The main variable in play when considering stocks to buy or sell has long been investor sentiment. This is a fact that escapes most investors, even though it is simple to understand. Stocks need very few things to rally — basically just a functioning system, a healthy money flow and one more thing. The last ingredient is sentiment.
Last week investors felt horrible, so they sold everything down violently. That’s good news, because from that, we got a bunch of good stocks to buy on dips.
The first two variables that drive markets have not changed in years. Thanks to a very aggressive central bank policy, the money flow has never been stronger in the U.S. economy. Moreover the White House pitched in trillions of its own, so it’s no surprise that we have inflation. That was the plan all along, in order to create jobs.
Sentiment has been the fickle part that causes investor panic and elicits mistakes. Therefore investors who ignore emotions and trade the data are likely to beat others. When the masses are fretting over newsy risks, we should be looking for stocks to buy. Today’s list proposes three for the purpose of earning fixed income.
The Federal Reserve’s actions has made it impossible to find much interest reward for deposits. Other than the U.S. Treasury yields, what we get from banks is at best around 0.6%. Therefore, with a bit of homework, we can find quality stocks that we can buy for a nice dividend reward. It is very important to be discerning with this process because juicy dividends can be traps.
For this purpose, I would suggest only focusing on healthy businesses with long track records. In addition, we should also find evidence that management is looking to defend the dividends.
And one of the stocks to buy today will surprise you because it’s not even a stock — but it’s the most fun out of all of them. I promise you that this concept is very simple and does not require a lot of skill.
The indices did a good job shrugging off the drubbing from last week. The buyers returned through Wednesday’s price action, and that was the easy work. From here, investors will need to up the ante a bit. Nevertheless the three stocks to buy today are not the fast-moving type. Let’s just jump into them without further ado. They are:
My order of preference is USDC, VZ then XOM.
Stocks to Buy: Verizon (VZ)
VZ stock has just lost nearly 10% of its value in the last three months. Looking into its financials, we find no evidence of deterioration in its metrics. Its financial statements are still steady as ever. Total revenues do not show impressive growth, but that’s the point. It’s the reliable and predictable part that works for this pick.
What makes it exciting is that the net income is now $22 billion over the past 12 months. This is a strong improvement from prior years. Management is doing its thing and rewarding its shareholders in the process.
Financial stability in dividend stock is extremely important. This gives them the luxury of defending their dividend payout without having to cut into it. The current dividend yield is 5.1%.
Verizon’s cash flow from operations is over $41 billion. I can’t imagine the scenario where they need to cut dividends to make ends meet. The stock is always cheap from a price to earnings perspective but that’s not that important here.
This is a perfect case where investors seek boring and reliable prospects. That’s why VZ stock is my first pick today. The 5G conversion is ongoing, albeit slow. They are right in the thick of it, so demand will remain strong for a few years to go.
Stocks to Buy: Exxon Mobile (XOM)
My second pick is Exxon but I could have just as easily picked Chevron (NYSE:CVX) instead. The two companies are almost mirror images of each other from today’s perspective. What is extremely important here is that they both publicly defended their dividends.
During the pandemic they cut capital expenditures drastically so they can continue rewarding their shareholders. They also committed to making further capital expenditure cuts before resorting to reducing dividends. I’ll give plenty of kudos for management’s commitment to the yield.
What I don’t like as much about this one is its long-term outlook. The whole world is going green, especially with regards to fossil fuel consumption. Therefore Exxon better have some green strategies for a revenue stream. Otherwise it’s almost like cigarette companies a few decades ago. The changeover will take years, but I would not want to own a depleting business on purpose.
Nevertheless until that happens, owning XOM stock yields 5.7% rewards in dividends.
Cryptos to Buy: USD Coin (USDC)
My third pick is USDC. Yes, it’s a crypto coin, but the stable kind. Crypto coins have the reputation of being wild, but this one is boring. Stable coins are crypto who track something that doesn’t change quite as much. In this case the USDC pegs the U.S. dollar. So owning it does not promise capital appreciation.
Here’s the twist — staking. This is the process where I can put my USDC coins to work and earn up to a 10% reward. This is very close to the old CD high-interest accounts. You lend your asset out, and they put it to work and reward you for it.
Staking is a new twist on that old mantra. If I lock my coins for three months, they put them to work and give me parts of the proceeds. In order to get this, you first have to jump into the world of crypto in a very mild way.
I opened an account with a reputable crypto platform to start and funded the account. I started small because of my skepticism as everyone should. And then I bought the minimum required to do this, which was $250. It was simple enough that I adopted it into my strategy.
This is not risk-free, neither are the other two options. Companies go belly up, so there’s always a chance that the USDC coin disappears. Meanwhile, I consider it a risky trade that guarantees 10%. The only way I lose is if the company folds.
I accept those terms.
Staking yields may not be this high forever, but they work for now. I caution you against finding loopholes and sure things. They are not there and I speak from experience. There are plenty of mistakes to make when dealing with the wild west of the crypto world.
Stick with the simple stuff and talk to people who have done it before. They likely paid for a lesson or two, and maybe you can leverage that knowledge.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.