Category Archives: stocks

Generating Income From Unlikely Sources: Financial Advisors’ Daily Digest

SA Dividends, Income & Retirement Editor Robyn Conti here, subbing in for Gil, who’s observing Passover this week. I’ll do my best to fill his very talented and knowledgeable shoes, and continue to keep you up to date daily on the latest FA analysis and news here on Seeking Alpha. Generating income these days is more difficult than ever due to the low rate environment, but that hasn’t stopped masses of investors from jumping with both feet into income investments that are too costly relative to their yields. Joel Johnson from True-Bearing.com emphasizes the importance of helping income-oriented clients invest for specific outcomes, and talks about how those solutions are more likely to be found in more “off the beaten path” investments, which present profit-generating opportunities for advisors: Outcome-oriented investing, once dominated by institutions offering low cost defined benefit plans, is a challenging job… Investment advisors can now create risk-aware portfolios designed to meet the specific income needs of their clients. The portfolios contain funds that invest in non-traditional sources of income. The portfolios should feature investments that are not overly expensive. Investing in themes is integral to generating alpha and hedging your portfolio against macroeconomic changes…” Harry Long’s article on ETF dividend strategies dovetails nicely, proposing several ideas for seeking out alternative income instruments while avoiding volatility. In contrast, on the subject of outflows from income investments, if you or your clients have muni bond funds coming due in the next few months, now’s the time to take action. SA contributor Patrick Luby highlights an historical summer trend in muni bond redemptions , per Bloomberg: … this year is expected to follow the same pattern, with $38.2 billion rolling off in June, $33.5 billion in July, and $29.9 billion in August. (The monthly average this year is just under $26 billion.) Forecast redemptions include maturing bonds as well as bonds that have been advance refunded or current refunded and are expected to be called away. For those fond of quick math, that’s more than $100 billion in redemptions — quite a round, and a rather hefty, number. Luby points out that, while reinvesting principal is generally an attractive benefit of owning individual muni bonds, due to the current rate situation and economic uncertainty, advisors and their clients may be unsure how to, or even if they want to, reinvest. He suggests those who have bonds coming due (maturing or pre-refunded) in the next several months consider the following: Changing asset allocation by using redeemed municipal bond proceeds to invest in another asset class will cause a shift in the overall portfolio risk profile, and should not be done unless called for by the investment plan. Don’t wait for the principal to be returned to you to consider what to do. Due to the volume of principal that will be seeking reinvestment, muni bond investors may find themselves competing with each other for a limited supply of appropriate bonds. Investors in high-tax jurisdictions with a preference for in-state double-exempt bonds may find their options even more severely reduced. Consider making provisions for reinvestment in advance of your bond’s redemption date. Pay attention now to the new issue calendar for appropriate issues that will settle after the maturity date of your maturing/refunded bond. As an alternative to individual bonds, you may wish to consider using a municipal bond ETF to maintain asset class exposure while waiting for a suitable replacement security. (To learn more about doing this, read my recent article about using duration as a guide to selecting municipal bond ETFs, available here .) These are definitely items of importance for advisors and muni bond investors to keep an eye on should redemptions proceed as forecast. Finally, since there appears to be quite a hefty focus on oil, where it’s headed, and the frothy politics involved therein, here are several stories offering a variety of views and insights on the volatile commodity: Daniel Jones takes a particularly bullish view on oil . However, Simply Investing says don’t expect the rally to last for long . The Heisenberg breaks down the nefarious geopolitics of oil price movements . Resident SA commodity expert Andrew Hecht explains how to read the “tea leaves” for crude following the OPEC stalemate in Doha earlier this month.

Will Apple Lag Or Leapfrog Samsung With Cell-Capable Watch?

Apple might add cellular connectivity in its next-generation smartwatch, as it races with rival Samsung to make the devices more functional. The Apple Watch has relied on a user’s nearby iPhone for wireless connectivity. Samsung’s Gear S2 users can read and reply to text messages and listen to voice messages but do not yet have Internet access or Web browsing. Apple is revving up new features amid disappointing demand for its initial device, says a Wall Street Journal  report . Apps may run directly on the Apple Watch’s own processor. The new Apple Watch is expected to debut in September, along with the iPhone 7. That same month, Samsung is expected to take off the wraps of the next generation Gear S3 at Europe’s IFA 2016 show, in Berlin. Both Apple and Samsung have been active in an industry standards-setting group called GSMA. The industry group has been developing standards for electronic SIMs embedded in consumer electronics such as phones, as well as for the Internet of Things. The reprogrammable software does the same job as the SIM (subscriber identity module) card, often found under the mobile phone battery. Samsung’s Gear S2 smartwatch features a built-in e-SIM, also called smart SIM. A 9to5Mac report last year speculated that Apple plans to add videoconferencing capability to its smartwatches. Apple’s move into e-SIMs or soft SIMs could be a problem for wireless service providers such as AT&T ( T )  and Verizon Communications ( VZ ). That’s because with e-SIMs consumers could shop for the best wireless data plan and switch service providers much more easily.

Steel Makers Show Their Mettle; Stocks Rise Sharply

Close watchers of the stock market witnessed a rotation out of conservative, dividend-paying utilities and REITs during the past week. The fresh cash seems to be going into steel makers, machinery and related companies. Rotations occur seemingly spontaneously when money managers decide one group has risen enough and sell, redeploying the cash elsewhere. Investors should watch the rise and fall of IBD’s 197 industry groups for clues about rotation. Steel makers are the No. 3 industry group based on six-month performance, up from No. 175 three months ago. A look at the charts of some of the leading steel companies shows a sudden run-up. Several have risen almost uninterrupted this year. Steel is a cyclical industry, so an improvement in earnings and stock price could foresee an improvement in the manufacturing sector. Steel Dynamics ( STLD ), a leading member of the group, is not far from making multi-year highs despite a 47% decline in 2015 earnings per share. Last week, it reported that Q1 earnings rose 53% from a year earlier. Analysts expect EPS to nearly double this year. The stock has gained nearly 60% since a Jan. 20 intraday low but is hitting upside resistance near 25. The stock is just 4% below a September 2014 peak of 25.15. Domestic steel makers have been pinched by falling prices resulting from a supply glut and from cheaper imports resulting from a rising dollar. CEO Mark Millett told analysts that overall demand in the first quarter was unchanged with heavy equipment, agriculture and energy markets weaker and automobiles and construction were stronger. Meanwhile, Steel Dynamics’ scrap recycling business swung from an operating loss to a profit. U.S. Steel ( X ) once produced two-thirds of all U.S. steel. It stock has rebounded 200% since late January. But the profit picture isn’t so rosy. It lost money last year and is expected to lose even more money this year. Shares of Nucor ( NUE ), the nation’s largest steel producer, has risen 45% since late January. After four quarters of declining EPS growth, it posted a 28% increase in Q1 to 23 cents a share. Analysts expect a 33% increase to 48 cents in the current quarter and a 14% rise this year. Steel producers are part of the metals sector, ranked No. 3 out of 33 sectors. The sector has risen 15% year to date through Monday’s IBD. A single stock in the sector makes the cut as stocks with EPS and Relative Strength ratings of 80 or above with an IPO in the last 15 years. That’s  RBC Bearings ( ROLL ), which is part of the No. 5 metal processing and fabrication industry group. The company makes precision ball bearings used in aircraft and industrial applications. In near lock-step with the steel companies, the stock began a sharp recovery in January that has carried it 37% higher since January. The company has experienced moderate but steady growth in recent years. Revenue growth has accelerated from 0% to 26% to 32% to 36% in recent quarters.