Black Friday deals started extra early this year at places like Walmart, Target and Amazon.
In the US stock market, Black Friday sales started even earlier – October 13 to be exact. That’s when the S&P 500 rode a six-day losing streak to a new 2022 low.
The index has rallied since then thanks to some cooler inflation readings and better-than-expected third-quarter earnings reports. If the S&P can finish this month, it will be its first two-month winning streak since August 2021. Hey, the recovery has to start somewhere!
Despite the recent bear market rally, the S&P is nearly 20% off its record high. This means there are plenty of bargains to be had this holiday season.
And discounted prices mean investors will also have the opportunity to bank some good dividend-paying yields above the market. These are some of our favorites for the “growth and income” shopping list.
What is a good oil stock?
Like most energy names, Devon Energy Corporation (NYSE:DVN) has had a strong year, but is currently trading around $10 off its high. The forward dividend yield is a whopping 7.8% and well above the sector average of around 4.2%.
Even better, Wall Street remains largely bullish on the stock despite its huge two-year run. Some price targets suggest Devon Energy is destined to hit $100 for the first time since 2008.
One of the nation’s leading shale oil producers, Devon Energy’s third-quarter earnings per share (EPS) doubled year-over-year, beating consensus. Higher realized sales prices for crude oil and natural gas together with increased production drove the result.
But with investors attuned to today’s oil and gas market developments and rotating to underperforming sectors, Devon Energy has fallen back to below $70. Crude oil futures fell below $80 last week on a weakened demand outlook linked to recession fears and the Covid outbreak in China.
But with oil volatility being the norm since the start of the pandemic, prices could quickly fall back. Europe’s plan to ban Russian crude imports from next month and OPEC’s aim to keep supplies tight could make $100 oil a reality this winter.
This will be welcome news for a low-cost producer like Devon Energy who can make money from oil prices north of $30. With the stock’s forward P/E ratio of 7.8x matching its 7.8% yield, the stars are aligned for upside.
Has Verizon Communications stock bottomed out?
Verizon Communications Inc. (NYSE: VZ ) is down 26% year to date. Heavy advertising activity to lure wireless customers away from competitors has weighed on earnings. At the same time, a weak economic outlook could hurt profits well into 2023. The Street forecasts year-over-year EPS declines in each of the next four quarters.
So why invest here? At this point, the macro headwinds appear to be priced into Verizon stock. And after better-than-expected results for the third quarter, the bottom is close, if not there. Improved subscriber metrics and benefits from the Tracfone acquisition drove a top and bottom line. Since the Oct. 21 report, the stock has moved to $4 off its lows.
Technical analysis also shows that Verizon is oversold. A 10,000-foot view provided by the monthly chart reveals that price is well outside the lower Bollinger band. Historically, uptrends have followed such extreme falls.
Verizon’s recovery is likely to be slow, drawn out as the market assesses the impact of a potential recession on consumer and business wireless demand. But with a 6.8% yield comfortably ahead of rival AT&T, this is an easy “buy and hold” call.
What will drive Simon Property Group’s comeback?
Simon Property Group (NYSE: SPG) offers one of the highest forward rates in the S&P 500 at 6.1%. It has raised its dividend in each of the last two years coming out of the pandemic.
After rising 87% in 2021, the mall and premium retail REIT is 25% off this Black Friday. The Fed’s rate hike campaign has had a twofold effect on the company.
Firstly, higher prices mean higher borrowing costs, which limits Simon Property Group’s ability to buy or develop retail properties. And since investors expect a certain amount of growth for the risk they’re taking on, anything that limits that growth is cause for concern — especially when you’re more than $30 billion in debt.
Second, higher interest rates harm consumers’ ability to save and have a negative impact on discretionary spending. Shopping centers in tourist towns can be hit hard by a prolonged recession.
Yes, Simon Property Group’s dividend is compromised by a weakened balance sheet and macro outlook. But there is reason to believe that the payouts are sustainable and a rebound inevitable.
Management is taking steps to improve the economy and weather the storm for better days. The company exited the third quarter with liquidity of USD 8.6 billion and comfortable coverage ratios.
Additionally, as economic conditions improve, Simon Property will have more than bricks and mortar to drive growth. US e-commerce investment and expansion into Japan and South Korea will improve revenue and diversification. Meanwhile, a pattern of dividend increases should continue to attract Black Friday income shoppers.