Good Enough? Steady as She Goes - InvestorPlace€¦ · spending data. Inflation remains at bay, which is a positive for bonds. However, one of the past drivers for business investment

(continued)

Good Enough?No stock or bond market thrives

without the occasional hiccup. So, when the economic and market news keeps coming in on the positive side, that bothers me.

The US economy is still on track, and the fourth quarter numbers that will come at the end of January should be strong given consumer spending data. Inflation remains at bay, which is a positive for bonds.

However, one of the past drivers for business investment remains in trouble: The shale petroleum explora-tion and production (E&P) business is weighing on regional economies.

The agricultural industry is not healthy either. Weather troubles have caused major economic woes for farms. And trade tirades have only worsened market conditions for farms with crops to harvest. This is negatively affecting many regional Midwest economies and local busi-nesses.

The US and China are coming to some sort of agreement, which should aid agriculture as well as the energy market, and the United States–Mexico–Canada Agreement (USMCA) is set to be signed.

This will provide a better and more predicable environment for manufac-turers as well as the agricultural and energy markets. And the US finally has a full budget for fiscal 2020, which adds some certainty for the economy.

But the rest of the world’s major economies are enduring plenty of woes. This brings challenges for global companies but makes the US all the more compelling for global investors.

So, as they currently stand, things are pretty good. But we can’t get ahead of ourselves when it comes to our investments. Instead, I recom-mend sticking to the tried and true US-centric stocks and bonds for the core of our portfolios.

January 2020

Vol. 31, No. 1

Steady as She GoesDear Friend,

Goldilocks… That’s the word that comes to mind when looking at the US stock and bond markets.

The US economy continues to expand. Gross domestic product (GDP) increased by 2.1% during the third quarter, and the projections are for continued expansion into the first quarter of 2020.

US consumers are driving that expansion, with consumption gaining 3.2% in the most recent quarter and showing little signs of abating. The labor market remains strong, with ample job openings driving down the unemployment rate to historical lows. Wage gains continue to expand and are running near double the rate of core inflation.

In turn, consumers are getting back to hyper-comfy levels, as measured by the Bloomberg Consumer Comfort Index, boding well for the economy. Businesses are also getting more and more comfortable, as expectations for sales and activity are rebounding again, according to the Federal Reserve Bank of New York.

Meanwhile, the Personal Consumption Expenditure Index (PCE) shows core inflation remaining well below 2%. That’s aiding the bond market, which is still well-bid with ample demand for bonds driving yields down and prices up.

But it’s a different story for many economies outside of the US hindered by myriad troubles. This means the US remains the island of opportunity, which is a warning for globally-focused companies.

In this issue, I’ll reiterate my call for US-centric investments for more growth and income. I’ll also present two new recommendations for companies that are cashing in on what’s working and what isn’t for balance in the model portfolios.

Growth StrategiesStocks & Bonds on Track for 2020

2019 was a bumper crop for US stocks and bonds. How much better can it get in 2020?

Let’s start with the underpinnings for the markets. The US continues to be the island of stable to improving growth.

Gross domestic product (GDP) is running at 2.1% for the most recent quarterly data and is projected to come in at 2.3% for 2019. This continues the trend of quarter-over-quarter growth since the end of 2008 to date.

Consumers are the main drivers of this economic growth. The US personal consumption rate embedded inside the GDP data is up for the most recent quarter by 3.2% and has been firmly on the rise over that time.

So, the key to keeping the US economy humming along through 2020 is going to be the consumer. And to support the consumer, we continue to have a strong labor market, with unemployment running at a mere 3.5% while average wages are increasing at a rate of 3.1%.

This means more folks have jobs that are paying more, which helps them buy more products and services. But it’s not just about the ability to spend.

It’s also consumers’ willingness to spend that is important. And as a forward-looking barometer, the Bloomberg Consumer Comfort Index has been dramatically

2 Profitable Investing | January 2020 | profitableinvesting.investorplace.com

Neil George’s Profitable Investing® (ISSN 2577-9311) is published monthly by InvestorPlace Media, LLC, 1125 N Charles St, Baltimore, MD, 21201. Please write or call if you have any questions. Phone: 800/211-8566. Email: [email protected]. Web site: profitableinvesting.investorplace.com

Editor: Neil George Chief Executive Officer: Brian Hunt Senior Managing Editor: David Tony Marketing Director: Katy Anadale Managing Editor: Gregg Early Chief Marketing Officer: Brad Hoppmann Assistant Managing Editor: Wola Odeniran Marketing Director: Mary Southard Editorial Director: Luis Hernandez Senior Designer: Marc Gagarin

Subscriptions: $249 per year. © 2019 by InvestorPlace Media, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure policy at https://profitableinvesting.investorplace.com/disclaimers-and-disclosures or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Baltimore, MD, and at additional mailing offices. Postmaster: Send address changes to Neil George’s Profitable Investing®, InvestorPlace Media, LLC, 1125 N Charles St, Baltimore, MD, 21201.

reversing its slide from mid-October through early November to return to the quite comfy level of 61.1%.

But consumer participation is only as good as the business that it gener-ates. And in turn, the economy is only as good as business activity going forward.

This is where we can look at some of the improving data from both services and manufacturing purchas-ing managers’ index (PMI) surveys, which are showing improvements after sliding earlier this year largely on trade tension fears.

A reading of over 50% is considered bullish. The services sector is faring better than the manufacturing sector, although it remains in positive territory.

And like the comfy index, the read-ings from business leaders surveyed by the Federal Reserve Bank of New York are also sharply more optimistic for business activity over the next six months, with its survey index up to a current 18 after slipping from July through October.

This means consumers should be there to support the markets in 2020. And with businesses working to capi-talize on the consumer, this should result in rising revenues and earnings next year.

Furthermore, we should see better quarterly reports in 2020, as average sales growth for members of the S&P 500 Index is expected to hit 6%, with average earnings gaining near 14%. Those rising sales and earnings should drive stock prices upward given current conditions and current expectations.

And as noted earlier, inflation is still well below the 2% goal of the Federal Reserve Bank and its Open Market Committee (FOMC). Therefore, the FOMC and the Fed should remain accommodative for the credit market in the coming year.

This should include either sustained low target rates for Fed funds (the

rate at which banks borrow from each other) as well as the ongoing heavy lending in the short-term finance market, known as the repurchase agreement market, and the newer quantitative easing (QE) operations.

This means easier credit conditions, which are good for consumers, busi-nesses and the sustained performance of the US bond market.

