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5 Stocks To Consider Upon Retirement

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5 Stocks To Consider Upon Retirement

Into Retirement You Go, Savvy Investment Practice You’ll Know, Diversify Portfolio, And Watch Those Dividends Grow!

5 Stocks To Consider

When it comes to deciding what your retirement investment portfolio will look like, the two D’s reign supreme: diversity and dividend-growth.

The former ensures flexibility and security in the face of volatile global markets, while the latter ensures long-term gains.

Read on for five investments that you should consider for ensuring happy days in the sun.

The high five!

Five is a great number.

We’ve got (most of us) five fingers on each hand; the classical family unit consists of around five people, and religious texts seem to have an affinity with having five sections.

So in this spirit, this investment portfolio is made of five robust and respected investment options.

The stocks you should definitely consider are General Motors, Target, Pfizer, Edison International, and Phillip Morris.

With these five, you’ll have your investor fingers in five lucrative and secure industry pies, as illustrated by the following pie chart:p4.4

The great thing about these industries is that they don’t tend to experience growth or decline in performance at the same time as each other as they are as independent from one another as industries of their size can be.

In practice, this diversification means that you can take those profits from the out performers and use them to reinforce your holdings in the sluggish sector.

Thus, you are sheltered from the impacts of each industry’s performance, while gaining from their cumulative strength in the long run.

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Diversification is great; dividend growth is better

All these five companies have a tradition of paying dividends and increasing those dividends over time, in effect rewarding loyalty for holding stock. With an average yield of 3.5% each and no long-term business worries in sight, these are what most would call a sure thing.

The following graph demonstrates this:

p4.5

General Motors is the strongest performer, and also has one of the lowest price-to-earnings ratios, effectively representing the best value for money on offer.

This is partly thanks to its stock falling in price to the $30 it is at now (see graph below).

p4.6

Although its stock has fallen, there is absolutely no reason to fear for its long-term performance.

Revenue grew 4.3% last year, and its cash growth was a whopping 19% the same year.

One of the ways General Motors allows itself to pay high dividends is by repurchasing stock in itself, which in turn means less outstanding shares and so less stock and investors to pay dividends on and to.

Target, another of our stocks in focus, does the same thing.

Last year it announced it would be buying 25% of the currently outstanding shares for a total of $10 billion.

This allowed it to boost dividends by 7.7% last year, and a similar amount this year, according to a recent announcement.

This will be the 49th consecutive year of dividend increases for Target.

49 years of constant dividend increase should tell you all you need to know about the long-term viability of this investment.

All other stocks in focus have good track records of increasing dividends to reward shareholders.

Price to Earnings Ratio

p4.7

As we can see, GM’s PE ratio is absurdly low.

Pfizer’s is the highest on our list and the only one with a ratio higher than the S&P 500 average (24).

Regardless, these five represent a great value for money package.

Even Pfizer’s higher than average ratio is understandable when you consider its business is pharmaceuticals, an industry growing each year hugely. Future profits and dividend growth are virtually guaranteed.

Its earnings-per-share has also grown gradually recently, while GM’s has ballooned:

p4.8

Even Phillip Morris, a company in a supposedly declining industry, has a high PE ratio.

While fewer people are smoking in the West, Phillip Morris has made an effort to isolate itself from any drastic effects on long-term viability, by investing in things like e-cigarettes.

Markets with growing middle-classes, which are bucking the trend of less smoking seen in the West are also providing a buffer against falling revenues.

Phillip Morris, like General Motors and Target, buys stock in itself as a way to ensure dividend growth.

From 2012 to 2015 it purchased $12.7 billion worth of stock.

And, with a $7.8 billion cash flow, its $1.6 billion dividend requirements were comfortable covered, with plenty scope to increase growth in the future.

Recession and Recovery

p4.9

As the graphic above shows, these stocks bounced back solidly after the initial plunges they and everyone else experienced due to the 2008 financial crash.

Not only did they recover quickly, but their growth has been very well sustained since then.

Many investors might have panicked and sold so as not to lose further, but those that stuck to their guns were rewarded with more stock, higher dividends and more capital gains.

Were another crisis to arise in the next few years, one could expect the same robust bounce back.

Final Word

General Motors name is synonymous with quality and the American auto industry.

Target is world-famous for its embodiment of the discount superstore.

Pfizer is a firmly entrenched big pharma player, an industry that will grow in importance in the decades to come, as markets become more accessible, and healthcare expenditure increases throughout the globe.

Edison International’s brand name exudes reliability and commands respect.

Phillip Morris, while less, might be buying its primary consumer, has demonstrated a refusal to accept its fate by diversifying its investment portfolio.

