Monthly Archives: January 2019

Bear

9 A-Rated Safety Stocks for a Grossly Oversold Market

Yes, the markets are getting hammered like it’s 2008. But this isn’t because the world is coming to an end, or that the global economic system is about to fail.

This is about transition and risk.

The markets are undergoing a significant amount of transition as most central banks are relinquishing control over monetary policy and letting the markets sort it out. Add to that issue the fact that the Brexit mess is affecting one of the major global currencies.

There’s the fact that the U.S. economy continues to show signs of recovery — job growth is very strong, the participation rate is rising and wages are also increasing. Yet rising interest rates, the trade wars with Europe and China make that footing weaker.

For every bit a good news, there’s the shadow of bad news and the markets have never been a fan of uncertainty.

That’s why now is a great time to check out these nine A-rated safety stocks for a grossly oversold market. They’re highly rated in my Portfolio Grader, and with patience as the watchword now, these great stocks are selling at great prices.

Mr Cooper Group (COOP)

Mr Cooper Group (COOP)

Source: Shutterstock

Mr Cooper Group (NASDAQ:COOP) may not be a household name — unless, of course you use it to start your household. It basically acquires companies that are focused on servicing, origination and transaction-based services for single family homes in the U.S. Its two biggest brands are Mr Cooper and Xome. It’s the leading non-bank mortgage servicer in the U.S.

This is one market that has been on both sides of the interest-rate roller coaster. When rates were high, home sales slowed, but when rates started to fall because of fears about the economy, that helped boost home sales and refinancings.

Its recent purchase of IBM’s (NYSE:IBM) Seterus mortgage servicing platform adds $24 billion of mortgages and 300,000 new customers to it rolls. It’s COOP’s second major purchase in 3 months.

Once this bumpy ride smooths, COOP will be well positioned.

Popular (BPOP)

Popular (BPOP)

Source: Shutterstock

Popular (NASDAQ:BPOP) is a holding company that operates financial institutions in the U.S., U.S. Virgin Islands and Puerto Rico. Its parent is Banco Popular de Puerto Rico, which was established in 1893.

Popular opened in the Bronx over 50 years ago and now has U.S. branches in New York, New Jersey and South Florida. Given the amount of Puerto Ricans that call the U.S. home, as well as other Latinos that are drawn by the bank’s roots in the Hispanic culture, BPOP offers a unique opportunity to take advantage of the demographic growth in this sector of the economy with an experienced, successful company.

Up 37% in the past year, and still delivering a 2.1% dividend yield, BPOP is doing very well in all this turmoil.

Medical Properties Trust (MPW)

Medical Properties Trust (MPW)

Source: Shutterstock

Medical Properties Trust (NYSE:MPW) is the only medical real estate investment trust (REIT) that focuses solely on acute care facilities and hospitals where patients must be admitted by doctors.

Its goal is to blend the best of quality healthcare delivery and cost-effective management by maximizing operations management.

MPW started in 2003 and now sports a nearly $6 billion market cap. What’s more, it was up 17% in the past year, and that doesn’t include its generous 6.2% dividend.

It has recently moved into Europe with a big, multi-billion-dollar deal with a healthcare firm in Germany.

Qualys (QLYS)

Safety Stocks: Qualys (QLYS)

Source: Shutterstock

Qualys (NASDAQ:QLYS) has done well in the past year, given the fact that it’s a tech stock.

But most of the credit goes to the fact that it’s a tech stock in the cybersecurity sector, and while that sector may have gotten a bit overpriced, it’s still something that is always in demand.

QLYS focuses on cloud security, which is one of the most in-demand aspects of cybersecurity since the growth in mobility and bandwidth demand have increased substantially. And the introduction of a new generation of data delivery — 5G — will make security even more important.

Also, with a market cap around $2.7 billion, QLYS is a tempting morsel for larger tech firms looking to expand their game in this space without having to build out from scratch.

Axon Enterprise (AAXN)

Axon Enterprise (AAXN)

Source: Shutterstock

Axon Enterprise (NASDAQ:AAXN) is the new name for the TASER company, the folks that brought us the stun gun.

If you recall, a few years back there was an alarming number of fatalities linked to use of TASERs by law enforcement and others. Whether it was due to lack of training or abuse, the stain was largely put on the company.