The overall US bond market has seen an average return of 8.5% year to date, as tracked by Bloomberg & Barclays. This significantly trumps the returns for the overall market average for 2017 and 2018.

Lessons from Down UnderNow, many questions remain

about whether the US economy can continue to grow with controlled inflation and support better stock and bond prices after such a long run.

For clues, we can turn to Australia, which is one of the best examples of an economy that has had similar sus-tained growth with low inflation. It’s also one that I have had a lot of expe-rience working with.

Back in my banking days, I worked with sovereign bond markets with a particular focus on fiscally reforming nations and central banks. This included

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M

201920172016 2018JunMarDec Sep JunMarDec Sep JunMarDec Sep

0.263Mid Price 0.263MHigh on 08/31/19 0.264MAverage 0.217MLow on 10/31/16 0.155M

20

15

5

0

-5

10

2019MarFebJan Apr JulJunMay Aug NovOctSep Dec

Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018

Ritchie Bros Auctioneers Inc

35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60

2018 2019MarFebJan Apr JulJunMay Aug NovOctSep DecAug NovOctSep Dec

250

300

200

50

0

100

150

2016201520142013 2017 2018 2019

Hannon Armstrong Sustainable Infrastructure Capital Inc

60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0

272.65 Mid Price■ DATESOLR Index (R1) 63.83M■ DATEWIND Index (L1) 272.65M

■ % Distressed – Ave WTI ($/bbl)

6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999

Last Price 1.7High on 09/30/94 5.6Average 3.2Low on 03/31/92 1.1

1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0

20192017 2018JunMar DecSep JunMarDec Sep JunMarDec Sep

52.2Last Price 52.2High on 05/31/18 56.6Average 53.9Low on 08/31/19 50.7

64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2

Last Price 3.2High on 12/31/14 4.9Average 2.2Low on 12/31/08 -3.7

US Personal Consumption Rate

Source: Bureau of Economic Analysis & Bloomberg Finance, L.P.

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Bloomberg “Comfy” Index

Source: Bloomberg Finance, L.P.

Profitable Investing | January 2020 | profitableinvesting.investorplace.com 3

New Zealand, Ireland, Denmark and others, including Australia.

During the 1980s, Australia had a boom-and-bust economy with erratic expansions and recessions. Inflation was all over the place and sometimes soared into the double-digits. Reserve Bank of Australia (RBA) reforms came through deregulation of the financial markets, floatation of the Australian dollar and a directive that the RBA focus policy to target inflation between 2%-3%.

These, along with other fiscal reforms, led to stability and predict-ability for businesses, consumers and investors. Sustained lower inflation, lower bond yields and investments in the resource markets sustained the economy, resulting in positive GDP growth since 1992 to date. That makes it one of the longest positive-performing economies in the world.

This has resulted in Australia’s ASX

Stock Index returning 1,200% from 1992 to date and the overall Australian bond market returning 240% since 1998 to date, with the sovereign gov-ernment bond market faring even better from 1992-1998, when I was highly active in the market.

The takeaway from Australia is that a central bank more focused on inflation with backup from regulatory reforms and fiscal improvements can bring sus-tained economic gains, lower inflation and continued investment inflows.

And with the US Federal Reserve now more focused on inflation targeting and US business and financial regula-tory reforms, the US may well continue with further sustained growth, benefit-ting both stocks and bonds.

However, as I noted previously, the US economy still has challenges. The agricultural markets, primarily in the Midwest, remain challenged by 2019

weather and trade tensions. And the petroleum market is having a shake-up throughout the shale fields.

These two developments have weighed on local and regional econo-mies. And while the overall economy is positive, it isn’t ideal.

Outside of the US, global economies are still not healthy and are showing slowed growth and recessionary condi-tions, resulting in challenges for global companies, including those in the US.

And while election day in the US is still far away, it’s getting closer. All of this means that US-focused stocks and bonds, which performed well for our model portfolios in 2019, will continue to provide the best returns in 2020. That is, until something significant changes.

Proven Growth & IncomeReal Estate for Real Renewables

Renewable energy is neither a fad nor a political football. The economics of working with wind, solar, hydro-power and other renewables continues to work for the bottom line and not just for show or for feel-good actions.

For proof, look no further than NextEra Energy (NEE), one of the more successful utilities in the Total Return Portfolio. Since being added to the portfolio, it has generated a total return of over 518%, which is fantastic when compared to the S&P Utilities Index’s 177% return for the same period.

It’s also quite impressive when compared to the S&P 500 Index, which only managed to return 221% over the same amount of time.

Renewables Power UpNextEra Energy has core operations

in regulated power for its base market in Florida, but it has really grown in assets and revenues thanks to its broad push into wind and solar power in both its regulated market and more so in its unregulated markets. In doing so, it has become one of the world’s largest wind and solar companies.

But it isn’t alone in this market.

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Australian GDP

Source: Australian Bureau of Statistics & Bloomberg Finance, L.P.

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Markit US Composite PMI Index

Source: Markit & Bloomberg Finance, L.P.


According to data compiled by the Center for Climate and Energy Solutions (C2ES), renewable energy is the fastest-expanding source for power in the US between 2000 and 2018, growing some 100% and climbing.

And yet, only 11% of US energy demand was fueled by renewables in 2018, according to the Energy Information Agency (EIA). This means that, although the gains have been impressive, there is a lot of opportunity for further growth.

For US electric power, renewables made up a bit more of the power pie in 2018, responsible for 17.1%. That is projected to increase to 24%, led pri-marily by wind and solar operations.

A great deal of this development comes from tax incentives. In 1992, the Production Tax Credit (PTC) enabled utilities to claim credits for each kilowatt of power generated. This enabled a lot of projects to get green-lighted and provided the initial push in this market. But this is being phased out at the end of 2019.

The Investment Tax Credit (ITC) provided the next leg up for wind and solar. This enabled credits not just for power produced but for investments in equipment and facilities.

This is what has been behind much of the economics of NextEra Energy, as it is as much about capability as it is about power production. So, even if the wind isn’t blowing or the sun isn’t shining, NextEra still gets its credit for its investment in facilities and capabilities. The ITC is phasing down but will continue into the 2020s.

Individual states also continue to provide credits, including high-tax states such as California, which adds to the economics of renewable power projects. They also continue to expand mandates for regulated utilities to either generate or acquire power from renew-ables as part of their approvals by local public utility commissions (PUCs).

This means renewable power is not just about tax savings. Instead, it’s a requirement that is fueling major investments in renewables. The EIA and C2ES estimate that spending on such investments totaled $2.2 trillion in 2017 and $2.4 trillion for 2018.

