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Highly Rated Stocks

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TAKING STOCK
BY MALCOLM BERKO
RELEASE: WEDNESDAY, JANUARY 17, 2018

Dear Mr. Berko: I am very nervous about the stock market and have been selling my weak stocks — those that have weak financial statements and those I don’t think will be able to keep their profit momentum during a big downturn. For example, I’m selling Ford and General Motors, my airline stocks, some of my real estate investment trusts, two restaurant stocks, all of my small telecommunications stocks, two media stocks, insurance stocks, bank stocks, and mortgage issues. But I want to remain in the market with stocks rated A++, because they have the highest financial strength and, though they may also fall in price, they will continue their dividends and recover well when the market comes back. What stocks would you recommend? I have $84,000 to invest. — HK, Kankakee, Ill.

Dear HK: The designation A++, for the few who don’t know, is Value Line’s top safety rating. It tells us that the financial strength of a company is among the best of the 1,700 companies followed by Value Line. Value Line’s ratings are measured by companies’ balance sheets and financial ratios and by the stability of their stock prices over the past five years. Value Line also considers business risk, the level and direction of profits, cash flow, earned returns, cash on hand, and the size of a company. But be mindful that the Value Line safety rating is a quality rank and not a performance rank. Please read that sentence again.

Less than 5 percent of Value Line stocks have the highest rating. Here are eight stocks that are rated A++ by Value Line, each yielding 3 percent or higher and having a long-term history of increasing dividends.

Everyone knows IBM (IBM-$164) as a worldwide supplier of technology, business services and software systems. IBM pays a $6 dividend and yields 3.6 percent. A dozen years ago, IBM was $80, and the dividend was 78 cents. Wall Streets is bullish on IBM’s earnings and dividends for the coming years.

Qualcomm (QCOM-$68) designs and markets integrated circuits used in voice and data communications, and the dividend, which is now $2.28 and yields 3.55 percent, has increased from 9 cents in 2003 when the stock was trading in the high $20s. QCOM’s merger talks with Broadcom are contentious, and some think it won’t happen. If it doesn’t, the Street thinks good things are in store for QCOM in 2018.

AT&T (T-$36.50) provides communication, entertainment, and internet services to businesses around the world. The $2 dividend yields 5.3 percent and has increased each year since the Lord’s dog was a puppy. Both revenues and earnings should increase in 2018.

Pfizer (PFE-$36.40) sells drugs, lots of drugs. In fact, PFE sold $53 billion worth of drugs in 2017. Drugs such as Prevnar 13, Enbrel, Lyrica and Lipitor have enabled PFE to raise its earnings yearly and have enough money to spend hundreds of millions on TV advertising. The current $1.36 dividend yields 3.7 percent and should be increased in 2018.

Paychex (PAYX-$67) is a national provider of affordable full-service payroll services, as well as human resources services. PAYX’s $2 dividend yields 3 percent. Net profit margins are 26 percent, and return on equity is 43 percent. Expect continued earnings and dividend growth.

Merck & Co. (MRK-$62.52) is a $40 billion drug company that has an impressively fecund drug pipeline, which will stand it in good stead over the coming dozen years. MRK’s $1.92 dividend yields 3.4 percent, and profits and dividends should increase in 2018.

Coca-Cola (KO-$46) is a household name, Warren Buffett’s favorite drink and among his favorite stocks. His holding company, Berkshire Hathaway, has owned the stock for over 35 years. The $1.48 dividend yields 3.2 percent and should be raised again this year.

Procter & Gamble (PG-$90) sells a huge range of consumer products, from baby care to health care to beauty care. The $2.76 dividend yields 3 percent. The Street expects excellent growth this year and in 2019.

