JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of July 2016
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 07/25/2016
Posted Sunday 07/24/2016 05:30 PM
I am once again presenting a brief synopsis of what my Facebook page and website (www.optimumstockinvesting.com) are all about, before my usual market commentary. The purpose of my website is 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 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.
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 my creation 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 move much last week, with the end result being a slight gain overall. The news flow was dominated by the Republican Convention, and the upcoming week will probably be more of the same, with the Democrat Convention having a turn at center stage. Earnings season will get in gear this week, with many notables reporting, including 40 or so of the firms I follow. I expect “smoke and mirrors”, combined with deliberately established low expectations, will once again triumph over the oft-predicted earnings disappointment sell off, which never seems to occur.
Stocks on my lists going ex-dividend this week are as follows, presented by date, with annualized yield as of Friday’s close indicated:
Diebold (DBD), 4.43%.
Enterprise Products Partners LP (EPD), 5.44%.
American Capital Agency (AGNC), 12.25%. AGNC is a monthly payer.
Plains All-American Pipeline LP (PAA), 9.57%.
Stag Industrial (STAG), 5.60%. This REIT is a monthly payer.
Enerplus (ERF), 1.43%. This one-time high-yielding Canadian Trust, now a Corporation, has been hit hard by the drastic drop in oil prices. The three hardest hit sub groups in the energy stock universe have been Oil and Gas Production Partnerships, Offshore/Deep Water Contract Drillers, and Canadian Oil and Gas Producers, with ERF being in the latter group. ERF pays one cent CAN $ monthly, equivalent to approximately .007 US $.
Alliant Energy (LNT), 2.96%.
Prospect Capital (PSEC), 12.06%.
ConAgra Foods (CAG), 2.13%.
Noble Corp PLC (NE), 1.10%.
Magellan Midstream Partners LP (MMP), 4.51%.
Realty Income (O), 3.42%. O pays monthly. The yield is at an all-time low because of the extreme popularity of O, which has resulted in the shares being bid up to ridiculously high levels.
Kinder Morgan (KMI), 2.39%. Things are slowly improving for KMI, with the resiliency of the firm’s cash-generating assets proving the recovery thesis is plausible. KMI remains, however, a case study in the perils of over-promising and under-delivering on dividend projections.
Paychex (PAYX), 3.05%.
Blackstone Group LP (BX), 6.49%. BX is a BDC organized as a partnership, so the holders definitely pay a price in terms of risk and complexity, in order to receive the attractive yield.
Last week, eleven of my stocks were scheduled to report, and all did so as scheduled. See last week’s post for the firm names and earnings dates. For details on earnings, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha. In many cases a transcript of the earnings teleconference with analysts is available on Seeking Alpha.
As noted in my opening remarks, earnings season gets into high gear this week. Stocks on my lists scheduled to report this week are as follows, by date:
Kimberly Clark (KMB).
3M Co (MMM), Freeport McMoran (FCX), McDonalds (MCD), Potlatch (PCH), Reynolds American (RAI), Verizon (VZ).
Altria (MO), Coca Cola (KO), DrPepper Snapple (DPS), General Dynamics (GD), NextEra Energy (NEE), Norfolk Southern (NSC), Northrop Grumman (NOC), Southern Company (SO), American Capital Agency (AGNC), BlackRock Capital Investment (BKCC), Barrick Gold (ABX), Ensco (ESV), Kimco Realty (KIM), Martin Midstream Partners LP (MMLP), Mid-America Apartment Communities (MAA), Noble Corp PLC (NE), Realty Income (O), Washington Real Estate Trust (WRE). Note that ABX is a new Tier3 (High Risk) holding, a wager on a gold price recovery over the longer term, with a producer that has shown it can survive until then.
American Electric Power (AEP), Colgate Palmolive (CL), ConocoPhillips (COP), Diebold (DBD), Enterprise Products Partners LP (EPD), Raytheon (RTN), RPM International (RPM), SCANA (SCG), Digital Realty (DLR), Chevron (CVX), Exxon Mobil (XOM), Merck (MRK), Public Service Enterprise Group (PEG), United Parcel Service (UPS), Ventas (VTR).
The pace of upgrades / downgrades has picked up a bit, as analysts respond to earnings results. I list these more of as a curiosity than as anything one should act upon. By the time a stock is recommended, it is usually too late to buy, and conversely, by the time downgrades occur, it is usually too late to sell. Picks and pans from last week are as follows:
Sysco (SYY) was initiated at Hold at Deutsche Bank.