But the name change as well as the company’s diversification into body-worn cameras for law enforcement has built a new line of products that have helped it diversify and regain its reputation as a reliable, non-lethal protection tool for professionals and citizens.

AAXN is up 71% in the past year and there is every reason to believe that kind of growth is achievable moving forward.

DSW (DSW)

Safety Stocks: DSW (DSW)

Source: Shutterstock

DSW (NYSE:DSW), a big-box discount shoe retailer with more than 500 stores in the U.S., had great Q3 earnings and also raised its guidance for Q4. That happened at the beginning of December.

This is one of those brands that actually became stronger during the recession because that lost decade brought people in who weren’t regular customers previously.

There are two types of regular shoppers — the ones who go in like it’s a treasure hunt, looking for bargains on great shoes and the ones that like the fact that there’s a huge selection to choose from.

During slow economic times, everyone is looking for a deal and DSW is one of the beneficiaries. But now as times improve, it has added to its regular shoppers and instead of returning to premium stores, many shoppers choose to stick with DSW.

It’s why the stock is up 20% in the past year and still delivers a 3% dividend.

Evertec (EVTC)

Evertec (EVTC)

Source: 401(K) 2012 via Flickr (Modified)

Evertec (NYSE:EVTC) is the leading payment processing company in Latin America. It operates in 26 Latin American companies, including Mexico and the Caribbean.

Financial technology, or “fintech” is a huge force in the way financial institutions are transitioning from the old style of banking, to the new digital style. And this affects every aspect of the business, especially between the financial institutions and the businesses that they support.

And these digital standards are especially important in emerging markets, where a traditional financial infrastructure can be tough to come by.

EVTC is up over 100% in the past year and is still only trading at a P/E of 29. There is plenty of growth left in the tank.

Brinker International (EAT)

Brinker International (EAT)

Source: Mike Mozart via Flickr

Brinker International (NYSE:EAT) owns the Chili’s Grill and Bar and Maggiano’s Little Italy chains. Most of the restaurants are company owned, although Chili’s does franchise some of its properties.

There has been a shift in tastes among customers and these large restaurant chains have begun appealing to new generations of potential diners. Healthier meals, different pricing structures, etc all have been implemented to keep the new breed of diners happy.

Some have had a tough time transitioning, but EAT has not been one of them. Up 15% in the last year, it also delivers a respectable 3.3% dividend.

Aerojet Rocketdyne Holdings (AJRD)

Aerojet Rocketdyne Holdings (AJRD)

Source: Steve Jurvetson via Flickr (Modified)

Aerojet Rocketdyne Holdings (NYSE:AJRD) is a second-tier aerospace and defense contractor. Basically, that means it usually is a subcontractor to the big defense names when it comes to building rockets, propulsion and guidance systems. It also has a long relationship with NASA and other aerospace organizations.

While there is a lot of talk about private aerospace firms entering into the market, the fact is, there is huge potential for the best companies. And given the amount of aerospace work that lies ahead, AJRD will be a major player.

With talk of near-space commercial travel as well as missions to Mars, AJRD will have plenty of work. And the fact that it has been around in various iterations since 1914 shows that it knows how to adapt and thrive.

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Technology

Nvidia Stock Is Far Too Cheap to Ignore Now

Semiconductor stocks are typically the forward indicators for technology stocks. So when Micron Technologies (NASDAQ: MU) confounded the markets with its consistent single-digit price-to-earnings ratio last year, investors should have exercised caution. The good news is that the patient investor may wait out the cyclical downturn in the chip sector. It will take another six to nine months before reaching a demand and supply equilibrium. Within the graphics chip space, Nvidia (NASDAQ: NVDA) has the clearest headwinds to work through. In knowing what inventory it needs to work through, NVDA stock could start recovering within one or two quarters.

Nvidia experienced excess inventory in the channels, which hurt its revenue forecasts. It blamed the crypto hangover for the excess supply imbalance. At significantly lower prices, cryptocurrency is not likely to recover any time soon. This is the bad news for anyone holding crypto. For NVDA and Advanced Micro Devices (NASDAQ:AMD) shareholders, chances are good that the excess GPUs on the market will clear.

The two firms likely benefited from an increase in sales during the holiday season, after retailers offered rebates and discounts on graphics cards. Once the last-generation card supplies are cleared, game developers will embrace Nvidia’s ray-tracing. RTX card sales slumped in the last quarter and will be weak again for the next two quarters due to cheaper models still on the market.

