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4 High-Yielders in the Buy Zone

06/04/2012 10:45 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

If you look in the right places there are some silver linings out there, even when things look as dark as they have been observes Mark Skousen of High-Income Alert.

The past couple of months have been tough for traders, as the Dow has declined 600 points and the small-cap Russell 2000 Index took an even bigger percentage drop.
Yet the selling may have been overdone. It is telling, for example, that stocks were up strongly and on good volume early last week, even as Spain effectively nationalized its third-largest bank and Spanish bond yields surged to euro-era highs. On the positive side, Prime Minister Mariano Rajoy insists Spain will not ask for funds from the European Union (EU) or the International Monetary Fund (IMF).
Our high-income stocks, like virtually all equities, were dusted up a bit in the sell-off during the last few weeks, but are mostly bouncing back now. And there are reasons to believe that better times are just ahead...
Lorillard (LO)
This is a particularly strong buy at current levels. True, last quarter’s sales and earnings were nothing terribly exciting, but good investors look forward, not back.

The cigarette-maker is likely to earn almost $9 a share this year and as much as $10 a share in 2013. The company also has a long history of raising its dividend.
Omega Healthcare (OHI).
I also like the prospects for this  real estate investment trust, which owns or holds mortgages on more than 400 assisted living facilities, nursing homes, and specialty hospitals in 35 states.

This business is steady and growing. Revenue jumped 20% in the most recent quarter—and earnings estimates for this year have only risen over the last 30 days. The stock is up nicely since we got in last month but I still see plenty of upside ahead.
Plains All American Pipeline (PAA)
This company, which transports, stores, and markets crude oil, natural gas, and liquefied petroleum products, is looking good, too. In the most recent quarter, the partnership reported that net income rose 26% on a 20% increase in revenue.

It went “ex” a dividend of $1.045 last month. Expect plenty more growth and income in the weeks ahead.
Telefonica (TEF)
This telecom has been nicked by all of the warnings emanating from Spain. I think the selling is overdone, as roughly half of its revenue comes from Latin America.

The stock is cheap. However, a good trader never argues with the market. I’m moving the stock to a hold for now due to its proximity to our protective stop at $10.50. If it resumes its upward climb, I’ll put it back on our buy list.

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