Transocean (RIG) was upgraded from UnderPerform to Market Perform at Wells Fargo.
CenturyLink (CTL) was downgraded from EqualWeight to UnderWeight at Morgan Stanley.
American Capital Agency (AGNC) was downgraded from OverWeight to Neutral at JP Morgan.
PennantPark (PNNT) was downgraded from OverWeight to Neutral at JP Morgan.
Frontier Communications (FTR) was downgraded from OverWeight to Equal Weight at Morgan Stanley.
STAG Industrial (STAG) was downgraded from OverWeight to Equal Weight at Capital One.
MicroSoft (MSFT) was initiated at Market Perform at William Blair.
American Capital Agency (AGNC) was downgraded from OutPerform to Market Perform at Keefe Bruyette.
Digital Realty (DLR) was downgraded from Buy to Hold at Jeffries.
Verizon (VZ) was downgraded from OutPerform to Perform at Oppenheimer.
Nucor (NUE) was downgraded from Buy to Neutral at BofA/Merrill.
Boardwalk Pipeline Partners LP (BWP) was downgraded from Buy to Neutral at Ladenberg Thalmann.
Digital Realty (DLR) was initiated at Buy at Suntrust.
Unilever (UL) was downgraded from OutPerform to Sector Perform at RBC Capital Markets.
Exelon (EXC) was upgraded from Hold to Buy at Deutsche Bank.
Medical Properties Trust (MPW) was initiated at Buy at Deutsche Bank.
General Electric (GE) was initiated at Sell at Standpoint Research. I looked into this, it was supposedly because of disappointing orders and a high PE. While it is true that these factoids are not encouraging, they are hardly unique to GE these days. While the share price is likely at a near-term high, these parameters are no reason to sell this blue chip, with a safe 3 % yield.
Williams Partners (WPZ) was initiated at Neutral at Citigroup.
Nucor (NUE) was downgraded from Buy to Hold at Berenberg.
Statoil (STO) was downgraded from OverWeight to EqualWeight at Morgan Stanley.
The news flow for the week ahead will likely be dominated by earnings and the Dumbocrats Convention, barring any major geo-political developments. The latest news on the former should be cheery reading, as the extent of the “fix” regarding the nominee becomes even more obvious, but I for one cannot find anything positive in the fact that an avowed socialist was able to generate as much enthusiasm in the first place. What a set of choices for the followers of the donkey – a greedy, corrupt, serial liar or a whacko who has never had a real job of any kind. The current market highs seem to reflect a “Last Tango on Wall Street” sense, as if it is all going to come apart soon, so one should party while one still can. As for me, I am still grudgingly selling here and there, even though I know I won’t be able to re-deploy the proceeds anytime soon. Last week I sold Welltower (HCN), formerly Health Care Realty, at $77.50, for a gain of more than $20/share. So right on cue, the over-priced, over-loved REIT kept right on going up, finishing the week at $78.75. My cash level is at a three-year high, but I have no regrets, selling over-priced stocks for major gains. Cash may not pay anything, but (ignoring inflation) at least it doesn’t lose value like a high-flying stock can lose value.
1st Posting for Week Beginning Monday 07/18/2016
Posted Sunday 07/17/2016 05:30 PM
While the news cycle was dominated by geo-political events last week, stocks quietly gained every day but Friday, and Friday was merely flat, not a loss. As far as the upcoming week is concerned, the focus will be on earnings, as we enter yet another quarterly reporting cycle. Pundits have predicted an earnings drought and a resulting market crash for several earnings cycles in a row, and right on schedule, some are again warning of this. But never underestimate firms’ creativity and resourcefulness in presenting “better than expected” results, thus delaying the downturn once again. I suspect this quarter’s “trip through fantasyland” will be more of the same.
Meanwhile, “this you can trust, Conan”, which in my case refers not to a steel sword, but cash dividends. Stocks on my lists going ex-dividend in the upcoming week are as follows:
Main Street Capital (MAIN), 7/19/2016, yield 6.56%. MAIN is a monthly payer.
Gladstone Investment (GAIN), 7/20/2016, yield 10.07%. GAIN also pays monthly.
Colgate Palmolive (CL), 7/20/2016, yield 2.09%. Great company, but bid up to the sky, reducing a once-respectable yield to barely 2%.
Procter & Gamble (PG), 7/20/2016, yield 3.12%.