The fact that Electronic Arts (NASDAQ:EA) was the only big name embracing RTX through its Battlefield 5 title did not help RTX sales. Worsening Nvidia’s near-term prospects was the significant drop in sales of BF V.

Market Opportunity for Ray-Tracing

Nvidia’s Turing brought ray-tracing to games, but pushes its technology forward through the Pro Visualization business. For the last 10 years, the industry simulated such effects as the reflection of light and rays of light bouncing off objects. Ray-tracing processes these effects in real-time. In performance terms, it should bring a 25% – 30% improvement over the Pascal architecture. And at the top-end, performance is 10-fold better.

Within the enterprise space, such as TV, film and Photoshop work, RTX will speed up the development of special effects. Nvidia inserted its graphics technology in around 1.5 million servers, which is worth a few billion dollars in business revenue. As companies slowly embrace RTX, investors should expect the company maintaining and even growing its profit margin.

At a $133 share price, NVDA stock is trading at a more reasonable multiple of around 19 times earnings. With earnings-per-share growth of 15.5% over the next five years, the stock is valued at a PEG of 1.20 times and 19 times forward earnings. AMD, despite falling to $18, still trades at a 30 times P/E multiple.

Fair Value

Analysts did not yet lower their price target on Nvidia. At a $228.50 average price target, based on 30 analysts, the 76% upside (per Tipranks) appears out of touch.

Analyst Firm Position Price Target Date
Mitch Steves RBC Capital Buy $200.00 7 days ago
Timothy Arcuri UBS Hold $190.00 17 days ago
Vijay Rakesh Mizuho Securities Buy $230.00 20 days ago
Rick Schafer Oppenheimer Buy $250.00 21 days ago
Atif Malik Citigroup Buy $244.00 21 days ago
John Pitzer Credit Suisse Buy $225.00 Last month
Ivan Feinseth Tigress Financial Buy — Last month
Matt Ramsay Cowen & Co. Buy $265.00 Last month
Louis Miscioscia Daiwa Buy $203.00 Last month

Source: tipranks

As shown in the table above, only one analyst from RBC Capital posted a report on Nvidia stock. The other analysts did not change their view in the last month.

NVDA Is Too Cheap to Ignore

At a P/E now in the teens, markets severely punished Nvidia for failing to forecast GPU demand.

Nvidia Stock

The selloff, which started in October, is now over-done. When the company reports results in February, it will have a better idea on RTX sales for the year, along with the progress slimming down Polaris inventory.

Investors may consider starting a position in NVDA stock at these levels.

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Dividends

My Top 2 High-Yield Picks for 2019

Each year I am asked to participate in the MoneyShow “Top Picks” report. The folks at MoneyShow “ask the nation’s leading advisors for their favorite investment ideas for the coming year.” The Top Picks are run in series in January on the MoneyShow.com website. Highlights of the picks will also be featured on Forbes, TheStreet and on Yahoo! Finance.

The request is for two stock recommendations. One as an aggressive stock bet and the other as a conservative stock selection. Today I am sharing the two stocks I sent in to the MoneyShow editors.

My aggressive stock pick for 2019

Antero Midstream GP LP (NYSE: AMGP) is an energy midstream services company in transition. The company came to market with a May 2017 IPO. The assets at that time were general partner incentive distribution rights (IDR) ownership interest in high growth, midstream MLP, Antero Midstream Partners (NYSE: AM). The MLP was sponsored and controlled by Marcellus natural gas producer Antero Resources (NYSE: AR).

Complicated, multi-publicly traded entity structures were the vogue in the energy sector until energy commodity prices and energy sector stock prices crashed in 2015-2016. Over the last two years (2017-2018) the MLP sector, related infrastructure stocks, and their sponsor companies have announced simplification events to hopefully make the resulting business structures and forecast results more appealing to investors. On October 10, 2018 the Antero companies announced a simplification transaction that will close in the first quarter or 2019.

The transaction involves AMGP acquiring all the AM units, and then changing its name to Antero Midstream and using the AM stock symbol. For now, call the resulting company new AM. The effect of the transaction will be to turn the current Antero Midstream Partners into a C-Corp and the elimination of the IDRs paid to the general manager. This means starting in 2019, the current AMGP, which derives its revenue from the IDR payments will change into a high dividend growth midstream services provider. This discussion is about the soon to be Antero Midstream Corporation — new AM.

