We have been anxiously sitting on the sidelines recently as the markets are very extended in the near-term. We also have been waiting for some clarity following the Federal Reserve meeting and statement to give us some idea of where we are headed.
The statement from the Fed yesterday should be seen as a positive for high dividend-yielding stocks relative to bonds and their anemic yields. These stocks have been relatively out of favor since the Fed previously announced 4 hikes this year. They have now announced a possible 4 hikes over two years, which implies a 1.5% rate sometime in 2017.
We think that even 4 hikes in 2 years is too aggressive. In our opinion, the Fed is likely to only make 1 more hike late this year. The world economy is too dicey right now and the rest of the modern is in a rush to lower rates as fast as possible. That’s a very difficult environment for the US to try to push rates higher.
This will open the door to add some high dividend payers that should do well even in a market pullback. We have been looking at several great dividend ideas will start adding one or two to the portfolio very soon.
When we’re thinking about longer-term trading, it is ok to sit on the sidelines when you just don’t have a good read on a choppy market. Our goal with this newsletter is to deliver value and hopefully outperform the market over the course of a YEAR, not over the course of a WEEK.
Yesterday’s announcement should also put some pressure on the financials, which remain attractive and currently trade below their book values.
We will look to add a position in one of these when they enter my desired price range. BAC (low $12 target entry), C ($38 target entry), remain our top choices in this space and will build a position when the opportunity comes.
Also, the current political circus has put substantial pressure on the Biotech and pharma sectors recently. Just look at the IBB (which is an ETF that tracks the biotech sector) and you’ll see it has been crushed recently as the market is discounting the future growth there. It is down a stunning 30% this year so far!
We think there are several very attractive opportunities in this space after this decline. The likelihood of any of the candidates actually following through on anything they say is not even a concern. So we will look to add in this space for both trading and investing opportunities as well. PFE, TEVA, CELG, remain top choices for trades and investments. All are priced near a level we would feel comfortable starting a position with for a longer-term hold.
Over the next few days and weeks we will begin to build a portfolio to capitalize on market inefficiencies and maximize the opportunities we have outlined.