Conoco Phillips (COP), 7/21/2016, yield 2.32%. COP’s once-great yield, now reduced to just a little over 2%, was reduced the old-fashioned way – by a typical “stab in the back” dividend cut by management. Perhaps the spin-off of the refining and marketing segment in 2012 to create the new Phillips 66 (PSX), which ended the reign of ConocoPhillips (COP) as a fully-integrated oil company, the fifth largest in the world, was not such a good idea. The new COP had to cut the dividend after the huge decline in crude oil prices that occurred in 2014 & 2015.
As noted above, earnings reporting season is at hand once again. Last week, E*Trade clearly indicated Kinder Morgan (KMI) would be reporting, which I noted on last week’s post. No report occurred, and now KMI is shown as reporting this week. The complete list of stocks on my lists scheduled to report this week is as follows:
Johnson & Johnson (JNJ), Novartis (NVS), Phillip Morris (PM), and MicroSoft (MSFT).
Intel (INTC), Kinder Morgan (KMI).
Blackstone Group LP (BX), Nucor (NUE), AT&T (T), and Crown Castle (CCI).
General Electric (GE).
Upgrades / downgrades coming out last week on stocks I track were as follows:
ConocoPhillips (COP) was upgraded from UnderWeight to Neutral at JP Morgan.
Crown Castle (CCI) was downgraded from Buy to Neutral at Citigroup.
Frontier Communications (FTR) was initiated at UnderPerform at Macquarie.
Transocean LTD (RIG) was downgraded from Neutral to Sell at Seaport Global.
CenturyLink (CTL) was initiated at Neutral at Macquarie.
Wal-Mart Stores (WMT) was downgraded from Buy to Neutral at Northcoast.
Vodafone (VOD) was downgraded from Buy to Neutral at Citigroup.
Plains All American Pipeline LP (PAA) was upgraded from UnderPerform to Neutral at Robert W. Baird.
Ventas (VTR) was initiated at Hold at Argus.
RPM International (RPM) was downgraded from Buy to Hold at Wellington Shields.
Magellan Midstream Partners LP (MMP) was initiated at Buy at Ladenburg Thalmann.
Darden Restaurants (DRI) was downgraded from OutPerform to Market Perform at Wells Fargo.
Public Service Enterprise Group (PEG) was upgraded from UnderWeight to Equal Weight at Morgan Stanley.
Energy Transfer Equity LP (ETE) was initiated at Neutral at Goldman.
Ensco (ESV) was downgraded from Reduce to Sell at Seaport Global.
Eaton (ETN) was downgraded from Hold to Neutral at BofA/Merrill.
GkaxoSmithKline (GSK) was upgraded from Hold to Buy at Jeffries.
Procter & Gamble (PG) was upgraded to Buy at UBS.
Southern Company (SO) was reinstated at Neutral at Goldman, and upgraded from Equal Weight to OverWeight at Barclays.
Mid America Apartment Communities (MAA) was upgraded from Sector Weight to OverWeight at Keybanc.
Total S A (TOT) was downgraded from Buy to Neutral at BofA/Merrill.
While investors will be focused on earnings this week, the news cycle will likely be dominated by the Republican National Convention in Cleveland. The question is, will the story be what goes on inside the convention, or what goes on outside the gates? No one knows at this point, of course, but it appears that the city is doing about all that can be done to prepare for whatever comes. And of course, there is always the risk of yet another terrorist attack somewhere in the world, or some other geo-political surprise dominating the news cycle. For some stocks, the fact that attention is focused elsewhere might be a positive, a good time to get bad news out of the way. No doubt it will be an interesting week.
1st Posting for Week Beginning Monday 07/11/2016
Posted Saturday 07/09/2016 09:30 PM
After the big drop on Friday, June 24, following the “Brexit” result, stocks continued down for only one more trading day, the subsequent Monday. The US market then staged a run of four positive days, reclaiming most of the lost ground, followed by relatively normal trading volatility, punctuated with a substantial gain on the Friday just ended, presumably due to the positive headline numbers from the monthly Jobs report for June. So, for now at least, the “Brexit” result effect on the US stock market has been totally erased.
I usually only report upcoming ex-dividend dates for the stocks I follow, but in the interest of completeness, today I will report all ex-dividend dates that have either occurred or have been announced for my stocks since my last posting. As usual, the stocks are reported by date, with the current yield indicated:
Kayne Anderson Energy Development (KED), 10.47%.
Medtronic PLC (MDT), 1.79%.
AT&T (T), 4.54%.
Verizon (VZ), 4.08%.
General Mills (GIS), 2.67%.
