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


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.


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.


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.   


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.