2019 should show a further rise.Renewables include a variety of

power sources, including hydroelec-tric power, but the big drivers are wind and solar. The US Department of Energy (DOE) has done an annual review of power generation by source since 2000. US solar power genera-tion gains have been nearly 13,000%. Wind power generation over the same period climbed by close to 5,000%.

All of this comes as popular demand for wind and solar remains buoyant. For example, Texas, the bastion for fossil fuels, produces more wind power than any other state in the US and generates more than 25% of overall US energy from wind power. From ranches to shale fields, wind turbines are a mainstay of the landscape of the Lone Star State.

NextEra Energy has done and should continue to do well from its conventional and massive renewable energy assets. Buy NEE under a raised price of $245.00, ideally for a tax-free account.

The Real DealIn addition to NEE, I also want to

focus your attention on a company that is a great behind-the-scenes busi-ness in the renewable energy market: Hannon Armstrong Sustainable Infrastructure Capital (HASI).

This real estate investment trust (REIT) capitalizes on a few bits of significant legislation, including the Investment Companies Act of 1940, the Small Business Investment Incentives

Act of 1980 and, most importantly, the Cigar Excise Tax Extension Act of 1960.

As a REIT, it operates largely outside of Federal corporate tax liabil-ity. It invests in and finances projects in renewable energy that are built and operated on real estate proper-ties. And thanks to another bit of legislation, the Tax Cuts & Jobs Act of 2017, individual shareholders have a particular line item giveaway in that 20% of the dividend distributions from HASI (like for all US REITs) is deductible from taxable liability.

Hannon Armstrong is based in the very pretty town of Annapolis, Maryland. It has been around since the 1980s as Hannon Armstrong Capital. In 2012, it formed its current company into a REIT, and it went public in 2013.

The REIT provides lending and debt financing in addition to taking equity stakes in the renewable and energy effi-ciency markets. It does so through both private and publicly funded projects with a large collection of US govern-ment properties. This provides a highly dependable credit behind its invest-ments, as Uncle Sam has the power of the US Treasury behind his wallet.

Furthermore, much of its investment projects come with underlying guaran-tees from not just the US government but state and local governments as well. All of this aids the credibility of the company and the security of its underlying assets and cash flows.

It’s not the biggest in the renewable business, having some $5.7 billion in assets in its portfolio. But it has been

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


US Annual Solar (Black) & Wind (Blue) Electricity Generation

Source: US Department of Energy & Bloomberg Finance, L.P.


adding assets at a pace that’s now reported to be running at $1 billion per year.

It has investments in nearly 200 projects, predominantly in the US. And its portfolio is primarily generat-ing investment interest on financing, amounting to 55% of revenue, with 20% on rental income on its proper-ties. The remaining portion comes from equity participation revenues and portfolio investments.

Revenues are up over the trailing year by 30.5%. And that revenue has climbed over the past five years by 199%. As a REIT-organized finan-cial company, its net interest margin (NIM)—the difference between what it pays to finance itself and what it earns in interest—is a fat 12.1%.

Compared to a traditional finan-cial, its return on assets is well above average at 1.9%. In turn, it has a return on equity of 5.8%.

It is a bit more expensive to run the company due to its current size, with an efficiency ratio (the ratio of how much it costs to earn each dollar of revenue) of 64.3%. I would like to see more scale in the company and some cost controls by management, but that should be in the works given the ramp up in its portfolio.

As a REIT, debts are part of the capital structure, so its debt to assets ratio of 57.6% is reasonable and sustain-able given US credit market conditions now and in the foreseeable future.

The shares have returned nearly 280% since coming to the public

market in April 2013. Note in the total return graph above that the shares provided a strong return in 2018 that was in line with the REIT segment, including during the turbulent fourth quarter. Year to date, the shares are getting more attention with rising prices and dividend income.

Quarterly dividend distributions are running at 33.5 cents, which represents a 4.1% yield. That’s above the average for REIT dividend yields, as measured by the Bloomberg US REITs Index. And those distributions have been on the rise over the past five years by an average of 7.7% per year.

While Hannon Armstrong shares are up, they are still a relative value. On a price-to-book basis, the effective value of the net assets is running at 2.4 times, which is below the average for the Bloomberg US REITs Index.

HASI provides both a behind-the-scenes profit opportunity with yield in the renewable energy market as well as an important hedge leading into the 2020 elections. While we’re a long way from Nov. 3, I continue to evaluate the risks and rewards from possible and potential outcomes.

Renewables continue to work well. And if the status quo is maintained, the company should fare well. But, if we have some changes, Hannon Armstrong will be on the front line to profit further from its position in the green energy market.

Hannon Armstrong Sustainable Infrastructure Capital (HASI) is a new buy for the Total Return

Portfolio under $35.00, ideally for a taxable account.

More Growth & IncomeAuction Action

I’m always on the lookout for market segments that provide revenues and profits regardless of what the economy is doing. One prime example that we’ve focused on recently is the asset management business.

As you might imagine, this segment is all about assets under management (AUM). Management companies don’t have to be the best in returns as long as they are good at attracting and keeping AUM.

The more AUM, the more fee income the company earns each and every quarter. And sure, it helps if the managers are exceptional, as that aides in attracting and keeping AUM.

But even if managers are just average, they can be very successful if they keep the AUM and the fees that are generated. When markets go up, AUM should edge up and gen-erate more fees. When markets go sideways or lower, AUM might slip, but the fee income still flows in.

We have two asset managers in the model portfolios: AllianceBernstein (AB) in the Total Return Portfolio and BlackRock (BLK) in the Incredible Dividend Machine. They both con-tinue to generate strong revenues from their own respective AUM. And they both have track records through good and bad markets.

AB remains a buy under $33.00, ideally for a taxable account, and BLK is a buy under a raised price of $510.00, ideally for a tax-free account.

But there’s another segment that’s set up to fare well during both good and bad times, and that’s the equip-ment auction market.

Profits in Good Times and BadEquipment auctions aren’t new.

Companies on the way up are eager buyers of equipment, from tractors and trucks to forklifts and backhoes, as

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Hannon Armstrong (HASI) Total Return



well as a myriad of other high-dollar bits and pieces.

And when projects and contracts are finished or when business sours, those expensive bits of equipment have to go to pay bills or creditors.

There are plenty of examples of these auctions from the news as well as plenty of bad luck stories in the movies where family farmers are shown lamenting the sales of their tractors or combines.