Darden Restaurants (DRI), 3.61%.
Universal (UVV), 3.63%.
Mid-America Apartment Communities (MAA), 3.02%.
Fifth Street Finance (FSC), 13.98%. FSC is a monthly payer.
Consolidated Communications Holdings (CNSL), 5.57%.
Note that any omitted days are days that have no ex-dividend dates occurring for the universe of stocks I follow.
The four stocks listed in my last posting as being scheduled to report earnings before the end of June, all reported as scheduled. The firms are General Mills (GIS), Paychex (PAYX), ConAgra (CAG), and Darden Restaurants (DRI).
Last week, two more of my firms reported, Walgreens Boots Alliance (WBA) and Pepsico (PEP).
For details on earnings, see the firm’s press releases, articles on the mainstream financial media, brokerage compilations, or my preferred resource, Seeking Alpha.
As for the week upcoming, only Kinder Morgan Inc (KMI) is scheduled to report, on 7/13/2016. KMI has been in the proverbial doghouse since slashing the dividend over a year ago. Lately, the firm’s backlog of profitable projects has been questioned, as approvals and various delays are seen as possibly jeopardizing planned revenues from the affected projects. The report will be scrutinized carefully by investors, particularly in regard to planned projects.
Upgrades/downgrades coming out the last two weeks on stocks I follow were:
Nucor (NUE) was upgraded to Buy at Argus.
Consolidated Communications (CNSL) was downgraded from Buy to Hold at Drexel Hamilton.
Pan American Silver (PAAS) was upgraded from Market Perform to OutPerform at Raymond James.
Ensco (ESV) was upgraded from Negative to Neutral at Susquehanna.
Ares Capital (ARCC) was initiated at Neutral at National Securities.
American Capital Agency (AGNC) was upgraded from UnderPerform to Market Perform at BofA/Merrill.
Triangle Capital (TCAP) was upgraded from UnderPerform to Market Perform at Raymond James.
General Mills (GIS) was upgraded from UnderPerform to Neutral at BofA/Merrill.
Medical Properties Trust (MPW) was downgraded from Market OutPerform to Market Perform at JMP Securities.
Diebold (DBD) was resumed at Sector Weight at Pacific Crest.
Windstream Holdings (WIN) was resumed at Neutral at Citigroup.
Nucor (NUE) was upgraded from Hold to Buy at Deutsche Bank.
Legacy Reserves (LGCY) was upgraded from UnderPerform to Market Perform at FBR Capital.
Statoil (STO) was upgraded from Hold to Buy at Societe Generale.
Intel (INTC) was upgraded from UnderPerform to Market Perform at Bernstein.
HCP Inc (HCP) was upgraded from Sell to Neutral at Goldman.
Apollo Investment (AINV) was downgraded from Neutral to UnderPerform at BofA/Merrill.
American Capital Agency (AGNC) was downgraded from Buy to Neutral at Nomura.
ONEOK Partners LP (OKS) was upgraded from Neutral to Buy at UBS.
AT&T (T) was downgraded from Buy to Neutral at Citigroup.
Kimco Realty (KIM) was downgraded from Buy to Neutral at Citigroup.
I made one trade while I was away, selling General Mills (GIS), which rocketed up beyond $70 after a positive earnings surprise on 6/29/2016. I never expected to sell GIS, but after considering several factors, I felt I had to pull the trigger. I had a gain in excess of $20 per share, the stock chart had gone parabolic, gaining $6 since the end of June, the Morningstar “fair value” for GIS is only $57, indicating the shares are significantly over-valued, and the yield had declined to less than 3%. Plus, I will admit it, I just felt like ringing the damn cash register. GIS is benefitting from the frantic search for yield, similar to Realty Income (O), and other dependable dividend payers. I will be watching for an opportunity to buy it back at “fair value” or less, which may or may not come anytime soon. My general rule is to consider selling if the gain exceeds three years’ worth of dividend payments, and in this case it was over ten years’ worth. As I have said before, when the market gives you a gift, you should take it, which I did. Frankly, the trends in packaged food are not good, and while management is to be congratulated for squeezing out positive results in a crowded competition, I really believe we are seeing a top for GIS, with the best that can be hoped for being to hold at current levels.
The bar for taking profits needs to be really high these days, considering the limited alternatives for investment with any reasonable expectation of a return. I have a number of stocks with gains of $10 or more, but in this environment, that is not enough for me to consider selling. So now I have sold two of my all-time favorites, Realty Income (O) and General Mills (GIS). I’m like an NFL General Manager who feels he has to cut a couple of players that he’s won Super Bowls with, because of salary cap issues and concerns about continued outperformance. Just remember, you can’t afford to fall in love with a stock. It’s a business, after all.
