The market is at a pivotal point consolidating near all the major technical support areas, states Steve Reitmeister, editor of Reitmeister Total Return.
The more investors feel confident about the economic outlook, the more likely stocks will go higher. However, whispers are growing louder about the negative effects of higher inflation and higher rates. In particular, the concept of an inverted yield curve that has preceded most every bear market in recent history.
New Portfolio Additions
TICKER DATE OPENED % ALLOCATION CURRENT PRICE
ICLN 4/4/2022 7.00% 21.64
OIH 4/4/2022 7.50% 288.61
RISR 4/4/2022 7.00% 30.06
V 4/4/2022 7.50% 226.36
New Portfolio Deletions
TICKER DATE CLOSED % CLOSED CURRENT PRICE
SNDR 4/4/2022 7.00% 23.30
MKSI 4/4/2022 7.50% 141.21
ARCB 4/4/2022 7.00% 75.00
On top of that, you have a likely long-term shift to higher energy prices. Even if Russia/Ukraine war ended tomorrow, many in Europe would still want to look for energy sources outside of Russia given the instability there. This is going to cause a long-term shift to increase energy development in other parts of the world...but also the high price of oil/gas, along with green efforts will increase the attractiveness of clean energy.
This has me making the following trades that are still primarily bullish, but a touch more aligned with the new economic landscape:
•Sell all shares of ArcBest (ARCB)
•Sell all shares of MKS Instruments (MKSI)
•Sell all shares of Schneider National (SNDR)
•Buy 7.5% allocation to Visa (V)
•Buy 7.5% allocation in VanEck Oil Services (OIH)
•Buy 7% allocation in iShares Global Clean Energy ETF (ICLN)
•Buy 7% allocation to FolioBeyond Rising Rates ETF (RISR)
After these trades are done, this is how our portfolio is allocated:
78% long stocks (but now with more large cap, lower beta exposure with Microsoft (MSFT) & Visa (V). But really the 7% allocation for SPDR Regional Banking ETF (KRE) could just as well be shifted down to the rising rates bucket because that is why it's on the books).
15% ETFs for rising rates (RISR & TBT).
7% Gold via VanEck Gold Miners ETF (GDX).
Why Sell ARCB & SNDR? Transportation stocks are in outright free fall. Part of that is higher energy costs. Also after some digging I found a well respected trucking expert recently calling for a "trucking bloodbath". This idea stems from the industry doing so well for so long that this led to a massive increase in the size of the US trucking fleet. Simple economics says too much supply without similar increase in demand = lower prices = lower profitability. Or simply he is calling this the peak of the trucking cycle. Add these two negatives together and we are moving away from this industry.
Why Sell MKSI? I really fell in love with the idea of doing both oil services and clean energy. Kind of two sides of a higher energy coin. So needed more money from somewhere. Then I see this stock has been a laggard for too long and it ended up on the chopping block.
Note that I may be tempted to add these shares to my POWR Value service down the line because I have a bit more patience for stocks to climb higher in that service.
Why Buy ICLN & OIH? I shared with you 95% of what you need to know about the attractiveness of these trades in the intro section. Indeed those trends have already lit a fire under the oil services space, leading to impressive YTD return for OIH. The reason to continue to ride that momentum is that this is likely a long term cycle of growth for the group as outlined in a recent Goldman Sachs piece as the world disconnects from Russian energy. This means a build-up in other oil capacity benefiting the services space for years to come.
For as much as OIH has risen this year, it is still half its peak level from early 2018. So that gives a sense of the upside opportunity in a world with higher energy prices.
This same trend will benefit alternative energy as the longer that energy prices stay elevated...the more attractive the ROI to go the alternative energy route. And the companies inside ICLN are the ones most likely to benefit.
Why go the ETF route instead of picking individual stocks? These are both very diversified fields and don't want the risk in just picking one stock in any group and guess wrong. Just better playing the field which points to ETFs as the best way to ride the trend.
Why Buy V? What is not to like about this world class company that grows consistently year-over-year as the world becomes more developed...and that goes hand in hand with more electronic payments. Shares peaked back in August and still 12% off those levels. All the while they continue on a streak of more than 20 straight quarters of earnings beats.
Honestly, it is hard for a large cap like this to make it to high POWR Ratings. But that is a strong testament to the consistency of their growth and the quality of their fundamental picture. On the value side of the equation, the average target price is a notch under $275 which is a nice 21% upside from here. But there is good reason that the five-star analyst from Baird is calling for $290 plus the street high $303 from UBS.
This may seem like a dull pick kind of like the recent addition of MSFT...and yes, that is on purpose. I do not believe we are totally out of the woods on the recent bout of volatility. Thus, we could use more diversification to quality large cap names like these that still offer us some solid upside potential. And their more stoic price movements are a nice counter balance to some of our higher beta selections.
Why Buy RISR? This is a one of a kind ETF that was built to gain in value as rates rise. Yet it does it without shorting bonds like TBT.
Let there be no doubt that rates are on the rise and should continue to be so for quite a while as the Fed seeks to fight inflation. The Fed has clearly stated that is their intention...and as they say "Don't Fight the Fed".
How well is their strategy working?
+5.1% this past month.
+20.3% year to date.
There are not many ways to benefit from rising rates. But I am more than happy to diversify the way we go about that with the addition of RISR.
Wishing you a world of investment success!
Learn more about Steve Reitmeister at StockNews.com.