And in the US petroleum explora-tion and production (E&P) market, there are a growing number of bank-ruptcies following over-exuberance in the US petrol patch. In 2018, there were 28 bankruptcies, and that number has already been exceeded in 2019.

And with more small producers with sub-investment grade credit defaulting at a rate of 5.7% this year—the highest since 2017—the equipment liquidation business is getting bigger.

As I mentioned previously, the US agricultural market has been highly challenged in 2019. Bad weather has led to planting and harvest issues, driving down revenues and putting farms in jeopardy just like petrol companies. Add in the impact of the trade war limiting export markets, and farmers are being forced to raise cash.

This is not just limited to petrol and agriculture. Construction equip-ment is also an area of excess or out of sequence allocations. When major projects are completed, that leaves equipment to be moved for the next contracted project.

Auctions provide the mechanisms to sell and buy. This is not just a US market. Just ask Caterpillar (CAT), which has seen erratic market condi-tions for construction, agriculture and mining equipment around the globe.

Lessons LearnedRitchie Brothers Auctioneers

(RBA) has a very real-world origin story. Three brothers, Ken, Dave and John Ritchie took over a used furniture store in British Columbia, Canada in the mid-1950s from their father.

When they ran into some trouble with a bank loan and needed cash quickly, they conducted an auction on

inventory, and the business model was born. Furniture was out, and auction-eering was the new family business.

The new company quickly moved on to industrial equipment and was one of the first to conduct auctions under cover from the elements rather than in open fields. They also intro-duced ramps and platforms to better showcase the items for sale.

The brothers then ventured into the virtual market to broaden their reach beyond local buyers. In the past, if one local business needed to sell, then often other local businesses were in similar conditions, which limited buyers and prices.

Video auctions were the solution in the late 1980s. And when the world wide web came around, the Ritchie Brothers went online in 1996.

The company has now expanded to 12 countries, with 46 sites worldwide, though the North American market remains at the core of annual revenues.

Along the way, they also found that when consigning equipment, cars and other vehicles would often be part of a contract. Think everything from barn-find collector cars to excess pickup trucks and well beyond.

This led to the establishment of a spe-cialized division of car auctions under its Leake brand back in 1964. This also extends to destination auctions in pleas-ant locales in winter such as Scottsdale, Arizona where the company showcases live broadcast car auctions.

The market for collector cars and

car auctions continues to thrive as more and more folks buy cars of their youthful dreams for fun or for profit.

Hagerty is a Traverse City, Michigan-based specialty insurer, which tracks car prices. And over the past decade, its Blue-Chip Car Index has gained over 122%. While under the S&P 500 Index’s return, it shows that you can buy and enjoy fun cars and rather than suffer depreciation, you can actually see some potential appreciation.

So, Ritchie Brothers provides the ability for investors to gain from companies expanding and in need of equipment as well as other auc-tioned items in good times, as well as obtaining profits from industries during challenging times.

Auction ResultsRitchie Brothers is a Canada-based

company with US listed shares. Revenues over the trailing year are up by 20.5%. Revenues are up over the past five years by 167.8%. Operating margins are strong, running at 15.8%, which in turn drives a healthy return on equity of 16.1% and a return on the company’s capital of 10.2%.

RBA has good cashflow, which aids its balances for short-term credit conditions. And its debts are modest, with debt to assets running at a lower rate of 35.6%.

The company has a model retention rate of earnings (the percentage of earnings kept for business reinvest-ment) at 37.7%, which means that its

(continued on p. 8)

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Ritchie Brothers Auctioneers (RBA) Total Return



TOTAL RETURN PORTFOLIOStocks (56%)Indexed Equities (18%) Symbol T/TF

Entry Date

Fwd. Yield

Buy Under Comments

Vanguard Healthcare ETF VHT TF 3/16/16 1.49% $195.00 US healthcare spending continues to rise for more profitsVanguard High Dividend ETF VYM TF 6/21/16 3.32% $96.00 Core S&P 500 performance with dividend safetyVanguard Info Tech ETF VGT TF 8/20/18 1.06% $250.00 Technology continues to be the alchemy of the market and the US economyVanguard Real Estate ETF VNQ TF 10/28/19 4.17% $97.00 The index way to gain access to the proven, safely-performing REIT sectorVanguard Utilities ETF VPU TF 9/24/18 2.88% $145.00 US utilities remain one of the best sectors for yield with less volatility

Growth & Income Plays (24%)Alliance Bernstein AB T 11/19/18 8.34% $33.00 Great passthrough asset manager with fee income fueling high dividendCompass Diversified Holdings CODI T 5/21/18 5.50% $26.00 Great investments and a big dividend from this private equity style companyCovanta Holdings CVA TF 3/26/19 6.71% $16.30 Turns trash and excess recycling waste into profits with clean power generationFMC Corporation FMC TF 4/25/19 1.58% $102.00 Globally embraced crop protection and farm-yield enhancement leaderFranco-Nevada Corporation FNV T 6/26/19 0.97% $103.00 The way to buy and own gold with a dividendHercules Capital HTGC T 6/25/18 9.03% $15.00 Alt-financial for technology companies with defended dividendHormel HRL TF 4/17/17 1.85% $45.00 Bring home the bacon for your portfolio with healthy pork productsMicrosoft MSFT TF 11/30/12 1.29% $160.00 The essential tech company delivers revenue from the cloud and recurring salesNestle NSRGY T 12/17/08 2.30% $112.00 A leader in pet and livestock feed on top of successful consumer goodsNextEra Energy NEE TF 9/8/08 2.07% $245.00 Strong US-based utility with additional wind & solar energy growthProcter & Gamble PG TF 12/17/08 2.38% $127.00 Delivering profits with better managed brands and cost controlsUnited Technologies UTX TF 8/6/14 1.95% $150.00 Market getting onboard with Raytheon acquisition, Otis and Carrier spin-off plansViper Energy VNOM TF 7/23/18 7.23% $27.00 Oil & natural gas prices up or down, Viper gets paid and sends investors ample checksZoetis Incorporated ZTS TF 5/28/19 0.49% $135.00 Solution company for global livestock crisis and healthier pets as well

Real Estate Investment Trusts (8%)American Campus Communities ACC T 7/12/18 4.06% $52.00 Sole public REIT focused on student housing market, increasing property portfolioDigital Realty Trust DLR T 2/9/18 3.66% $125.00 You can't have successful cloud computing without data-center propertiesHannon Armstrong Sustainable Infra HASI T 4.13% $35.00 Renewable energy financial with government support structured as a REITLife Storage LSI T 12/26/18 3.71% $112.00 Innovative self-storage remains a profitable REIT Medical Properties Trust MPW T 2/26/19 5.02% $21.50 Medical properties market REIT leader with good yieldW.P. Carey Inc. WPC T 1/3/14 5.23% $82.25 A favorite REIT since its IPO on the cheap with able management and rising dividendMFA Financial MFA T 6/25/18 10.00% $8.00 Buy this alt-financial for mortgages with proven dividend even in 2007-2008

