reporting date.

01/29/2019

3M Co (MMM), Nucor (NUE), Pfizer (PFE), Verizon (VZ).

01/30/2019

AT&T (T), McDonalds (MCD), Novartis (NVS), AGNC Investment (AGNC), Mid America Apartment Properties (MAA).

01/31/2019

Altria (MO), Blackstone Group LP (BX), Eaton (ETN), Enterprise Products Partners LP (EPD), General Electric (GE), Hershey Co (HSY), Kimco Realty (KIM), Magellan Midstream Partners LP (MMP), NuStar Energy LP (NS), Royal Dutch Shell (RDS.B), United Parcel Service (UPS).

02/01/2019

Chevron (CVX), ExxonMobil (XOM), Merck (MRK).

So far, most firms have met or exceeded expectations, but have been somewhat cautious in their projections for the immediate future. Considering the various storm clouds ahead for the economy and investors, this is probably a wise strategy. Certainly in the markets, as in life generally, under-promising and over-delivering is much better received than the opposite condition.

Upgrades/downgrades coming out on my stocks during the week just ended were as follows:

Apollo Investment (AINV) was upgraded from Sell to Neutral at Citigroup.

Altria (MO) was downgraded from Equal Weight to UnderWeight at Morgan Stanley.

Prospect Capital (PSEC) was downgraded from Equal Weight to UnderWeight at Barclays.

Royal Dutch Shell (RDS.B) was downgraded from Equal Weight to UnderWeight at Morgan Stanley.

Walmart (WMT) was upgraded from Equal Weight to OverWeight at Morgan Stanley.

Pfizer (PFE) was downgraded from Buy to Neutral at UBS.

Merck (MRK) was downgraded from OutPerform to Market Perform at BMO Capital.

Johnson & Johnson (JNJ) was reiterated at Equal Weight at Barclays.

General Mills was initiated at Buy at Guggenheim.

JM Smucker (SJM) was initiated at Sell at Guggenheim.

Kellogg (K) was initiated at Neutral at Guggenheim.

Kraft Heinz (KHC) was initiated at Neutral at Guggenheim.

CenturyLink (CTL) was downgraded from Neutral to Sell at Guggenheim.

Nestle (NSRGY) was upgraded from Hold to Buy at Berenberg.

Southern Co (CO) was upgraded from Sell to Neutral at Citigroup.

Kimberly Clark (KMB) was upgraded from UnderWeight to Equal Weight at Morgan Stanley.

Procter & Gamble (PG) was upgraded from Sell to Hold at Berenberg.

Intel (INTC) was downgraded from Buy to Market Perform at Charter Equity, from Positive to Neutral at Susquehanna, and from Buy to Hold at Needham. Even though earnings results, released on Thursday, were over-all pretty good, and in line with projections, investors were expecting more, and that along with cautious guidance sent the shares down 7% after the report was released. INTC actually delivered what had been promised. Imagine what the selloff would have been if results had been worse than promised.

As for the next few months, when I will be watching but not posting, my expectation is that a recession won’t be imminent right away, but there is a high potential for some market turmoil ahead. As I noted last week, the market has regained much of the ground given up in December, but a continued advance is far from guaranteed, and we may re-test the December lows before this year is over. I will continue to watch and take advantage of opportunities, but mostly will be conserving cash, waiting for a major swoon to open up buy opportunities, as seen last December.

Now, as my parting shot, here is yet another recap of what my website and approach are all about:

So, what is WWW.OPTIMUMSTOCKINVESTING.COM all about?  Namely, to present a comprehensive approach to investing in stocks, with dividends as the foundation, complemented by occasional trades and speculations. A conservative approach to improving returns using options is also incorporated into the strategy. 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 over 120. Tier1 stocks are the safest, strongest firms, the least likely to cut their dividends or go bankrupt, and to experience precipitous declines. 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 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 acquisition 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. I advocate acquiring a position in a stock incrementally, averaging down with subsequent acquisitions, and limiting holdings in any one stock or sector to a pre-defined maximum. The key take-away I want viewers to gain from my presentation 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!