Antero Midstream will be a roughly $10 billion market cap energy midstream company focused on natural gas gathering and compression for Antero Resources in the Marcellus and Utica Shale plays. The company also provides wellhead water services (fresh water delivery and waste water takeaway) and owns one take away natural gas pipeline. Currently about 65% of EBITDA is from gathering and compression, with the remaining 35% from water services.

The growth of AM revenues depends on production growth from Antero Resources. Antero is the largest natural gas liquids (NGLs) producer in the U.S., across all energy production areas. The exploration and production company hold the largest core, liquids rich inventory of production sites in Appalachia. Of the undrilled locations in the region, Antero has rights to 40% of the total. Production growth from Antero Resources is forecast to generate 50% compounding annual gathering and processing volume growth through 2021.

This growth in throughput will fuel cash flow and distribution growth for Antero Midstream. The company projects 27% annual distribution growth through 2021. The midpoint of dividend guidance for new AM in 2019 is $1.24 per share.  The AMGP Q3 dividend annualized is $0.576 per share. With a mid-teen share price at the end of 2018 the market isn’t close to factoring in the higher dividends for 2019 and the future dividend growth prospects. AMGP evolving into the new AM is one of my highest conviction total return prospects for the next three years. To keep the yield at the current 4%, AMGP at the end of 2018 must double in 2019.

My Conservative stock pick

Starwood Property Trust, Inc. (NYSE: STWD) is a finance REIT whose primary business is the origination of commercial property mortgages. As one of the largest players in the field, Starwood Property trust focuses on making large loans with specialized terms. This gives them a competitive advantage over banks and smaller commercial finance REITs.

Over the last several years, the company has diversified its business, branching into commercial mortgage servicing, acquiring real equity properties with long term revenue stability, and recently a portfolio of energy project finance debt. This diversification will allow Starwood Property Trust to thrive and continue to pay the big dividend in any financial environment.

In the commercial loan business, over 95% of the commercial mortgage portfolio has adjustable interest rates. This means that as the Fed increases interest rates, Starwood’s net income per share will grow. This REIT provides an excellent hedge against rising rates.

In recent years, the company has acquired what is now the largest commercial mortgage servicing firm. That arm of the business handles servicing, foreclosure workouts (for fees) and the packaging of smaller commercial mortgages into mortgage backed securities. This business segment would see the fees increase exponentially in the event of a recession where commercial property owners were forced to let go back to the lenders.

In addition to the finance side of the company, Starwood has acquired selected real properties, including apartments, regular office buildings, and medical office campuses.  According to STWD’s CEO, “All of the wholly-owned assets in this segment continues to perform well with blended cash-on-cash yields increasing to 11.4% and weighted average occupancy remain steady at 98%.”

The property segment provides assets with long-life revenue streams to offset the shorter term rollover schedule of the commercial mortgage portfolio. Real assets also add depreciation to the income statement, shielding cash flow.

In mid-2018 the company acquired a $2.5 billion energy finance business from General Electric. The loan book is non-recourse to Starwood Property Trust. Starwood Capital, the private equity manager of STWD, already had energy finance experts in house. This business segment has significant potential for growth.

This diversification of business segments by Starwood Property Trust is what separates this commercial finance REIT from its more narrowly focused peers. STWD has paid a $0.48 per share quarterly dividend since the 2014 first quarter. My investment expectation is that the dividend is secure, and I want to earn the 8.5% to 8.8% dividend year-after-year.

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Market Preview

Market Preview: Markets Open 2019 With Volatility Eerily Similar to Q4 2018

Markets continued to digest divergent economic and trade data, which is making it tough for investors to determine if a bottom is in place, or if there is more pain to come in 2019. Market futures plunged before the open on the first trading day of 2019 as manufacturing data out of China indicated the worst month for manufacturing in 19 months. The December data indicated China manufacturing actually contracted the last month of the year. This was followed by Redbook retail data in the U.S., which showed the strongest uptick in year-over-year spending in over 13 years. The weekly number for the week of December 29 showed a sizzling hot 9.3% increase in same store sales, far exceeding the 7.8% increase the prior week.