Toll Takers (6%)Enterprise Products Partners EPD T 2/22/05 6.21% $31.00 Proven pipeline operator for oil & natural gas during good and bad timesKinder Morgan Inc. KMI TF 11/28/14 4.72% $21.00 Alternative to pipeline and related asset MLPs without K-1Pembina Pipeline PBA T 8/14/12 4.84% $39.00 Canadian government's aid for pipeline expansion continuesPlains GP Holdings PAGP T 3/10/17 7.40% $26.65 The Permian Basin keeps pumping oil & gas; company revenues keep flowing

Fixed Income (44%)Cash (11%)Synchrony Bank high-yield savings account 7/31/15 1.80% Market 1.80% yield—call 866/226-5638 to order

Multisector Bonds (15%)BlackRock Credit Allocation Trust BTZ TF 7/26/19 7.28% $14.00 Great collection of higher-yielding corporate bonds at a big discount to NAV

DoubleLine Total Return Bond Fund DLTNX TF 7/22/14 3.44% $10.90 Well-managed bond fund fueled by higher-income mortgage securities

Vanguard Interm-Term Corp Bond ETF VCIT TF 10/28/19 3.36% $93.50 Corporate bonds are delivering growth and not just income

Preferred Shares (7%)Seaspan 7.875% SSW.PH TF 1/22/19 7.53% $25.50 CUSIP# 81254U304

Teekay LNG Partners 9.00% TGP.PA TF 1/22/19 8.35% $26.50 ISIN# MHY8564M1131

NuStar Energy 8.50% NS.PA TF 1/22/19 8.92% $25.00 CUSIP# 67058H201

iShares US Preferred Stock ETF PFF TF 3/9/17 4.95% $38.50 Preferred stocks should be a go-to defensive income generator for all portfolios

Flaherty & Crumrine Preferred Opp. Fund PFO TF 7/23/18 6.13% $11.96 Great closed-end fund from good management team; watch buy under price

Minibonds (3%)JMP Group 7.25% 11/15/27 JMPD TF 1/22/19 7.08% $26.25 CUSIP# 466273109

Cowen Inc. 7.75% 06/15/33 COWNL TF 1/22/19 7.10% $27.00 CUSIP# 223622804

US Cellular 6.95% 05/15/60 UZA TF 1/22/19 6.82% $25.00 CUSIP# 911684405

Municipal Bonds (4%)Blackrock Municipal Income BLE T 4/23/18 7.08%* $15.15 Well-managed fund with tax-free yield and price gains

Nuveen AMT-Free Credit NVG T 4/23/18 7.32%* $17.00 Discount to NAV with monthly tax-free & AMT-free dividend

Nuveen Municipal Credit NZF T 4/23/18 7.06%* $17.00 Discount to NAV with tax-free monthly dividend checks

Treasury Bonds (4%)Two-year Treasury Bond T 12/24/18 1.64% Market Buy US Treasury with current coupon (interest rate) near 1.64% at market price

At least 10% below buy-below price as of the publication of this issue T: Buy in taxable account for best results TF: Buy in tax-advantaged account (IRA, etc.) for best results *Taxable-equivalent yield


dividend payout ratio is a bit higher at 62.3%. This could be improved with some tighter controls on costs, which of course would also add to its operat-ing margin.

The quarterly dividend distribution is running at 20 cents per share for a current yield of 1.8% and has been rising at an annual average rate of 7.1% over the past five years. That might not sound that appealing, but it’s above the average yield for the S&P 500 Index.

The company has come into its stride over the past four years, with a total return of 94.3%, which equates to an average annual equivalent return of just over 18%.

The shares are valued at 3.5 times trailing sales, which is a bit above its peer group. But its peers aren’t in the same defensive and opportunistic segment.

And on a price-to-book basis, it is valued at 5.6 times, again a bit higher. But revenues have risen over the past several years by an ample rate. And the underlying book value has been rising over the past five years by 27.5%, so the company’s intrinsic value has been on the rise and not just the share price.

I’m adding Ritchie Brothers to the Niche Investments as an entry into the model portfolios. Until the company proves itself further, I recommend buying it in smaller sums than you might for a main recommenda-tion in the Total Return Portfolio or Incredible Dividend Machine.

RBA is a new buy in the Niche Investments portfolio under $45.00, ideally for a taxable account.

Since it’s a Canadian company, there is the risk of changes in Canadian tax laws for exemptions from withholding on US qualified retirement accounts.

Total Return Portfolio

This year was pretty good for the stocks and fixed income holdings inside the Total Return Portfolio. The holdings remain largely focused on US stocks and bonds that are benefitting from the performance of the US economy.

But one section within the stock allo-cation that has been challenged is the

Toll Takers. Pipeline companies have only returned a little more than 6% year to date. US pipeline companies entered into a major slump from July to early December but have been rebounding in the latter part of the month.

Since the start of December, the index has gained 10.3%, well more than double the performance of the S&P 500 Index.

One reason behind the rebound is a demand for yield. The Alerian Index has an implied yield of 9.2%, which is eye-watering in an increasingly lower-yield market.

And there is some differentiation in the MLP pipes. One of the big stories over the past three years has been a major turnaround in support by the US government for expanded pipe networks as well as field gather-ing and marine terminals. And with support for the export of crude and natural gas, pipelines are in a very good space to increase fee income.

The Permian shale basin is awash in oil and natural gas, depressing local prices for petrol. But with the exports, pipelines are stepping up their expan-sion plans.

One of my favorites in the gas and oil pipes is Enterprise Products Partners (EPD). The stock is up 11.9% since Nov. 19 and has returned 21.7% year to date.

The company is well positioned in US oil and gas and has the capacity to get more of the products from the fields to the markets, including for export.

Enterprise has been expanding its

capabilities and recently announced that it is working on a co-op with Enbridge Inc. (ENB) to develop a deep-water oil export terminal in the Gulf of Mexico for loading Very Large Crude Carriers (VLCCs).

This should give the company the ability to further raise its revenues and profits. The stock has trailed the return of the S&P 500, but I see more value here.

