WASHINGTON, January 12, 2017 – Another short column today, as it’s difficult in the current environment to come up with new investment ideas when the market itself seems to lack all conviction. The main issue that’s causing stocks to back and fill this month is politics.
Between Donald Trump’s renewed attack on U.S. pharmaceutical companies earlier this week and the ongoing, anti-Trump hissy fits being thrown by the overpaid professional leftists that currently dominate what remains of our onetime independent media, investors and hedge funds are getting less and less clarity as to where they should be investing their money in 2017.
The information fog will likely begin to lift once the Inaugural festivities (and perhaps the planned, Soros-funded riots) are over at the end of next week. In the meantime, we’ll continue to do little things in our portfolios while avoiding big commitments that could suddenly turn against us. We hate to sit still, being rather active investors. But sometimes the best investing policy is to lie low in the weeds and wait for a better opportunity.
The President-elect’s latest broadside against U.S. drug companies has absolutely hammered those stocks over roughly the last two days of trading, although a number of them are starting to come back. Fitfully. That includes our outsized position in Allergan convertible Preferred A shares (symbol: AGN/PRA, your symbol may vary).
Having spent the 4th Quarter of 2016 in the doghouse due to Allergan common stock’s (AGN) poor performance after announcing a really bad Q3, AGN/PRA shares had recovered at the beginning of this week from near $700 per share to around $800. But the latest Trump/pharma kerfuffle has smacked the stock back into the $700s again, though, at $784 and change as of 2:30 p.m. ET, it’s back up a couple of bucks from yesterday’s close and trying to make up lost ground.
Many other pharmas are off as well, although Merck (MRK) has been defying the pharma trend. It’s up considerably this week, the result of positive news on a number of fronts. Fortunately, we have a small position in this one. We’d like to add to it, but we’ll likely wait until things settle down a bit.
This morning we sold our position in Prospect Capital’s 6.25 percent preferred shared (PBB). This was a high yielder for us (and still is), since we bought it earlier this year at a deep discount. But, as rising interest rates pushed its price close to par value ($25 per share), we decided to get rid of the shares for a capital gain rather than watch that price gradually erode, given this high quality issue’ relatively low yield in current markets.
One usually buys and holds preferred stocks for the dividends. But in this case, we booked a 25 percent capital gain, given the deep discount price at which we acquired those shares. This doesn’t happen too often.
We continue to add tiny amount of shares to a pair of variable interest rate ETFs—Schwab’s SCHP (a TIPS portfolio) and Powershares’ VRP (variable rate preferred stocks)—as it makes sense to average in here due to what’s likely to be a slow but steadily increasing interest rate environment. That’s something these shares are designed to track.
We’re also going to ease into shares of Omega Healthcare, a healthcare facilities REIT. It’s currently oversold and boasts a pretty decent dividend of 7.65 percent.
Having sold off our financial stocks prior to their recent selloff, we look to buy back in, perhaps after many of these stocks report earnings late this week. We’ll keep you posted.
But bottom line: none of our moves thus far are big ones. We simply need more clarity before getting aggressive again. Meantime, we continue to watch the bizarre kabuki theater that’s playing out here in our adopted hometown. At least it’s entertaining.