Trading Diary: Apple soars, we go along for the ride

Nice moves in banks, financials offset dragging sectors. Meanwhile, Blackstone’s monster rental home IPO, Invitation Homes, Inc., hits the Big Board.

Image taken from splash page of rental home REIT Invitation Homes.

WASHINGTON, February 1, 2017 – Reversing at least some of this week’s losses, Apple’s great Q1 2017 numbers, reported Tuesday night after the closing bell, not only juiced that stock today (see our companion column for details).

Apple’s earnings surprise powered up a great many other stocks as well. The Dow Jones Industrials (of which Apple is a major component) blasted off, up well over 100 points in early morning trading before settling back somewhat.

As of 2:30 p.m. ET, Apple’s shares (symbol: AAPL) are still up over 8 points, while the Dow is up close to 50 points, backing off from its earlier irrational exuberance.

Read also: Apple posts numbers that power Dow, NASDAQ to big gains

We’re still reluctant to get excited about all this. We do own a small position in Apple and are delighted to finally see a gain in these shares. But aside from Apple, the financials, and a few others, we still think that February will be a volatile month as investors try to adjust to the surprising rally that’s been going on ever since Donald Trump took the brass ring in the 2016 Presidential Sweepstakes.

By “adjust,” we mean that the market could correct at this point, as indeed it seemed to be doing earlier this week. On the other hand, stocks could go sideways for months before resuming their slow, unsteady ride to Dow 30,000, which, we predict with a modest level of confidence, will occur some time before the year 2100. So we’ll fiddle with the portfolios here and there, but avoid major commitments for now.

Trading diary

In keeping with our above observations, we’re holding onto our Apple shares, currently perched just beneath $130 per share, waiting, perhaps, for about 10 more points, which an increasingly large number of analysts are predicting AAPL will hit some time in the next 12 months. Or maybe tomorrow if it has another day like it’s having today.

Our beleaguered shares of Allergan Convertible Preferred A stock (AGN/PRA, your symbol may vary) caught a huge bid today after going sideways to down again over the past few trading days. That stock is currently up an impressive $18+ dollars per share as we write this, taking it above our acquisition cost for the first time since some time in December, 2016. Nice to see that green ink again.

Today’s main event, though there wasn’t a lot of fanfare for it, was the IPO offering of a new company that investment giant Blackstone (symbol: BX) assembled to own, buy, sell and above all rent out the massive number of foreclosed houses that company bought, renovated and continues to rent out at varying profit levels.

The new IPO company, Invitation Homes, Inc. (INVH) was priced Wednesday evening at $20 per share, at least for those who could get the shares. It then opened for trading mid-Wednesday morning with a relatively minor $0.10-0.30 pop. As we write this, INVH shares are still up about $0.11. This is typical, and, in fact, fairly good for a brand new and somewhat unusual REIT (Real Estate Investment Trust), which is actually what this company is.

In our experience, IPOs like this one tend to move sideways or even down after they open for trading, which generally makes pursuing such IPOs an exercise in frustration.

INVH shares will provide a likely decent but as yet unknown quarterly dividend to shareholders that should at least equal 90 percent of each year’s earnings. That’s because INVH is a REIT, which, by law, must pay out nearly all its earnings to income-hungry shareholders.

In spite of our past experience with these IPO REITs, we decided to get in on this one, and got our requested allocation of shares without a hitch—sometimes not so good a thing when you’re purchasing IPOs. That’s because there are plenty of shares to go around; and, given that they are not, therefore, tough to get, supply can exceed demand, which in IPO land, means no “pop,” which is why investors love the IPOs that work. It’s instant profits, instant rewards. IF you get that pop.

We decided to give these shares a try not for immediate gratification, but for that likely above-average dividend plus some opportunity for capital appreciation. In other words, we took a chance on this new REIT because we like the concept: renting out mass quantities of single-family homes in an environment where stringent prequalification for housing loans is shutting potential purchasers out of the market. We’ll just have to see how this one works out. But investing is no fun if you don’t speculate from time to time.

Plus, we’re back in the company that invented INVH, namely, Blackstone (BX). This pure investment firm also has a swell dividend and a swashbuckling but successful rep. We’re already up in the BX shares we purchased and have a sense—having done our homework—that both could be a great investment for 2017.

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