Revenues are already up on a trailing year basis by 24.9%. And it is very efficient in its operations, with operating margins running at 13.5%. This is returning 20.1% on shareholder equity and results in an impressive 8% return on the overall capital of the company.

It has a pile of cash and limited debts running at 46.2% of assets, putting the company above the credit profile of some of its lesser peers in the US market.

Unit distributions are running at 44.25 cents per share for a current yield of 6.2%. And the distributions continue to rise, with an average annual increase over the past five years running at 4.2%. Compiled esti-mates for the next distribution going ex-dividend in January show a further increase. And this is before the addi-tional facilities and capabilities.

EPD remains a buy under $31.00, ideally for a taxable account

We also have Plains GP Holdings (PAGP), a Permian-focused passthrough deriving revenue from its stake as the general partner of Plains

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Distressed Debt Levels & Petroleum Prices



All-American Pipeline (PAA). It has already turned on new and expanded pipes this year and has additional capacity in the works.

Revenues are up 29.9% over the trailing year. Operating margins of 6.7% are a bit thinner than for Enterprise, but the return on share-holder equity is fat at 23.7%. And the return on the overall capital of the company is also strong at 13.5%.

Cash is well-managed, and debts are even lower at only 34.3% of assets, making it a compelling credi-tor for further investment as needed.

The distribution is currently running at 36 cents per unit for a yield of 7.4%, and the distributions are up over the past year by 15%, reflecting the additional capacity.

But the key thing about the shares is that they are priced at a 90% dis-count to sales. Like Enterprise, PAGP is cheap at only 1.47 times on a price-to-book basis.

PAGP remains a buy under $26.65, ideally for a taxable account.

One of the key challenges in the MLP space is that there are plenty of companies that aren’t in the same shape. Consolidation is under-way, as is conversion into regular C-Corporations, which would allow for a broader investor base.

And in addition, there are a growing number of private equity and other institutional funds that are circling the midstream space because of its value proposition. This may well aid the quality companies in the toll-taker space.

Incredible Dividend Machine

As I discussed, pipeline compa-nies have been challenged in the US market. But there are some compel-ling values and developments that make them attractive, particularly the pipeline markets and refined products.

One of the big developments is due to marine fuel standard changes as part of the International Maritime Organization (IMO) lower sulfur 2020 regulation. That also extends to diesel, gasoline and jet fuels, which con-tinue to be strong in demand, fueling related pipeline companies.

This is why Magellan Midstream Partners (MMP) is a prime pick for me. MMP is in the mid-continent of the US in the refined products space.Revenues are up 35.1% over the trail-ing year, and operating margins are a whopping 42.3%, which in turn deliv-ers a return on equity of 40.2%.

Dividends provide a yield of 6.6%, and the distributions are rising, with the five-year annual average gain running at 10%. MMP has returned nearly 17% year to date. MMP remains a buy under $68.00, ideally for a taxable account.

This brings in the Alerian MLP ETF (AMLP), which sports a modest year to date return running at 7.2%. This is reflected in the chart of the index that it tracks above.

But this is not as reflective of the core synthetic holdings that are

dominated by Enterprise Products, Magellan and Plains All-American as well as a couple others. The index does have many lesser MLPs, but they’re marginal in the allocations inside the ETF.

This provides a further opportu-nity to buy into the prime MLPs with the ETF, which yields a bigger divi-dend overall at just over 9%. AMLP remains a buy under $10.00, ideally for a tax-free account.

ONEOK (OKE) is firmly profitable, with a 46.8% return so far in 2019. This pipeline company is focused on natural gas and natural gas liquids. This market continues to find firm demand in utilities and petrochemical and other gas feedstock companies.

Revenues are modestly up over the trailing year by 3.4%, but operating margins are strong at 14.6%, which is driving an ample return on shareholder equity of 19.4%. It has good cash coverage for near-term liabilities and modest debt to assets at only 51.5%.

The dividend is yielding 4.8%, and the distributions are up 8.8% over the past year. OKE remains a buy under $76.00, ideally for a tax-free account as it is not a passthrough company.

Stronger Companies Bring Rising Prices

The growing US economy and under-lying market and business developments are aiding stock values and raising stock prices. In Cycle A, there are three com-panies that you should note.

Merck (MRK) recently added to its cancer capabilities with its deal to acquire ArQule (ARQL), while its animal health unit gains fish farming technology with the deal to acquire Vaki from Pentair (PNR). This comes as the company’s own internal product development keeps working. MRK has returned 23.1% year to date and is a buy under a raised price of $95.00, ideally for a tax-free account.

Mondelez (MDLZ) is proving that it can continue to deliver solid returns within the consumer products market. MDLZ has returned 40.5% year to date and is a buy under a raised price of $57.00, ideally for a tax-free account.

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


Alerian MLP Index Total Return

Source: Alerian & Bloomberg Finance, L.P.


PPL Corporation (PPL) has returned 33.2% year to date. The power utility runs a good mix of regulated and unregulated businesses. PPL is a buy under a raised price of $37.00, ideally for a tax-free account.

Then, in Cycle B, telecoms AT&T (T) and Verizon (VZ) continue to transmit more profits to shareholders. Aiding the two is the rollout of fifth generation (5G) wireless technology, which also brings some hype to the shares. T is a buy under a raised price of $40.00, and VZ is a buy under a raised price of $64.00, ideally for tax-free accounts.

In Cycle C, BlackRock (BLK) is riding the wave of revenues from growing assets under management (AUM) and all of the fee income that comes with it. BLK is a buy under a raised price of $510.00, ideally for a tax-free account.

Also in Cycle C, Easterly Government Properties (DEA) con-tinues to prove that it’s a good thing to be Uncle Sam’s landlord. This REIT yields 4.4% and is a buy under a raised price of $25.00, ideally for a taxable account.

Niche InvestmentsYou hate the political ads just as

much as I do… unless you’re on-board with one of my newer recommenda-tions in the Niche Investments, Gray Television (GTN).

Last month, I told the story about local television station companies and how they have greater penetration than other media even in this day and age.

And I predicted that you will begin to hear about political ad spending that will drive more awareness to local TV stocks. Well, that’s now beginning to happen.

On my Bloomberg Terminal, I’ve started to see estimates of ad spending for the 2020 election, which is now projected to run in excess of $10 billion. You’re likely already seeing the ad spend, especially Michael Bloomberg’s.