Regarding analyst ratings, my standard admonition on upgrades / downgrades and such, is that 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 useful. If you haven’t bought or sold by the time the ratings to do so are out, you are probably 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. Still, most ratings terms are more or less self-explanatory. But some 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 these non-committal ratings is to consider them equivalent to Neutral. All of these ratings, Hold, Neutral, Market Perform, Sector Perform, and Perform are basically no-calls – as if the analyst cannot come to a conclusion on what the prognosis really is for the stock. Regardless, 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 the stocks I follow. 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 useful information.     

The focus of my weekly postings, also shown on my Facebook Page, is to present new information regarding the stocks I follow, such as upcoming ex-dividend dates, earnings reports, analyst upgrades, downgrades, and reiterations of ratings, plus initiations and resumptions of coverage. I also highlight any other significant developments regarding the stocks on my lists, such as acquisitions or stock splits. I also share information of moves I have made, in line with my strategy.

So, until springtime brings my return, stay informed, stay cautious, but don’t be afraid to take advantage of opportunities when they are presented.

JT

I seem to have missed a week, as my plan to generate last week’s posting upon my return from a trip fell through, when I was late getting to the task. Since the week that had just ended was somewhat uneventful, I decided to skip it and wait another week to get caught up. 

The last two weeks saw the relief rally that started just after Christmas continuing strongly, with the major stock averages posting gains on all but two days of the ten trading days in the period. Most economic reports continue to point to a strong economy, and the Fed seems to have backtracked on plans to aggressively tighten the noose in 2019, with future moves dependent upon the data. The political stand-off over the partial government shutdown continues, with no end in sight, even as the situation seems to be escalating.

Stocks on my lists going ex-dividend last week and / or next week were / are as follows:

Mid America Apartment Communities (MAA), 1/14/2019, yield 3.84%.

Consolidated Communications Holdings (CNSL), 1/14/2019, yield 14.26%.

Freeport-McMoRan (FCX), 1/14/2019, yield 1.73%.

Horizon Technology Finance (HRZN), 1/16/2019, yield 10.24%. HRZN pays monthly.

Gladstone Investment (GAIN), 1/17/2019, yield 7.73%. GAIN also pays monthly.

Main Street Capital (MAIN), 1/17/2019, yield 6.36%. MAIN is another monthly payer.

Procter & Gamble (PG), 1/17/2019, yield 3.17%.

Colgate Palmolive (CL), 1/22/2019, yield 2.71%.

ONEOK (OKE), 1/22/2019, yield 5.56%.

Senior Housing Properties Trust (SNH), 1/25/2019, yield 12.07%.

Only one of my stocks reported earnings last week, Kinder Morgan (KMI), which reported generally positive results in line with expectations.

As for the week ahead, we are starting to get into earnings season for the fourth quarter of 2018, with a number of firms on my lists scheduled to report.

Johnson & Johnson (JNJ), 1/22/2019.

Kimberly Clark (KMB), 1/23/2019.

Procter & Gamble (PG), 1/23/2019.

Crown Castle International (CCI), 1/23/2019.

American Electric Power (AEP), 1/24/2019.

Freeport-McMoRan (FCX), 1/24/2019.

Intel (INTC), 1/24/2019.

Colgate Palmolive (CL), 1/25/2019.

NextEra Energy (NEE), 1/25/2019.

Analyst ratings upgrades / downgrades / Initiations / resumptions / reiterations (I think that covers it) that came out on stocks on my lists in the prior two weeks are as follows:

HCP Inc (HCP) was upgraded from Neutral to OutPerform at Baird.

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

Hi Crush Partners LP (HCLP) was downgraded from Buy to Hold at R F Lafferty. I speculated on HCLP with a small position, and “crushed” describes the results. This specialized MLP has seen a price decline from around $8 to (for a time) under $4 since November, when I bought, with the coup de grace delivered on January 7, as management announced the suspension of the dividend. I intend to hold, as the prospects for improvement are plausible, but I certainly will not be adding to the position.

Greif (GEF) was downgraded from OutPerform to Neutral at Baird.

Consolidated Communications Holdings (CNSL) was downgraded from OutPerform to Market Perform at Wells Fargo.

Frontier Communications (FTR) was downgraded from Market Perform to UnderPerform at Wells Fargo.

Paychex (PAYX) was initiated at Equal Weight at Barclays.