Add to that comments from President Trump that a deal could be done with China, combined with reported contradictory comments from his Trade Representative, Robert Lighthizer, that additional tariffs may be needed to bring China to the bargaining table. And, you had what has become the typical rollercoaster day with the markets plunging in the morning, only to recover to positive territory, and then finish the day nearly flat.

Earnings resume Thursday with numbers coming in from The Simply Good Foods Company (SMPL) and Landec Corporation (LNDC). Landec, a fresh foods focused company, recently acquired guacamole producer Yucatan Foods in early December. Analysts will be looking for an update on synergies with the new acquisition, and new earnings projections given a guacamole market in the U.S. growing at 20% per year. Simply Good Foods has been pouring money into building brand recognition recently. The stock was a winner for investors in 2018 rising from the mid-$14s to close the year around $19 per share.

It’s back to business as usual, apart from economic numbers not reported due to the partial government shutdown, on Thursday with the economic numbers coming fast and furious. Analysts will digest MBA mortgage applications data, the ISM Manufacturing Index, and a slew of jobs data. Set to be released is the Challenger Job-Cut Report, the ADP Employment Report, and jobless claims. The jobs numbers are expected to remain steady, with jobless claims holding at 217K from a prior 216K last week. Investors will be more focused on the drama playing out in Washington, as Democrats in the House are scheduled to present a budget which does not include funding for President Trump’s border wall.   

Friday brings employment situation data as well as PMI numbers for the services industry. The unemployment rate is expected to hold steady at 3.7% with non-farm payroll numbers increasing 180K in December. The PMI services number is expected to drop over a point from November levels to 53.4. December has seen drops in both new orders and output numbers.

Cal-Maine Foods (CALM) and Lamb Weston Holdings (LW) will take to the earnings stage the final day of the first week of January. Lamb Weston, producer of frozen potatoes and other vegetables for retail and restaurants, was a buoy in the investing storm for investors in 2018. The company’s shares rose from the $56 level to finish near $73 on the year. Cal-Maine, the country’s largest egg producer, has been hampered recently by rising feed costs and a consumer turning to cage-free or other specialty eggs. A recent acquisition of Featherland Egg Farms will be on tap for discussion with analysts on Friday.  

Uncategorized

7 Stocks to Sell In January

Source: Shutterstock

The stock market ended 2018 on a sour note. Back in September, stocks were flying at record highs. Since then, they’ve dropped 20% amid a flurry of concerns ranging from higher rates to bigger tariffs to slowing growth. Yet, most Wall Street analysts view the selloff as overdone, and the consensus 2019 S&P 500 price target still sits around 3,000, representing a whopping 25% upside for stocks next year.

In other words, Wall Street is saying that the recent correction is simply near-term pain that will be replaced by long-term gain in 2019.

This consensus thesis seems rationale. The headwinds that are plaguing markets (falling oil prices, trade war tensions and rising rates) are all fixable, and will likely be fixed in 2019. OPEC is cutting production. China and the U.S. are starting to make cessations, and will likely continue to do so to stop from “over-hurting” their respective economies. And, the Fed will likely go more dovish in 2019, as the economy slows.

If those headwinds disappear in 2019, and growth remains stable, stocks should rally here, with the S&P 500 trading at its lowest trailing twelve month P/E multiple since 2012 and highest dividend yield since early 2016.

But, that doesn’t mean the rally will start in January, nor does it mean that this rising tide will lift all boats. Instead, there are a handful of stocks investors should continue to avoid, even in the new year.

With that in mind, let’s take a look at seven stocks to sell in January.

Tilray (TLRY)

Stocks To Sell In January: Tilray (TLRY)

Source: Shutterstock

If you had to pick one stock to characterize the 2018 cannabis craze, it would have to be Tilray(NASDAQ:TLRY). The Canadian pot company saw its stock go from $20 to $300 to $90 to $150 to $70, all in the matter of just five months.

The problem with Tilray heading into 2019 is that this stock’s biggest potential catalyst (a big investment from a big beverage or tobacco company) is now in the rear-view mirror. Global beverage giant and the world’s largest beer maker, AB InBev (NYSE:BUD), put in $50 million to help facilitate cannabis beverage research with Tilray. The deal was underwhelming. The initial pop in TLRY stock was faded. Now, it seems all the dry powder has been used up.

Meanwhile, the valuation is still extended and the Canadian cannabis market is still suffering from supply shortages. Overall, the near-term fundamentals here aren’t great, meaning TLRY stock should remain weak in early 2019.