Gray’s stock is now moving up. If you’re not in yet, you should be. I continue to rec-ommend GTN, now

Fidelity (800/544-8888) T. Rowe Price (800/638-5660) Vanguard (800/662-2739)Stocks (56%) Stocks (56%) Stocks (56%)Fidelity High Dividend ETF (FDVV) Equity Income (PRFDX) High Dividend Yield ETF (VYM)Fidelity MSCI Real Estate ETF (FREL) Value (TRVLX) Real Estate ETF (VNQ)Fidelity US Utilities ETF (FUTY) Growth Stock (PRGFX) Utilities ETF (VPU)Fidelity Health Care ETF (FHLC) Real Estate (TRREX) Information Technology ETF (VGT)Select Software & IT Svcs (FSCSX) Science & Technology (PRSCX) Vanguard Health Care ETF (VHT)

Fixed Income (44%) Fixed Income (44%) Fixed Income (44%)High Income (SPHIX) Spectrum Income (RPSIX) Intermed.-Trm Corporate ETF (VCIT)Principal Preferred Securities (PRFCX) Cash (11%) iShares Pref. and Income Secs. ETF (PFF)Intermediate Municipal Income (FLTMX) Tax-Exempt Bond ETF (VTEB)Cash (11%) Cash (11%)

All-in-the-Family Fund Portfolios

0.26M

0.24M

0.20M

0.18M

0.16M

0.22M



20

15

5

0

-5

10


Alerian MLP Index

100

60

40

0

80

20

-20201920172016 2018


35%

30%

20%

10%

0%

15%

5%

25%

$80

$70

$40

$20

$10

$50

$30

$-

$60


250

300

200

50

0

100

150

2016201520142013 2017 2018 2019


60M

50M

40M

30M

20M

10M

0

2005-20092000-2004 2015-20192010-2014

63.83

250M

200M

150M

100M

50M

0



6.0

5.0

3.0

4.0

2.0

1.0

2005-20092000-2004 2015-20192010-20141995-1999


1.7

57.0

56.0

53.0

52.0

51.0

55.0

54.0



64.0

65.0

62.0

63.0

59.0

60.0

61.0

58.0

57.0

61.1

2019


DecMar Jun Sep

4.0

0.0

-4.0

2.0

-2.0

20192017 201820162014 201520132011 201220102009

3.2


US Crude Oil and Petroleum Exports

Source: US Department of Energy & Bloomberg Finance, L.P.

The Incredible Dividend MachineCycle A (January, April, July, October) T/TF Buy UnderBCE Inc. (BCE, 5.2%) TF $49.00 EPR Properties (EPR, 6.4%)* T $80.00 Merck (MRK, 2.7%) TF $95.00 Mondelez International (MDLZ, 2.1%) TF $57.00 PPL Corp. (PPL, 4.6%) TF $37.00 South Jersey Industries (SJI, 3.7%) TF $36.00 TPG Specialty Lending (TSLX, 8.41%)** TF $23.00

Cycle B (February, May, August, November)Alerian MLP ETF (AMLP, 9.0%) TF $10.00 AT&T (T, 5.2%) TF $40.00 Colgate-Palmolive (CL, 2.5%) TF $74.00 Magellan Midstream Partners (MMP, 6.6%) T $68.00 ONEOK Inc. (OKE, 4.8%) TF $76.00 Realty Income Corp. (O, 3.7%)* T $81.00 Verizon (VZ, 4.0%) TF $64.00

Cycle C (March, June, September, December)BlackRock (BLK, 2.6%) TF $510.00 Dominion Energy (D, 4.5%) TF $84.50 Duke Energy (DUK, 4.2%) TF $97.00 Easterly Gov’t Properties (DEA, 4.4%) T $25.00 Main Street Capital (MAIN, 5.6%)* T $46.00 Public Svc. Enterprise Group (PEG, 3.2%) TF $63.00 Ventas (VTR, 5.5%) T $63.50

*Monthly dividend payer, **Annual Yield


under a raised price of $24.00, ideally for a tax-free account.

I’m also following the appeals process to the Sept. 23 ruling in the Third Circuit Court of Appeals, which limited the Federal Communications Commission’s (FCC) ability to further ease ownership rules for local broad-casters. If it wins there or in the Supreme Court, it would be an addi-tional windfall for GTN.

Then there’s Samsung Electronics (SSNLF). The global leader in elec-tronic components from memory chips to smart phones is now moving to up its game in miniature logic chips, which are mission critical for current and next-generation smart phones and artificial intelligence (AI) devices and applications.

It is ramping up its capabilities in extreme ultraviolet lithography (EUV), the process needed to make the next-gen chips. It’s targeting Taiwan Semiconductor (TSM) and Qualcomm (QCOM).

Samsung has a track record of inno-vative successes, and this move would set up the company as a leading tech firm for the next decade or more. I know that buying this stock in the US

in the over-the-counter market is a bit more work, but it is worth it.

Note that ISIN #KR7005930003 is the identifying number for the shares on brokerage platforms. SSNLF remains a buy under $46.00, ideally for a taxable account.

Two of the utilities in the Niche Investments also continue to deliver.

Alliant Energy (LNT) has returned 34% year to date, outpacing the return for the S&P Utilities Index. Yet it is still a value at 2.7 times its underlying book value. LNT is a buy under a raised price of $56.00, ideally for a tax-free account.

Eversource Energy (ES) has also shown similar outperformance and is up 33.7% year to date. ES is a buy under a raised price of $86.00, ideally for a tax-free account.

Model Mutual Fund Portfolios

After making some changes in the Model Mutual Fund Portfolios to bring them in-line with the general stra-tegic allocations of the Total Return Portfolio over the past few months, I have been receiving questions over

taking gains in the open-end funds, including taxable events in taxable accounts.

I appreciate that some sub-scribers have been invested in these funds for some time and have thankfully been accruing gains. However, I also have to provide the best forward-looking recommendations across all of the portfolios.

You can’t look back at what you paid, just

what is the best to buy and own going forward. Whether you have a paper loss or a paper gain, if the investment isn’t the best one to own, sell it and redeploy the capital.

That said, I view these portfo-lios not as trading accounts but as buy-and-own accounts. I make my selections with the view that they are in the best segments and are the best managed with lower costs.

Within the 56% stock allocation, the surrogates for the portfolios from Vanguard continue to deliver.

Year to date 2019, the Vanguard High Dividend Yield ETF (VYM) has returned 24.1%, the Vanguard Real Estate ETF (VNQ) has returned 27.2%, the Vanguard Utilities ETF (VPU) has returned 25%, the Vanguard Information Technology ETF (VGT) has returned 47.5% and the Vanguard Health Care ETF (VHT) has returned 22%.