Phillip Morris (PM) was reiterated at OverWeight at Morgan Stanley.

Mid America Apartment Communities (MAA) was upgraded from Market Perform to OutPerform at Raymond James.

Paychex (PAYX) was upgraded from UnderPerform to Neutral at Bank of America.

Vodafone (VOD) was downgraded from OutPerform to UnderPerform at RBC Capital Markets.

Hi Crush Partners LP (HCLP) was downgraded from Buy to Neutral at B. Riley FBR.

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

Procter & Gamble (PG) was reiterated at Buy at Bank of America.

ONEOK (OKE) was upgraded from Neutral to OverWeight at JP Morgan.

Williams Companies (WMB) was upgraded from Market Perform to OutPerform at Bernstein.

ONEOK (OKE) was downgraded from OutPerform to Market Perform at Bernstein.

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

Nucor (NUE) was initiated at OutPerform at Cowen.

DieboldNixdorf (DBD) was downgraded from Buy to Neutral at Bank of America.

Colgate Palmolive (CL) was upgraded from Neutral to Buy at Goldman.

ENI S p A (E) was upgraded from Hold to Buy at Berenberg.

Freeport-McMoRan (FCX) was initiated at Neutral at Credit Suisse.

Park Hotels Resorts (PK) was upgraded from Sell to Neutral at Goldman.

Waste Management (WM) was upgraded from Neutral to Buy at UBS.

NuStar Energy LP (NS) was downgraded from Buy to Neutral at UBS.

Darden Restaurants (DRI) was upgraded from Neutral to Buy at Bank of America, and initiated at Buy at Buckingham Research.

Colgate Palmolive (CL) was initiated at OutPerform at Evercore ISI.

Procter & Gamble (PG) was initiated at OutPerform at Evercore ISI.

NuStar Energy LP (NS) was resumed at Neutral at Bank of America.

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

Intel (INTC) was reiterated at Buy at Citigroup.

ONEOK (OKE) was initiated at Strong Buy at Raymond James.

AGNC Investment (AGNC) was upgraded from Market Perform to OutPerform at Keefe Bruyette.

Annaly Capital Management (NLY) was upgraded from Market Perform to OutPerform at Keefe Bruyette.

Emerson Electric (EMR) was was upgraded from Sell to Neutral at Citigroup.

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

GlaxoSmithKline (GSK) was downgraded from OutPerform to Neutral at Exane BNP Paribas.

Crown Castle International (CCI) was downgraded from Buy to Neutral at Goldman.

Newmont Mining (NEM) was downgraded from Sector OutPerform to Neutral at CIBC, and upgraded to Buy at Canaccord Genuity.

Washington Prime Group (WPG) was downgraded from Neutral to Sell at SunTrust Robinson Humphrey.

Buckeye Partners LP (BPL) was upgraded from Equal Weight to OverWeight at Barclays.

Annaly Capital Management (NLY) was upgraded from Neutral to OverWeight at JP Morgan.

Williams Companies (WMB) was upgraded from Equal Weight to OverWeight at JP Morgan.

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

BlackRock Capital Investment (BKCC) was downgraded from Neutral to UnderWeight at JP Morgan.

Noble Corp PLC (NE) was downgraded from OverWeight to Equal Weight at Capital One.

Public Service Enterprise Group (PEG) was upgraded from Neutral to Buy at Mizuho.

Chevron (CVX) was upgraded from Neutral to Buy at UBS.

Alliant Energy (LNT) was initiated at Equal Weight at Barclays.

ENI S p A (E) was upgraded from UnderWeight to Neutral at JP Morgan.

Kimberly Clark (KMB) was upgraded from Neutral to OverWeight at JP Morgan.

Magellan Midstream Partners LP (MMP) was initiated at Hold at SunTrust Robinson Humphrey.

ONEOK (OKE) was initiated at Buy at SunTrust Robinson Humphrey.

The Holidays are over, and the analysts are back at work, issuing their recommendations. Remember, I recap these as being of interest, but not as actionable advice.