Micron (MU)

Stocks To Sell In January: Micron (MU)

Source: Shutterstock

Chipmaker Micron (NASDAQ:MU) is the type of stock you buy when the music is playing, and sell when the music isn’t playing. For the past several months, the music hasn’t been playing for Micron. It doesn’t look like it’s going to start playing anytime soon, either.

Demand across the memory space is stagnating due to global economic concerns. Meanwhile, supply is building. Thus, the current memory market dynamic is one defined by rising supply and falling demand, and that ultimately results in lower chip prices and lower margins for Micron. When margins fall, MU stock falls, too.

The problem here is that we are early in this down-cycle, and no one knows how long it will last. Thus, until the market gets confirmation that margins are turning a corner, MU stock will remain depressed, regardless of valuation, because no one knows exactly how far earnings will fall (prior down cycles have wiped out earnings entirely).

Yelp (YELP)

Stocks To Sell In January: Yelp (YELP)

Source: Shutterstock

Over the past several years, Yelp (NASDAQ:YELP) has under performed its digital ad peers in a big way because the company’s digital ad business simply hasn’t gained the traction that the ad businesses at Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) Alphabet(NASDAQ:GOOG, NASDAQ:GOOGL) or Twitter (NYSE:TWTR) have.

Yet, despite this relatively weak ad business performance, Yelp stock has found a floor recently around $30 due to rumored M&A prospects. I don’t buy these prospects. Who would want to buy Yelp? The potential suitors include Amazon, Facebook and Alphabet. But, each of them are expanding an in-house recommendations and rating system, and those in-house systems are arguably already better than Yelp. Thus, there really isn’t a compelling M&A motive here.

Consequently, the M&A catalyst should fall out in 2019. Once it does, Yelp stock will drop.

Snap (SNAP)

Stocks To Sell In January: Snap (SNAP)

Source: Shutterstock

If anything became crystal clear in 2018 in the digital ad space, it is that once trending Snap(NYSE:SNAP) is now an afterthought for users and advertisers.

The story here is simple. Snap pioneered a new way method of ephemeral photo sharing. Everyone loved it, and everyone joined Snapchat. But, Snap didn’t protect this method, and so everyone else copied it. Everyone else had more resources, too, so they actually made better versions of Snapchat. Those better versions stole all the users. Now, Snap is left with a maxed out user base that isn’t big enough to attract advertisers in bulk.

If advertisers don’t flock to Snap in bulk, ad prices will remain cheap and margins will remain depressed. Advertisers won’t flock to Snap until user growth picks back up. Thus, until user growth turns around, this is certainly one of the key stocks to sell in January and one that investors should avoid.

JCPenney (JCP)

Stocks To Sell In January: J.C. Penney (JCP)

Source: Shutterstock

By now, it is well known that retailers had a really strong 2018 holiday showing. According to Mastercard, holiday retail sales rose 5% to their best level in six years, driven largely by a near 20% increase in digital shopping. But, not all retailers were big winners this holiday season. One retailer that appears to have struggled in a big way is JCPenney (NYSE:JCP).

JCP has struggled to compete in the hyper-competitive retail industry for several years. As other companies have built out omni-channel capabilities and improved product assortment, JCP has been too burdened by a debt-heavy balance sheet and falling margins to invest much of anything back into the business. As such, JCP has turned into the eyesore of retail.

This holiday season was more of the same. According to retail analytics firm Placer.ai, Black Friday weekend shopping traffic rose 10% this year. But, JCP under performed, with foot traffic rising just 1%. That’s a bearish read, and it underscores that even in a healthy economy, JCP continues to struggle. If JCP’s holiday numbers disappoint (as I expect them to), you could see JCP stock fall in a big way in early 2019.

Starbucks (SBUX)

Stocks To Sell In January: Starbucks (SBUX)

Source: Shutterstock

The problem with retail coffee giant Starbucks (NASDAQ:SBUX) is three fold. First, the entire growth narrative at Starbucks is centered around expansion in China. But, the Chinese economy is cooling, and is expected to keep cooling in 2019. The more it cools, the more Starbucks’ 2019 growth rates will be impacted, and the more of a drag that will have on SBUX stock.