As presented in this issue, I expect the US economy to continue to expand, supporting the markets and these allocations into 2020.

Within the 44% fixed income allo-cation (including 11% in cash), the surrogates from Vanguard, BlackRock (iShares) and State Street (SPDR) also continue to deliver in the bond markets.

Year to date 2019, the Vanguard Intermediate-Term Corporate ETF (VCIT) has returned 13.8%, the iShares Preferred and Income Securities ETF (PFF) has returned 15.5% and the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI) has returned 7.5%.

With low inflation and decent growth, the economy is building the underlying credit of bonds and pre-

Hassle-Free ETF PortfolioStocks (56%)Vanguard High Dividend Yield ETF (VYM)Vanguard Real Estate (VNQ)Vanguard Utilities ETF (VPU) Vanguard Information Technology ETF (VGT)Vanguard Health Care ETF (VHT)Fixed Income (44%)Intermed.-Trm Corporate ETF (VCIT)iShares Preferred and Income Securities ETF (PFF)SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI)Cash (11%)

The Ten-Minute Retirement PortfolioStocks (56%)Vanguard High Dividend Yield ETF (VYM)Vanguard Real Estate (VNQ)Vanguard Utilities ETF (VPU) Vanguard Information Technology ETF (VGT)Vanguard Health Care ETF (VHT)Goldman Sachs MLP Income Opportunities Fund (GMZ)Fixed Income (44%)Intermed.-Trm Corporate ETF (VCIT)iShares Preferred and Income Securities ETF (PFF)SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI)Cash (11%)

Fund Supermarket PortfolioStocks (56%)Vanguard High Dividend Yield ETF (VYM)Vanguard Real Estate ETF (VNQ)Vanguard Utilities ETF (VPU)Vanguard Health Care ETF (VHT)Vanguard Information Technology ETF (VGT)Fixed Income (44%)Intermed.-Trm Corporate ETF (VCIT)SPDR Nuveen Bloomberg Barclays Muni Bond ETF (TFI)iShares Preferred and Income Securities ETF (PFF)Cash (11%)

ferreds, driving values higher. And demand for fixed income remains robust. Also, municipal bonds continue to gain in value, keeping them attractive for total return investing, even in tax-free accounts.

One Final ThoughtJust Because the Markets Are Up Doesn’t Mean There’s Trouble Ahead

The US stock and bond markets have had a great year. The S&P 500 Index generated strong price gains and dividends for an impressive total return overall. US bonds, from the overall bond market to corporate and municipal bonds, all generated ample income and underlying bond price gains as well.

But with this strong performance behind us, should we continue to own our current collection of investments and, more importantly, buy more for 2020?

Every month, I weigh the fundamental conditions behind the markets and the individual holdings inside our model portfolios and ask the following questions: Would I buy them again, and at what price?

If I can’t say yes to both, then they get Sell recommendations. It doesn’t matter what the price of a particular holding was when I first recommended it. If something did very well, I don’t just give it a pass if I can’t justify buying it again. And if something is down, I never hold and hope for a rebound.

In this issue, I’ve reviewed the economic tailwinds for the US economy, including the buoyant consumer. I see strong prospects for further spending in 2020 given labor market conditions and consumer comfort, which will result in greater company revenues and profits.

In turn, more sales and more earnings bring higher stock values. And yet, I’m not blind to global economic woes, including trade. I’m also not ignoring the challenges for the US economy, particularly in the interior of the nation with agriculture and energy predicaments.

But I continue to believe that our core US-centric companies remain in a strong position. And I’m adding two new ones for specific reasons.

Hannon Armstrong Sustainable Infrastructure Capital (HASI) is an innovative investment company structured as a REIT, which invests in renewable energy projects largely underpinned by government support. This provides further access to a growth market with tax-advantaged yield and one that is defensive ahead of the 2020 elections.

I’m also recommending a successful company in a niche segment, which is both opportunistic for a growing economy but prepared to cash in when and where there’s trouble. Ritchie Brothers Auctioneers (RBA) provides access to buyers of industrial, agricultural and business equipment (as well as col-lector cars). The business model works well in growing markets, and it also provides the ability to liquidate equipment for companies and creditors so that it cashes in during tougher times.

Going forward, you’ll see more of my analysis of the economy and markets as conditions present themselves for better or worse. And remember that just because prices for many of the stocks and bonds are up, that doesn’t mean that the markets are done.

While I’m always eyeing what could and will go wrong and how to prepare for it, I’m working on new segments and stock and bond opportuni-ties for safer growth and ample income throughout 2020.

All My Best,

Neil George

NEIL GEORGE began his financial services career in 1987 with Merrill Lynch International Bank in Vienna, Austria and subse-quently held senior positions at what are now US Bank and globally-based Investec

PLC. Neil’s long career has included stints as a bond trader and the manager of a fixed-income fund worth over $1 billion. An income hunter at heart, he’s also the former editor of several successful investment advisories dedicated to finding Wall Street’s best yields. Neil earned an MBA in inter-national finance from Webster University in Europe and a bachelor’s degree in eco-nomics from King’s College. His market commentary and insights have been fea-tured in the Wall Street Journal, Barron’s, Bloomberg, CNN and NBC.

Actions to Take This Month

1. In the Total Return Portfolio: • Buy HASI under $35.00 (T) • Buy NEE under $245.00 (TF) • Buy AB under $33.00 (T) • Buy EPD under $31.00 (T) • Buy PAGP under $26.65 (T)

2. In the Incredible Dividend Machine:

• Buy BLK under $510.00 (TF) • Buy MMP under $68.00 (T) • Buy AMLP under $10.00 (TF) • Buy OKE under $76.00 (TF) • Buy MRK under $95.00 (TF) • Buy MDLZ under $57.00 (TF) • Buy PPL under $37.00 (TF) • Buy T under $40.00 (TF) • Buy VZ under $64.00 (TF) • Buy DEA under $25.00 (T)

3. In the Niche Investments:• Buy RBA under $45.00 (T) • Buy GTN under $24.00 (TF) • Buy SSNLF under $46.00 (T) • Buy LNT under $56.00 (TF) • Buy ES under $86.00 (TF)

4. Check the updated buy under prices for the Total Return Portfolio and Incredible Dividend Machine listed on p. 7 and p. 10. In addition, check the updated prices for the Niche Investments in the Portfolios section of the Profitable Investing website.

SUMMARY

Documents

Good Enough? Steady as She Goes - InvestorPlace€¦ · spending data. Inflation remains at bay, which is a positive for bonds. However, one of the past drivers for business investment