Invest $10,000 in each of those stocks, which will produce a 3.3 percent current return. Let’s hope that will give you the protection you want and a handsome yield in this market.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

COPYRIGHT 2018 CREATORS.COM

Economy

Next Wave of Stimulus Could Be $2 Trillion Infrastructure Bill

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Next Wave of Stimulus Could Be $2 Trillion Infrastructure Bill

“Phase 4” of the government’s economic stimulus plan could include spending up to $2 trillion on improving America’s infrastructure.

The bill already has bipartisan support, and could be voted on as soon as April 20th when representatives of both the House and Senate return to Washington, D.C.

During his 2016 campaign, President Trump said he would make improving America’s roads, bridges and airports a top priority during his time in office.

“The only one to fix the infrastructure of our country is me – roads, airports, bridges,” Trump tweeted on May 12, 2015. “I know how to build, [politicians] only know how to talk!”

While previous attempts to pass a major infrastructure bill have failed, both sides seem willing to try again in an effort to help America’s economy rebound from the coronavirus outbreak.

House Speaker Nancy Pelosi, who is often at odds with the President, said she is “pleased the president has returned to his interest” in the issue. She called an infrastructure proposal “essential because of the historic nature of the health and economic emergency that we are confronting.”

She added “I think we come back April 20, God willing and coronavirus willing, but shortly thereafter we should be able to move forward.”

The Democrat’s proposal is part of a five-year, $760 billion package that includes money for community health centers, improvements to drinking water systems, expanded access to broadband and upgrades to roads, bridges, railroads and public transit agencies.

The plan designated $329 billion for modernizing highways and improving road safety, including fixing 47,000 “structurally deficient” bridges and reducing carbon pollution. It also aimed to set aside $105 billion for transit agencies, $55 billion for rail investments such as Amtrak, $30 billion for airport improvements and $86 billion for expanding broadband access.

“I could provide the legislative language in very, very short order for this package. It’s the funding that’s been holding us up, and if the president insists on funding, then I believe that Senator McConnell and Leader McCarthy will move on this issue,” said Democratic Rep. Peter DeFazio of Oregon, who chairs the House Transportation and Infrastructure Committee.

During an appearance on CNBC yesterday, Treasury Secretary Steven Mnuchin said he is talking with Congress about a potential infrastructure bill.

“As you know, the president has been very interested in infrastructure. This goes back to the campaign: The president very much wants to rebuild the country. And with interest rates low, that’s something that’s very important to him.”

He added “We’ve been discussing this for the last year with the Democrats and the Republicans. And we’ll continue to have those conversations.”

Earlier this week President Donald Trump said he wants to spend $2 trillion on a massive infrastructure package.

He tweeted that “With interest rates for the United States being at ZERO,this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4.”

“The president very much wants to rebuild the country, and with interest rates low, that’s something that’s very important to him,” Treasury Secretary Mnuchin added.

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Economy

Stocks Will Head Lower, Warns Billionaire Bond Investor

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Stocks Will Head Lower, Warns Billionaire Bond Investor

Billionaire bond investor and DoubleLine Capital founder Jeffrey Gundlach is the latest Wall Street veteran to warn that the worst is yet to come for stock prices.

He joins famed investor Jim Rogers, who said on Tuesday that he expects the market to stay elevated for a while, but ultimately another stock market route is on the way.

“I expect in the next couple of years we’re going to have the worst bear market in my lifetime,” Rogers said in a phone interview.

Gundlach may not be as bearish as Rogers, but he did say earlier in March that there was a 90% chance the United States would enter a recession before the end of the year due to the effects of the coronavirus pandemic.

In the short-term Gundlach said during a webcast on Tuesday that he believes that the lows we saw in March will be eclipsed in April due to the uncertainty around the coronavirus outbreak and when we can expect the number of new cases to slow.

“I think we are going to get something that resembles that panicky feeling again during the month of April,” while adding “The low we hit in the middle of March, I would bet that low will get taken out.”

Mark Hackett, chief of investment research at Nationwide agrees with Gundlach and warns that there is compelling evidence that nearly every bear market has a few rallies before plunging lower.