Second, Starbucks is a premium-priced coffee house that is anything but recession resilient. Coffee is easy to get anywhere. But, coffee at Starbucks is more expensive than coffee at McDonald’s (NYSE:MCD). Thus, if the economy does slow in 2019 and the consumer starts to feel the impact, that means that morning Starbucks runs will be replaced by morning McDonald’s runs.

Third, SBUX stock trades at around 24 forward earnings. That’s a big multiple. It hardly takes into account the aforementioned risks. Thus, if those risks rear their ugly head in 2019, SBUX stock could drop in a big way.

Proctor & Gamble (PG)

Stocks To Sell In January: Proctor & Gamble (PG)

Source: Mike Mozart via Flickr (Modified)

During the market selloff, defense has become the new offense, and investors have rushed into defensive consumer staples names like Proctor & Gamble (NYSE:PG). But, this rush has inflated defensive stock valuations to levels that aren’t sustainable. In 2019, as clarity and stability emerge out of the ashes of the late 2018 selloff, defensive stocks like PG will likely suffer, which lands it on this list of stocks to sell.

At the current moment, PG stock trades at an above-average valuation with a below-average yield. The big valuation is the result of broad economic uncertainty. That uncertainty won’t last forever. Either we enter a recession in 2019, or we don’t. If we do, PG stock will drop because, while it’s recession resilient, it isn’t recession proof (during the 2008 recession, PG stock still fell about 40%). If we don’t, PG stock will fall because investors will stop playing defense, and will roll money back into growth names.

Overall, the current uncertainty that’s inflating PG stock won’t last forever. Indeed, it will likely come to an end in 2019. When it does, PG stock is liable to drop.

As of this writing, Luke Lango was long AMZN, FB, GOOG and TWTR. 

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Dividends

The Best 9%+ Dividends for a Bearish 2019

Thanks to the December selloff, it’s relatively easy to find 9% yields. The stock market was a relentlessly receding tide in the fourth quarter, which is bad for “buy and hope” investors but quite helpful for income specialists like us.

Let’s look first at real estate investment trusts (REITs). Many now pay 9% – some good, some bad. The main index Vanguard Real Estate ETF (VNQ) has only paid this much (4.9%) twice before in the past ten years:

VNQ Is Rarely This Generous

By cherry picking the lot we can find 49 stocks paying 9% or more. But we should avoid names like Government Properties Income Trust (GOV), which frequently pops up on cute recession-proof dividend lists.

Most of the company’s income comes from government entities, so it seems like a smart way to potentially tap Uncle Sam for rent checks. However, its share price is down 66% in five years. Even with the supposedly generous payout, GOV investors have the taste of stale government cheese in their mouths.

There are a few reasons GOV has been consistently crushed. First, its stated funds from operation (FFO) have been in decline. FFO per share is 24% lower today than it was five years ago.

Second, it’s likely worse, because GOV may be overstating its FFO! The firm has been accused of conveniently excluding maintenance-related capital expenditures. Can you imagine old government buildings that don’t require any maintenance?

Stay away from this sketchy situation.

Moving Beyond the Pure Landlords

When considering the 9% payers, we should look beyond the landlords collecting rent checks. These firms carry the REIT corporate structure so that they can avoid paying taxes! By doing so, they agree to dish most of their dividends to shareholders.

They are often misunderstood, hence their high payouts – and opportunities for us. For example, let’s consider Arbor Realty Trust (ABR), which makes loans for commercial and multifamily properties between $750,000 and $5 million. This is a niche banks don’t serve much these days.

Arbor is masterfully run by Founder and CEO Ivan Kaufman. Both an operator and shareholder, he is able to peer past Wall Street’s quarterly treadmill to made smart long-term decisions. Ivan has been able to find better business opportunities than slum-lording old government properties:

A Tale of Two 9%+ Payers

Contrarian 9%+ Opportunities in CEF-Land, Too

If you’re smart about your CEF (closed-end fund) purchases, you can diversify your portfolio and fortify your dividend stream. You can even buy these vehicles:

  1. For 9% yields or higher,
  2. And at discounts so that you can snare some price upside to boot!

Here’s why: CEFs (unlike their ETF and mutual fund cousins) have fixed pools of shares. Meanwhile, their prices trade up and down like stocks – which means these funds can sometimes trade at a discount to the value of their underlying assets! You can literally buy a dollar for less.