With these combined stocks, you will set yourself up for a fantastically secure and remunerative investment portfolio.

Of course, this will require patience and the need to tolerate bad times.

You will need to stay the course when everyone around you is shouting ‘sell’, and keeping an eye on your portfolio will become a necessity.

Of course, one should diversify further and not simply rely on a retirement portfolio such as the ones outlined in this piece.

Bonds and high-risk investment strategies could also be worth looking into, but both are more difficult and require more effort and attention.

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Fed Chair Warns Of ‘Prolonged Recession’

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Stocks Plunge As Fed Chair Warns Of Prolonged Recession

The Dow Jones Industrial Average fell 516 points yesterday to close 2.17% lower. This came after Federal Reserve Chair Jerome Powell warned of a “prolonged recession” as the country battles the coronavirus pandemic.

The S&P 500 fell 1.77% and the Nasdaq slipped 1.56% as banks, airlines and cruise lines took the brunt of the selloff, with Bank of America slipping 4.57% and Citigroup dropping 4.13%. Wells Fargo fell 6.28% and JPMorgan Chase lost 3.45%.

Carnival and Norwegian Cruise Line fell 7% and Royal Caribbean slipped 4.98%. American Airlines fell 5.6% while Delta Air Lines plunged 7.7% and United Airlines dropped 9.01%.

Recession and Recovery

Speaking at the Peterson Institute for International Economics, Powell said, ”what comes though is there is a growing sense I think that the recovery may come more slowly than we would like. The path ahead is both highly uncertain and subject to significant downside risks.”

He added “The passage of time can turn liquidity problems into solvency problems,” and said that sending more “fiscal support” to families and businesses “could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”

Powell did say that he and the rest of the Fed policymakers were against turning to negative interest rates in an effort to boost the economy. Many expected this move to happen later this fall, and even President Trump tweeted about them being a “gift.”

“It’s an unsettled area. I know that there are fans of the policy, but for now, it’s not something we’re considering,” Powell said yesterday. “We think we have a good toolkit, and that’s the one we’ll be using,” he then added.

He also said, “The committee’s view on negative rates really has not changed. This is not something we’re looking at. The evidence on negative rates is mixed.”

A Challenging Job

Powell said the economic uncertainty and the potential of a long recession due to the pandemic makes an already challenging job even more so.

“Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions. How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse?”

Powell’s questions come after Dr. Anthony Fauci testified in front of the Senate Health, Education, Labor and Pensions Committee. Fauci also warned against opening up the economy too quickly.

“My concern that if some areas — cities, states or what have you — jump over those various checkpoints and prematurely open up, without having the capability of being able to respond effectively and efficiently, my concern is we will start to see little spikes that might turn into outbreaks.”

He later added, “There is a real risk that you will trigger an outbreak that you may not be able to control, which in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided but could even set you back on the road to try to get economic recovery.”

“Everyone’s scared and everyone’s shell shocked,” said Kent Engelke, chief economic strategist at Capitol Securities Management. He also mentioned that Powell and Fauci “didn’t say anything new, they just validated the fears we have.”

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Unemployment Rate Balloons To 14.7%, Expected To Get Worse

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Unemployment Rate Balloons To 14.7%, Expected To Get Worse

April’s jobs report is out, and it shows a stunning 20.5 million jobs were lost last month, ballooning the unemployment rate to 14.7%. This mirrors Wednesday’s report from ADP that showed 20.2 million private-sector jobs were lost.

Economists expected a reading of 21.5 million jobs lost, according to Dow Jones.

The 14.7% unemployment rate is the highest our country has faced since the end of World War II.

“This is the biggest and most acute shock that we’ve seen in post-war history. It’s a dramatic loss of output in a very short period of time,” said Michelle Meyer, head of U.S. economics at Bank of America.

Meyer anticipated a loss of 22 million nonfarm payrolls and an unemployment rate of 15%. The industry hit hardest by job losses was the service industry. About 8.6 million jobs were lost in leisure and hospitality, and Meyer warns that it’s unknown how quickly those jobs will come back.

“In recession, the service side tends to be a lot more resilient. This time around, the services are in the epicenter, given how the Covid pandemic has impacted the economy,” she said. “Usually it’s the cyclical, more externally oriented parts of the economy. There’s a question of how quickly the service sector can come back after this.”

Expected Peak

Mark Zandi, chief economist at Moody’s Analytics, expects that job losses will peak in the coming weeks, but the headline unemployment rate could be an eye-popping 20% in May.

He says that if we don’t get a second wave of infections as the country re-opens, the unemployment rate will quickly drop by the fall, but doesn’t expect a full recovery until there’s a vaccine.