The wonderful buy opportunities we saw in December have mostly passed. I have regret that I did not buy more, but at least I had the grit to follow my strategy and buy and / or add to positions when the sky was very dark. Certainly if I had known the market was going to rebound in January like it has, I would have bought a lot more than I did. It is hard to do the opposite of what the “crowd” is doing, even when you know that is what you have to do. In the December trough, I added to positions in Royal Dutch Shell (RDS.B), Buckeye Partners LP (BPL), Covanta Holdings (CVA), Park Hotels (PK), Kraft Heinz (KHC), Blackstone Group (BX) and Amerigas Partners LP (APU). I wish I had bought twice as many shares in December as I actually bought, in each case, but heck, I thought the market was going lower, so I wanted to wait until that occurred to buy more, realizing that my rules forbid me from owning more than a predetermined maximum number of shares of any one firm. If indeed the market had continued to decline in January, having retained some “dry powder” (i.e. cash) would have been the best position to be in.

There are many storm clouds gathering, and I may yet get an opportunity to add to these and other positions at much lower prices before the year is over.

JT

Stocks continued their see-saw performance last week, with a positive day on New Year’s Eve, a flat day on January 2^nd, a big decline on January 3^rd, followed by an even bigger gain on January 4^th. Dominating the news is the continuing partial US Government shutdown over funding a border wall, with no resolution in sight. It’s too bad it can’t be settled by a duel between the President and one of his Democrat antagonists, the way founding fathers Alexander Hamilton and Aaron Burr did in 1804. We could sell tickets, or have it on pay-for-view, with proceeds going towards the National Debt. I would certainly pay to watch.

Stocks on my lists going ex-dividend in the week ahead are as follows:

General Mills (GIS), ex-dividend date 1/9/2019, yield 5.02%.

Mid America Apartment Communities (MAA), ex-dividend date 1/14/2019, yield 4.11%.

Consolidated Communications (CNSL), ex-dividend date 1/14/2019, yield 15.09%.

None of my stocks will be reporting earnings next week.

Upgrades / downgrades coming out last week on the stocks I track were as follows:

Emerson Electric (EMR) was downgraded from OutPerform to Sector Perform at RBC Capital.

Intel (INTC) was upgraded from Neutral to Buy at Bank of America.

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

American Electric Power (AEP) was downgraded to Neutral at Mizuho.

Emerson Electric (EMR) was upgraded from Neutral to OutPerform at Credit Suisse.

Plains All American Pipeline LP (PAA) was upgraded from Neutral to Buy at Goldman

Buckeye Partners LP (BPL) was downgraded from Neutral to Sell at Goldman.

Nestle S A (NSRGY) was upgraded from Neutral to Buy at UBS.

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

Johnson & Johnson (JNJ) was reiterated at Equal Weight at Morgan Stanley, and at Neutral at Citigroup.

Novartis (NVS) was downgraded from Neutral to UnderWeight at JP Morgan.

Now is the time of year that various pundits proffer their views on how the economy and the markets will fare in 2019. Certainly there is not a lot of optimism, as some convincing evidence has been presented to the effect that we are long overdue for a market correction, and numerous data points are reflective of an economy just before going into a slowdown. The Friday Jobs report for December certainly did not reflect the views of the doomsayers, as blow-out numbers were reported. No doubt there is more uncertainty than usual, or so it seems, but there is always a possibility that the economic slowdown will be deferred, for a while at least.

JT   

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. What better time to reiterate this information than at the start of a New Year? So, what is WWW.OPTIMUMSTOCKINVESTING.COM all about?  Namely, to present a comprehensive approach to investing in stocks, with dividends as the foundation, complemented by occasional trades and speculations. A conservative approach to improving returns using options is also incorporated into the strategy. 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 over 120. Tier1 stocks are the safest, strongest firms, the least likely to cut their dividends or go bankrupt, and to experience precipitous declines. 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 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 acquisition 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. I advocate acquiring a position in a stock incrementally, averaging down with subsequent acquisitions, and limiting holdings in any one stock or sector to a pre-defined maximum. The key take-away I want viewers to gain from my presentation 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!

The focus of my weekly postings, also shown on my Facebook Page, is to present new information regarding the stocks I follow, such as upcoming ex-dividend dates, earnings reports, analyst upgrades, downgrades, and reiterations of ratings, plus initiations and resumptions of coverage. I also highlight any other significant developments regarding the stocks on my lists, such as acquisitions or stock splits. I also share information of moves I have made, in line with my strategy.

