2016 marked my first year of semi-retirement after a 40-year newspaper career. While I'd had enough of ever-increasing stress from the job and commute, I wanted to keep writing, and started submitting articles to Seeking Alpha in January, aiming for one a week.
Going back through those 51 published articles, I found those in which I backed a stock. This was easier said than done, because I hedged a lot of picks. (Note to self: Standardize recommendations).
Here are the results for the eight stocks I supported, most of which I own:
|Security||Date of article||Price||Current price|| |
|Total value||Pct. Change||Growth of $10,000|
A $10,000 investment in each stock (total $80,000) would be valued at $94,580, including dividends, for an average return of 18.2% (thanks Williams and Akamai!). However, since I did not make recommendations in a standardized way, the results do not stand up as a valid methodology. My first goal for 2017 is to correct that problem.
Here are a few New Year's recommendations. They are intended for older, more conservative investors who want dividends as well as growth.
My overall asset allocation target has changed since my retirement from moderately aggressive to moderate. Currently, my target is 50 percent stock, 40 percent fixed-income, and 10 percent cash. This has its strengths - it provides income and will outperform the market averages in bear markets - and weaknesses, tending to underperform in bull markets and somewhat susceptible to rising interest rates.
I'm expecting 2017 will be a fairly tough year for investors, with stretched valuations on the equity side limiting gains and rising rates providing low returns on the fixed-income side.
Despite the recent post-election optimism we see in the markets, recent economic data have not been strong. In addition, it will be tough for president-elect Trump to get his planned infrastructure spending through the fiscal hawks in Congress.
Since the economy won't be that strong, I expect the Fed will only raise rates 0.5-0.75 percentage points (two or three raises) versus the current framework that calls for four raises.
The recommendations include four common stocks in various sectors - energy, technology, consumer staples and healthcare - and a financial ETF.
They also include two preferred stocks, both yielding better than 6 percent. The idea here isn't price appreciation, but income, with the higher-yielding issues providing some buffer against loss of market value due to rising rates.
The idea is to be covered under a variety of financial scenarios. For example, if rates rise more than expected, the preferreds may suffer, but the financial ETF should make up for it.
All of these investments pay dividends, and I have them all in my personal portfolio.
Apple, Inc. (NASDAQ:AAPL) - Apple is still cheap at 12.9 times expected 2017 earnings. There's both political risk (a China trade war) and opportunity (corporate tax reform allowing repatriation of its cash hoard). A catalyst is the iPhone refresh cycle, as the many iPhone 6 models sold during the 2014-15 peak are replaced.
Capstead Mortgage preferred series E (CMO-E) - There aren't too many decent-quality preferreds paying 7.7% and selling under par, so call risk is minimal. CMO common has been strong, which says the market doesn't see much risk to the mortgage REIT's dividend, let alone that of its preferred.
PepsiCo (NYSE:PEP) - A great consumer products company that has so many beverage and snack brands it is surmounting the decline of carbonated beverages. The Frito-Lay North American unit now provides more than half of the company's profit and continues to grow.
Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) - I usually pick up one beaten-down stock when tax-loss selling ends in December, and this is the one for 2016. The leading maker of generic drugs just settled with the government over foreign corrupt practices, and while there's still political risk, it's cheap at 6.8 times estimated 2017 earnings. A catalyst could be possible approval of a generic version of the expensive allergy auto-injection device EpiPen in late 2017 or early 2018.
Wells Fargo preferred series L (WFC-L) - An investment-grade bank preferred yielding 6.4% with essentially no call risk. Sure, there's interest rate risk, but if you're a long-term holder, the dividends will still show up in your account every quarter.
Williams Companies - The pipeline operator's strategy of constantly reinvesting funds in its limited partnership WPZ and collecting distributions and incentive distribution rights - as Satyr put it in a comment on my recent article about it - is like pouring the whiskey from one bottle to the other. A catalyst could be a new administration helping unplug bottlenecks on two pipeline expansion projects.
Financial Select Sector SPDR ETF (XLF) - The financial sector has been on fire. That will probably slow down, but rising rates and the possibility of less regulation still provide a tailwind for banks.
As the year goes on, I may add or remove stocks from the list and will report those changes.
In addition to dividend-paying securities like these, younger investors and anyone who can handle scary declines could also consider non-dividend-paying growth stocks like Akamai.
Disclosure: I am/we are long AES-C, CMO-E, WFC-L, AKAM, PEP, TEVA, WMB, AAPL, F.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.