“Then we’ll get a bounce if we don’t get a second wave [of infections] in the summer months. The unemployment rate will be cut in half by Election Day. Then we go nowhere fast until there’s a therapy we all feel good about — not only a vaccine but one that’s widely distributed.”

He expects the economic impacts to linger and companies will be forced to make hard decisions about opening or permanently closing, and what their staffing needs will be.

“It’s just the pervasive uncertainty. The virus is still out there and can come roaring back. People just won’t be traveling, business won’t be investing. There won’t be the same kind of global trade. People just won’t get back to normal. People will be distancing,” said Zandi.

He added, “There’s going to be a lot of business failures and bankruptcies. You can already see it. They’re going to be in such a weakened state they aren’t rehire the people they had before.”

Not a Clear Picture

Minneapolis Federal Reserve Bank President Neel Kashkari was on NBC’s Today Show yesterday. There, he warned that today’s jobs report doesn’t give the clearest picture of job losses amid the coronavirus pandemic.

“That bad report tomorrow is actually going to understate how bad the damage has been,” Kashkari explained, adding that the reported unemployment rate could be as high as 17% — a brutal number, no doubt — but he says the true number may be as high as 24%. “It’s devastating,” she then said.

Meyer, for her part, hopes the number is lower, for no other reason than our nation’s psyche.

“There are a few metrics that Main Street pays attention to. One is the S&P 500, and the second one is what is the unemployment rate,” she also mentioned.

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Stocks Are Supported By Nothing But An ‘Ideological Dream’ Warns Analyst

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Stocks Are Supported By Nothing But An ‘Ideological Dream’ Warns Analyst

Albert Edwards, an economist at Société Générale, is out with his latest research note and the self-described “uber-bear” doesn’t disappoint.

“We are in the midst of a monetary and fiscal ideological revolution. Nose-bleed equity valuations are being supported by nothing more than a belief that a new ideology can deliver,” he wrote. “Meanwhile the gap between the reality on the ground and expectations grows wider.”

To be fair, other “doom and gloom” predictions from Edwards haven’t come to pass.

Economic Predictions

In early 2016 Edwards said the S&P 500 could fall as much as 75%. The S&P fell around 9% before recovering and marching higher.

This time around, however, Edwards’ predictions come against a backdrop of 30 million unemployed Americans, an economic lockdown and a potential record-setting drop in GDP output this quarter.

Edwards points to the price-to-earnings growth (PEG) ratio. It shows “how ludicrous current equity valuations have become and by implication how vulnerable equities are to a collapse.”

You can see the chart below, which is a “showstopper,” according to Edward. He says the reading just went above 2x for the first time in history. For comparison, a 1x reading generally means a stock is considered overvalued relative to its long-term earnings growth expectation.

Edwards says the last time the ratio was this high was during the dot-com bubble. However, that bubble at least had the expectations of long-term earnings-per-share growth.

“Compare the current situation with the late 1990s tech bubble. Then too the S&P forward PE (price-to-earnings) rose above 20x, but at least back then the cycle was still intact, and as technology stocks increasingly dominated the index, the market’s LT eps (long-term earnings-per-share) was also surging higher in tandem with the rising PE. At least back then the market had a LT eps leg to stand on albeit a wooden leg, riddled with woodworm. By contrast, this time around, despite technology stocks once again dominating the index, the 20x PE is based on nothing more than an ideological dream.”

Preventing to Turn an Ideological Dream Into a Nightmare

The Federal Reserve is doing everything it can to keep that “ideological dream” from becoming a nightmare. It does so by slashing interest rates to zero and bailing out companies and entire industries. It also does this by propping up market liquidity with bond ETF purchases and other quantitative easing measures.

In a series of tweets, Edwards compares the Fed’s efforts to a heavyweight boxing match between Thomas Hearns and Marvin Hagler.

In the fight, Hearns came out and put everything he had into the first round, leaving nothing in the tank.

“This equity bear market is going to be brutal. We have only just finished round 1.”

Edwards added, “Maybe like Thomas Hearns the Fed went out too early with all guns blazing in round 1 and the bear market is going to find the Fed out. Each successive Fed bailout is like Hearns stepping up a weight only to overextend himself. The Fed may now be fighting well beyond its capabilities.”

Regarding the elevated price-to-earnings ratio of the S&P 500 right now, officially the highest in the last 10 years, Edwards painted quite the picture in a late-April tweet.

“This is either an example of a Fed steroid induced attempt to ‘look through the earnings valley’, or a drug-induced climb up to an even higher valuation diving board in a hallucinogenic attempt to fly, only to plummet into an empty swimming pool drained of earnings. Maybe both!”

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