Regarding analyst ratings, my standard admonition on upgrades / downgrades and such, is that 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 useful. If you haven’t bought or sold by the time the ratings to do so are out, you are probably 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. Still, most ratings terms are more or less self-explanatory. But some 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 these non-committal ratings is to consider them equivalent to Neutral. All of these ratings, Hold, Neutral, Market Perform, Sector Perform, and Perform are basically no-calls – as if the analyst cannot come to a conclusion on what the prognosis really is for the stock. Regardless, 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 the stocks I follow. 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 useful information.     

As promised, effective as of the start of the New Year, I have revamped my stock lists, and updated all information as of 12/28/2018. Following are the changes for Tier1 through Tier4. The buy / sell prices have been updated to reflect the reality of where the stock is currently trading, but even so, my bias is reflected. Note that the price levels are not absolute, but reflect a rough level where a transaction would seem to be advantageous, considering where the stock was trading on the snapshot date. Generally, energy stocks, especially MLPs, are on the bargain rack. Ditto for REITs, and also other high-yield, high-risk groups, such as BDCs, Mortgage REITs, and most telecoms. Other downtrodden sectors are precious metals miners, and most of all, the offshore drillers, which I am now giving up on and moving to Tier4. While “Big Pharma” is still raking in the cash, as Americans continue to take prescription meds probably much more than advisable, I have a long-term bias against the sector, and not just because of who they are and how they operate. I believe the “Big Pharma” business model will eventually become outdated, and a day of reckoning will arrive sometime in the next five years, as new natural and/or biologic approaches become available and replace chemical meds. When that happens, it couldn’t happen to a more deserving sector. But for now, my pharma stocks remain on my Tier1 and Tier2 lists, and the long term may be even further away than I’m guessing.  

Two major packaged food stocks have been moved from Tier1 to Tier2, General Mills (GIS) and Kellogg (K), both of which have suffered declines of more than 30% in the past two years. While neither dividend seems to be at risk in the near future, these firms are troubled, and a firm in distress is usually a dividend in distress. I put Walmart (WMT) back on Tier1, even though the yield is barely above 2%. In this case, the problem is outperformance, resulting in the stock price outrunning the dividend. That hasn’t improved, but I decided that WMT was too good of a stock to not be on my Tier1 list, as long as the yield remains above 2%.

As noted, GIS and K were added to Tier2 from Tier1. Spectra Energy Partners LP (SEP) has been acquired by Enbridge (ENB) a Canadian firm. ENB is not a partnership, but rather is a C-Corp, which is a positive these days, and has a yield of more than 7%. So, I have added ENB to Tier2, as a replacement for SEP. Spirit Realty Capital (SRC), a new addition to Tier2 last September, did a reverse 1:3 split effective 12/13/2018, and the prices shown for SRC reflect this change. The dividend rate of the new shares is three times the prior rate, so unlike most reverse splits, this one seems to be benign.

Based on the continuing collapse since my last update, I am moving General Electric (GE) from Tier3 to Tier4. I had considered GE as worth a speculation, and so kept it at Tier3, but with the dividend effectively eliminated, and the stock price collapsing into the single digits, I decided it did not really belong on Tier3, but rather should be on Tier4. I have some stocks on Tier3 as speculations on a rebound when an entire sector is down, and the declines are not due to mismanagement at the firm. GE did not fit this situation, as GE’s missteps are what led to the collapse. By contrast, the offshore drillers group were, at one time, substantial firms, with mostly decent balance sheets, and their precipitous decline was due to a collapse in oil prices, not to gross mismanagement. I had thought they would recover enough to be decent speculations, when they were available at 50% or more off of their pre-oil-crash prices. With the crude oil over-supply continuing, and a return of oil prices back down into the forties, it is time to throw in the towel on these firms, and move them to Tier4. Seadrill (SDRL) is long gone, as it encumbered itself with excessive debt to upgrade its fleet at just the wrong time, but Ensco (ESV), Noble Corp PLC (NE), and Transocean (RIG) continue to plod along, staying alive but not really recovering, and at this point it looks as bad for them as ever. I have added several new high-yielding firms to Tier3, as well: Covanta Holdings (CVA), Park Hotels (PK), NGL Energy Partners LP (NGL), Chimera Investment (CIM) and last, and apparently least, Hi-Crush Partners LP (HCLP). HCLP is a supplier of drilling sand to oil production firms, and looks like it was a mistake. It may end up on Tier4 soon if it doesn’t improve.