“Last week’s double-digit gain for markets was a welcome relief rally, though market bottoms are rarely as clean as this one has been. In 2000/01, there were four rallies of greater than 20% before ultimately reaching a bottom, and in the financial crisis, the S&P 500 had a false breakout of 27% before hitting a bottom.”

Gundlach also said that any projections that the US economy will quickly recover once the spread of the virus slows were too optimistic and that the hopes of a quick recovery were causing the markets to act “somewhat dysfunctionally.”

“We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020,” he said.

Gabriela Santos, JPMorgan’s global market strategist agrees with Gundlach that we aren’t going to get the quick “V-shaped” recovery that most are predicting.

She believes that we’ll start a slower “U-shaped” recovery once coronavirus infection rates peak.

“A ‘V-shape’ I think we should unfortunately discount at this point, because even when infection rates peak for COVID-19 around the world, what the China experience is teaching us is even though the government begins to relax some social distancing guidelines, individuals themselves are still very careful about how exactly they go back to their day to day lives,” she said.

“So demand was quick to shut down, but it’s actually much slower to come back online,” she added. “The better analogy here is a U. There’s a very sharp drop in activity in the first half, there’s a bit of a stall in the second, and then in 2021 is when that strong rebound begins.”

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Economy

Fed Bank Predicts 53 Million Americans Out of Work, 32% Unemployment Rate

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Fed Bank Predicts 53 Million Americans Out of Work, 32% Unemployment Rate

As we covered here on The Capitalist last week, during an interview with Bloomberg News, Federal Reserve Bank of St. Louis President James Bullard said that he is forecasting the U.S. unemployment rate will hit 30% in the coming months as the coronavirus pandemic continues.

The comments understandably raised a few eyebrows at the thought of such a staggering unemployment rate, which would be nearly triple what we experienced during the Great Recession.

Bullard tried to soften the blow in a later interview with CNBC, stating that although the unemployment number will be “unparalleled” we shouldn’t get discouraged.

“…if we play our cards right and keep everything intact, then everyone will go back to work and everything will be fine.”

Now, one of Bullard’s colleagues at the St. Louis Fed has an even more dour prediction about what America will face in the coming months.

In a research paper published last week, Miguel Faria-e-Castro, an economist at the St. Louis Fed, titled his article “Back-of-the-Envelope Estimates of Next Quarter’s Unemployment Rate” and estimated (remember, this is one man’s estimates) that nearly 53 million Americans could find themselves unemployed due to the coronavirus.

That works out to an unemployment rate of 32.1%. At the peak of the Great Depression nearly 100 years ago the unemployment rate topped out at 24.9%.

Faria-e-Castro acknowledges that it’s a massive number, and states “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years.”

He points to previous research that identifies 66.8 million workers who are in “occupations with high risk of layoff” that include sales, production, food preparation and services. He then looks at additional research that found 27.3 million workers in “high contact-intensive” jobs at risk such as barbers, stylists, airline attendants and food and beverage services.

Faria-e-Castro then averages those two numbers and adds in the existing number of unemployed Americans to arrive at his estimate.

While we are nowhere near reaching that unimaginable number, we are at the very beginning of a massive wave of initial jobless claims filings.

Just last week initial jobless claims hit a record of 3.3 million and another 2.65 million are expected to join them this week, according to economists surveyed by Dow Jones.

Some are even more pessimistic.

Thomas Costerg at Pictet Wealth Management has the highest estimate at 6.5 million, while Goldman Sachs estimates 5.25 million and Citigroup is at 4 million.

Moody’s Analytics predicts that initial unemployment claims from last week, which will be announced Thursday, could reach 4.5 million.

“COVID-19 has caused unemployment to surge and we look for U.S. initial claims for unemployment insurance benefits this week to total 4.5 million, compared with the 3.283 million in the week ended March 21,” Moody’s Chief Economist Mark Zandi said in a statement.

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