And even though stocks-at-large are looking quite precarious today, this scary environment has income seekers scared of CEFs. Many of my readers have actually asked me if they should bail on our high-paying vehicles. The financial media drumbeat is in their heads, and they’re concerned that their funds are going to keep dropping in price.

In recent years, the bad rap on bond CEFs is that they couldn’t thrive in a rising rate environment. Now, the Fed is ready to hit “pause” indefinitely (traders are pricing in only a 50/50 chance of any rate hike in 2019). Yet basic investors are selling them in a liquidation panic.

Please, don’t follow this misguided herd. Instead, let’s consider a couple of contrarian ideas with big upside potential.

The Kayne Anderson MLP Investment Fund (KYN) pays an amazing 11% today. It holds a collection of master limited partnership (MLP) stocks. Most MLPs will kick you a K-1 tax form around your return deadline and annoy you and your accountant, but KYN gets around this by issuing you one neat 1099 (which is not nearly as messy).

Plus, when energy is out of favor, you can buy KYN for less than the value of the stocks it holds. Today, its portfolio is selling for just 94 cents on the dollar. That’s about as cheap as you’ll ever see it:

Lose the K-1 Hassle and Bank an 11% Yield (at a Discount)

Since KYN’s holdings pipe energy around, it tends to trade with oil prices. A freefall the goo has sent MLPs spiraling lower. When energy prices eventually find a bottom – probably sometime in 2019 – this will be a compelling yield plus upside play.

Finally, let’s give some turnaround credit to Aberdeen’s Asia-Pacific Income Fund (FAX). I issued a sell recommendation for FAX in May 2018 because its NAV was heading the wrong way. Rising rates were pressuring the value of the fund’s fixed-rate bond portfolio, and those bonds weren’t paying enough for FAX to pay its dividend without price appreciation help.

Fast-forward to October and the financial winds shifted. This has helped FAX’s portfolio, which has actually increased in value as broader markets have unraveled. This shift is not yet reflected in the fund’s price, which has drifted 18% below its NAV!

FAX Trades for 82 Cents on the Dollar

FAX has paid the same $0.035 monthly dividend since 2002, which is now good for a 10.7% yield on its depressed share price. If the fund can continue paying its distribution while grinding its NAV sideways or better, it’s going to be a steal at these levels.

We’re not buying FAX or KYN just yet, however. I’ve got three more high paying plays I like even better right now withgreat growth potential on top of their generous current yields.

The 3 Best Bear Market Buys (with 8%+ Dividends) for 2019

With the recent market insanity you’ve probably thought about dumping – or at least reducing – your stock holdings and focus on fixed-income investments as you near and enter retirement. It sounds like a smart move, but going lean on stocks leaves you open to two big risks:

  1. That you’ll outlive your savings, and
  2. You’ll miss out on the long-term gains only the stock market can offer.

So why not blend a portfolio of 8%+ bond funds with smart stock picks that provide you with similarly high yields with upside to boot? Sure, they may “sell off” a bit if the markets pull back. But who cares. Like a savvy rich speculator, you’ll be able to step in and buy more shares when they are cheap – without having to worry about your next capital withdrawal.

Let’s take healthcare landlord Omega Healthcare Industries (OHI). The firm’s payout is usually generous, and always reliable – yet, for whatever reason, its sometimes manic price action gives investors heartburn.

But it shouldn’t. It’s actually quite predictable. Check out the chart below, and you’ll notice:

  1. When the stock’s yield is high (orange line), its price is low. Investors should buy here.
  2. When the stock’s price is high (blue line), its yield is low. Investors should hold here and enjoy their dividend payments.

Investing is Easy: Buy When Yield (Orange Line) is High

Of course this simple timing strategy is much easier to employ if you don’t need stock prices to stay high to retire. Most investors who sell shares for income spend their days staring at every tick of the markets.

You can live better than this, generate more income and even enjoy more upside by employing our contrarian approach to the yield markets. We live off dividends alone. And we buy issues when they are out-of-favor (like right now) so that our payouts and upside are both maximized.

Editor's Note: The stock market is way up – and that’s terrible news for us dividend investors. Yields haven’t been this low in decades! But there are still plenty of great opportunities to secure meaningful income if you know where to look. Brett Owens' latest report reveals how you can easily (and safely) rake in 8%+ dividends and never worry about drawing down your capital again. Click here for full details!