One other Tier3 change is Apollo Investment (AINV) did a reverse 1:5 split effective 12/3/2018. The dividend increased accordingly, so, similar to SRC, the split has not resulted in a dividend cut.

As noted, GE, ESV, NE, and RIG have all been demoted to Tier4.

Now, on to my regular weekly update.

Christmas week saw considerable volatility, with a huge drop on Christmas Eve, which was reversed and then some on the two days after Christmas, followed by a modest loss on the next trading session on Friday. As for the final trading day of 2018, on New Year’s Eve, stocks kept the year-end mini-rally going, closing up on all the major averages.  

Only two of the stocks on my lists will be going ex-dividend in the first week of the New Year, as follows:

Cisco Systems (CSCO), ex-dividend date 1/3/2019, yield 3.08%.

Universal Corp (UVV), ex-dividend date 1/4/2019, yield 5.49%.

None of my stocks will be reporting earnings in the week ahead.

Upgrades/downgrades noted on my stocks last week were minimal, as follows:

General Mills (GIS) was initiated at Buy at Standpoint Research.

Kraft Heinz (KHC) was initiated at Buy at Standpoint Research.

United Parcel Service (UPS) was initiated at Buy at Standpoint Research.

Pattern Energy Group (PEGI) was upgraded from UnderPerform to Neutral at Bank of America.

To wrap up this New Year’s posting, time to speculate on the year ahead. First of all, it is likely that the volatility seen in recent weeks will continue into 2019. There are many issues making markets nervous, and it doesn’t take much to generate a selloff, or at times, a rally. There is a general consensus that the world economy is slowing, and an expectation that the slowdown will eventually be reflected in US economic data. Of course, there is always the chance that a slowdown could degenerate into a full-blown recession, which some say is overdue anyway. But most impactful of all, the American political situation appears ready to explode, as a vengeful Democratic House takes over in Washington, and the Mueller investigation reaches a climax. The partisan warfare is likely going to surpass what we’ve seen already, which has been the worst since at least the Nixon/Watergate days, and it could easily surpass what happened then in the upcoming year. Unfortunately, what happens in Washington is probably the single most significant factor affecting the markets and the economy, and it usually affects both negatively when news breaks.

Hold onto your hat, and also your wallet, 2019 is here, and the Democrats are ascendant.

JT

Note that this will be my last posting for 2018.  I will be updating my stock lists and buy/sell prices at year-end, in time for my first 2019 posting. Based on the declines which have occurred in recent weeks, a number of my stocks will have recommended pricing reduced considerably from my last update, which was in September 2018.

Stocks declined last week four days out of five, with the market on track to post the worst December in many years. The carnage is somewhat reminiscent of the 2008-2009 financial crisis. Cash may not pay much, but at least it doesn’t lose value, at least in the short term. An exclamation point to a dismal week was provided by the stand-off in Washington, with a partial government shutdown effective at midnight Friday. No Santa Claus rally this year, for sure.

As for the stocks on my lists, there will be a few dividends coming early in the New Year, as per the following ex-dividend dates:

Main Street Capital (MAIN), ex-dividend date 12/28/2018, yield 7.06%. MAIN pays monthly.

Spirit Realty Capital (SRC), ex-dividend date 12/28/2018, yield 6.98%.

STAG Industrial (STAG), ex-dividend date 12/28/2018, yield 5.72%. STAG is also a monthly payer.

B&G Foods (BGS), ex-dividend date 12/28/2018, yield 6.32%.

Pattern Energy Group (PEGI), ex-dividend date 12/28/2018, yield 8.99%.

Nucor (NUE), ex-dividend date 12/28/2018, yield 3.06%.

Kimco Realty (KIM), ex-dividend date 12/31/2018, yield 7.59%.

Prospect Capital (PSEC), ex-dividend date 12/31/2018, yield 7.06%. PSEC pays monthly.

Realty Income (O), ex-dividend date 12/31/2018, yield 4.13%. O pays monthly as well.