1st Posting for Week Beginning Monday 06/27/2016
Posted Sunday 06/26/2016 9:00 AM
The summer doldrums ended abruptly last week, compliments of “Brexit”, the UK referendum on whether to stay in or exit the European Union. A major rally ensued on Thursday, prior to the vote, as polls indicated the “stays” were leading. But then Friday, as the shocking results ended up in favor of the “leaves”, markets worldwide crashed, including US stocks. The Dow Industrials average ended up dropping over 600 points on Friday, a significant one-day decline, even for the 18000 Dow Jones Industrials stock average.
Amidst the turmoil, my dividend payers continue to pay their shareholders. Stocks on my lists going ex-dividend this week are as follows, listed by date, with annualized yield as indicated:
National Health Investors (NHI), 5.05%.
American Capital Agency (AGNC), 12.44%. AGNC pays monthly.
Stag Industrial (STAG), 6.04%. STAG also pays monthly.
Windstream (WIN), 6.43%.
Prospect Capital (PSEC), 12.72%. This BDC pays monthly.
Annaly Capital (NLY), 11.15%.
Nucor (NUE), 2.97%.
Main Street Capital (MAIN), 6.57%. MAIN pays monthly.
Realty Income (O), 3.71%. O also pays monthly.
Sysco (SYY), 2.47%.
General Dynamics (GD), 2.17%.
Kimco Realty (KIM), 3.43%.
Raytheon (RTN), 2.17%.
Cisco Systems (CSCO), 3.56%. CSCO is listed with this week’s group since it must be owned by end-of-day Friday (7/1/2016) to receive the dividend, because of the July 4th holiday.
Four of my stocks are scheduled to report next week. General Mills (GIS) will report on Wednesday 6/29/2016, followed by Paychex (PAYX), ConAgra (CAG), and Darden Restaurants (DRI) on Thursday, 6/30/2016.
Upgrades/downgrades coming out last week on stocks I follow were:
Sysco (SYY) was initiated at Neutral at BofA/Merrill.
Archrock Partners LP (APLP) was upgraded from Neutral to Buy at Goldman, and from Equal Weight to OverWeight at Capital One.
Crestwood Equity Partners LP (CEQP) was re-instated at UnderWeight at Barclays.
Statoil (STO) was downgraded to Sell at Deutsche Bank.
CenturyLink (CTL) was initiated at Hold at Evercore ISI.
McDonalds (MCD) was downgraded from Buy to Neutral at Nomura.
HCP Inc (HCP) was downgraded from Equal Weight to UnderWeight at Morgan Stanley.
Welltower (HCN) was downgraded from OverWeight to Equal Weight at Morgan Stanley.
Wal-Mart Stores (WMT) was resumed at Buy at Nomura.
Darden Restaurants (DRI) was upgraded from Neutral to Buy at Tigress Financial.
AT&T (T) was downgraded from Buy to Neutral at Buckingham Research.
The question for the week ahead is whether the “Brexit” sell off will continue, or if the markets (in the US at least) will begin to recover. I don’t think anyone expects a quick rebound. Probably the best that can be expected is continued volatility, but only a minimal additional decline, followed by a long, slow recovery, lasting months. Some, possibly even a few besides the “perma-bears”, are predicting the sell off is not yet done, that one day was not enough to get it over with. Those in this camp expect high volatility and more selling, with stocks going down quite a bit further before stabilizing in a week or two, if then.
As far as making any moves, I once again sold all of my Realty Income (O) that I had bought back just a month ago, after selling out of my O position barely a month earlier, that I had owned for a couple of years. That initial sale was for a $20 per share gain, reflecting the over-valuation of O at that time, at $60.45. O then declined after I sold, briefly, to just below $59, where I bought back in. O then advanced again to the mid-sixties, and actually rose Friday even as most stocks were tanking, to more than $66. I had to take advantage of this quick advance of more than $7 in less than a month, so I sold again. O is probably the most popular stock in a popular sector (property REITs), as evidenced by the price. It is a great REIT, but a $7 gain is equivalent to 35 monthly dividends expected over the next three years. I had to take it, as much as I hate to part with my O shares. My approach is that I don’t start out looking to make a trade, I buy value, yield, and safety for the long term. But when the market gives you a gift, I believe you should take it.