None of my stocks will be reporting earnings in the remaining days of 2018.

Upgrades/downgrades on my stocks from the week just ended are as follows:

Emerson Electric (EMR) was downgraded from OverWeight to Equal Weight at Barclays.

Crestwood Equity Partners LP (CEQP) was upgraded to Buy at Goldman. CEQP is on my Tier4 list, as a consequence of reorgs and splits which generated big losses. As I have noted before, since all that activity has been completed, CEQP has been a decent investment. Of course, with energy in general and MLPs in particular being out of favor, now is probably a good time to buy in, or buy more, if one can forgive the past.

General Electric (GE) was reiterated at OverWeight at Barclays. When I think of GE, I am definitely not in a forgiving mood. About the only positive I can say is now would certainly be a better time to buy GE than at any time in the last 10 or so years. GE may or may not recover, but if not buying until now, at least you wouldn’t lose as much.

MFA Financial (MFA) was upgraded from Market Perform to OutPerform at JMP Securities.

Intel (INTC) was reiterated at Buy at MKM Partners.

Phillip Morris (PM) was downgraded from Neutral to UnderPerform at Credit Suisse.

Medical Properties Trust (MPW) was downgraded from Buy to Hold at Sun Trust.

Washington Prime Group (WPG) was downgraded from Neutral to Sell at Goldman. The current yield for the troubled REIT is over 20%. Chances of the payout staying at the current level are slim to none, no doubt.

Royal Dutch Shell (RDS.B) was initiated at OutPerform at Wells Fargo.

Darden Restaurants (DRI) was upgraded from Neutral to Buy at BTIG Research, and from Hold to Buy at Maxim Group.

Hershey Co (HSY) was upgraded from UnderPerform to Buy at Bank of America.

Hi Crush Partners LP (HCLP) was downgraded from Neutral to UnderWeight at Cantor Fitzgerald. HCLP has been crushed itself by the crude price decline, as well as the general market decline.

Wheaton Precious Metals (WPM) was downgraded from OutPerform to Neutral at Credit Suisse.

Tanger Factory Outlet Centers (SKT) was downgraded from Neutral to UnderWeight at JP Morgan.

Medical Properties Trust (MPW) was upgraded from Neutral to OverWeight at JP Morgan.

Washington Real Estate (WRE) was downgraded from Neutral to UnderWeight at JP Morgan.

General Electric (GE) was upgraded from Hold to Buy at Vertical Research.

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

Kinder Morgan (KMI) was upgraded from Hold to Buy at Jeffries.

Ensco (ESV) and Noble Corp PLC (NE) were both downgraded from Buy to Hold at Societe Generale.

Enerplus (ERF) was downgraded from OverWeight to Equal Weight at Capital One.

HCP Inc (HCP) was upgraded from Sector Weight to OverWeight at KeyBanc Capital Markets.

Magellan Midstream Partners LP (MMP) and Plains All American Pipeline LP (PAA) were both upgraded from Hold to Buy at Jeffries.

Greif (GEF) was downgraded from OutPerform to UnderPerform at BMO Capital Markets, and from OutPerform to Market Perform at Wells Fargo. 

Greif (GEF) was reiterated at OutPerform at Barclays, and at UnderWeight at KeyBanc.

Altria (MO) was downgraded from Neutral to Sell at Citigroup.

After a year of new market high after new market high, it all appears to be coming apart at year-end. While the economy remains strong, based on most data points, there is a general recognition that we are due for a downturn in the next year or two. Also, the state of our national politics contributes to the general sense of unease. I have been preparing for just this scenario, raising cash by selling over-extended positions, and refusing to pay up for popular stocks that were selling at a premium. Even so, I am affected by the decline in value of my holdings, and I certainly did not think it would fall so far so fast, or I would not have bought into some positions last fall that seemed like good values at the time, that have seriously declined since I entered. I was more ready than most investors for what is happening, because I was expecting this to happen, and still I am lamenting the situation and regretting that I wasn’t even more fearful than I apparently was. That just underscores that you might think you are ready for a downturn, but when it hits, you realize you are not as ready for it as you thought you were. At this point, my advice remains to conserve cash, be very cautious about committing capital, and be prepared for a long winter-it may be several years before we see a bull market again.

JT