V . 30, N . 6 June 2019 Buy American for Safer Growth & Income

A Profitable Way Around

the Trade Wars

Growth in the US economy remains strong. The first quarter's gain was an impressive 3.20%. Inflation for the quarter, as measured by the core personal consumption expenditure (PCE) index, was a meager 1.30%. US GDP should continue to advance for the year in at least the mid-2% range, with expectations for inflation remaining low.

The Federal Reserve is neutral, with the potential to ease as we progress further into 2019. And while Fed Chairman Jerome Powell has made some cautionary comments about rising corporate debt in the US, he was not warning of trouble.

Simply put, the economy and markets are in good shape.

The best illustration of this is how well the corporate credit markets are doing. Demand remains strong, and corporations continue to benefit from growth resulting in rising revenues, which bolster credit conditions.

Then there is the consumer. In the latest survey, which includes the recent time of trade conflict news, the Bloomberg Consumer Comfort (Comfy) Index picked up further to 60.30. Additionally, business leaders of major corporations just told the Federal Reserve Bank of New York that their plans for major capital investment climbed for May by 20.66%.

All of this is good, but with trade war troubles, the markets are being jostled. I expect this will be settled sooner rather than later. But the safest way through this environment is to continue to buy and own US-based, domesticfocused stocks, bonds and funds that are more insulated from US-China tensions.

Vol. 30, No. 6

June 2019

Buy American for Safer Growth

& Income

Dear Friend, The markets are facing a number of challenges right now, even though economic

growth remains robust in the US and inflation remains low. The Federal Reserve is on hold and is leaning towards cutting rates, not raising them. And there still is ample confidence from average consumers and corporate leadership.

Despite increased volatility, the markets continue to perform well. The S&P 500 Index is up 12.59% year to date. Bonds are up 3.54%. And the US dollar is up 2.33%.

The world's investors are noticing, too. The US Treasury Department reports that private foreign investment in US stocks and bonds saw a massive $202.20 billion inflow for the first quarter.

Yet, the increasing trade war tensions between the US and China are hitting the markets lately. Threatened tariff increases and US Commerce Department directives to US tech firms to cut ties with Chinese customers have stoked concerns in the stock market. While there is a temporary stay on these actions, we need to be vigilant and remain prepared.

In this issue, I'll focus on the vast majority of my top stocks, bonds and funds that are America-focused. US real estate investment trusts (REITs) and utilities, municipal and corporate bonds and other domestic investments are all doing very well, as they're insulated from trade tirades.

In addition, I'll continue to show how select companies are capitalizing on solving major problems that know no borders, including livestock health in light of the growing threats of viruses like African Swine Fever (ASF).

If you're looking for safer growth and income choices, you've come to the right place.

Growth Strategies

Is Trade Risk Impacting Underlying Fundamentals?

US stocks are up well for the year. So too is the overall bond market, particularly the corporate and municipal bond markets. The US dollar is also strong, adding to last year's gains against the leading financial and commercial currencies of the world.

The underlying economy continues to be conducive for stocks. Consumer comfort is firmly higher. This supports the view that households' personal financial conditions and outlooks are still bright. This should support further spending, which drives revenues for successful US companies.

With consumers comfy, this slow, steady economic growth is also an incentive for companies to plan for major capital expenditures, like expanding their businesses. The recent gains in the US Business Leaders Future Capital Spending Survey, conducted by the Federal Reserve Bank of New York, is evidence of that.

This is all very good for the stock market moving forward, especially for companies that derive most of their revenue from the US.

This also shows up in the results of the first-quarter reports from the S&P 500 Index stocks. With nearly all of the companies reporting, average revenues

(continued)

expanded 4.45%, and earnings grew an average of 1.48%.

But it gets better. Estimates for the current quarter and into the last two quarters of 2019 are projecting even higher readings.

What's more compelling is to look at the domestic-focused US companies. Real estate investment trusts saw earnings gains of 6.94%, while utilities reported earnings gains of 5.37% and healthcare companies reported earnings gains of 9.09%. All of these are much greater than the average first-quarter earnings gain for the S&P 500.

Trade Risk and Support

That said, the S&P 500 has been jostled by trade tensions despite the underlying domestic economic tailwinds and performance of America-focused stocks. The key threat to look at would be a rout like we saw in the fourth quarter of last year, when selling begat selling as "hot money" left the stock market.

I still don't think a rout is inevitable. Money flows into US stocks have been negative year to date, hitting an outflow level of $13.9 billion in the most recent weekly report. This suggests that there is less cash that has piled into stocks as prices have ballooned. That means there's less hot money to potentially exit.

Meanwhile, the opposite has been the case for bonds this year. Bloomberg's weekly tallies hit a weekly inflow record of $10.6 billion recently. This suggests that there is further confidence in the credit conditions of the bond market as well as for low to no inflation risks. And, in turn, this supports lower corporate borrowing costs, which helps earnings and provides incentives for companies to borrow to further invest in their companies.

One more thing: With lower yields in bonds, it makes the risk/reward calculation between bonds and stocks more compelling for stocks, as stock

dividend yields are closer in line with, if not higher than, many sectors of the bond market.

But my overall call is that we should expect the potential for further volatility and some down days because of the blustering of the world's two largest economic powers. And to be defensive, you need to focus on the more insulated Americafocused market sectors for stocks, bonds and funds.

Proven Growth & Income

Buy American

For me, the slogan "Buy American" represents the best opportunities in the stock and bond markets right now, particularly in light of the escalating trade tensions between the US and China.

The rhetoric coming out of Washington and Beijing is being ratcheted up, and US companies are being directed not to do business with their customers in the opposing nation.

This is very bad news. Huawei, a privately held company that is one of the leading makers of smart phones and telecom equipment, is the first target of the US government, which is unsuccessfully campaigning to force nations around the globe to ban the company's telecom equipment.

But then came news that Alphabet's (GOOGL) Google was instructed to cease doing business in providing support and some access to its opensource Android operating system to Huawei. And similar reports are coming from Intel (INTC), which is on Hold in the Niche Investments portfolio, as well as Qualcomm (QCOM), which among other US tech companies was told to stop working with Chinese customers and suppliers.

The stock market didn't like this at all. The S&P 500 Index is down 3.04% from the high this year on April 30 through this writing, and the S&P Information Technology Index is off by 5.54% for the same period.

When the folks at 1600 Pennsylvania Avenue heard, they quickly issued a 90-day reprieve. But this is not a solution to the trade war.

I see more volatility on the horizon, as the precedent of instructing US companies to cut off vital customers and suppliers and getting their cooperation is truly frightening for investors.

I'm neck-deep into evaluating how this may play out, since we have exposure to the best of the US technology companies. My original view was that China was going to cut a deal because Beijing feared further economic challenges that could lead to instability. But it also has no interest in losing face and caving to the US.

The president knows both of these risks, as well as his own if the markets slide and the US economy slows as the 2020 election heats up.

For now, besides Intel, which is on Hold for its challenges beyond China, I'm not issuing any further Holds or Sells for our technology stocks and funds, which I discuss in the Model Portfolio sections in this issue.

But I am directing your attention to "Buy American" in domestic income and growth plays that are separate from the trade war.

Municipal Bonds

Yes, "munis" are a great source of both domestic income and growth. The market has generated a total return over the trailing year of 6.54%, including plenty of tax-free income.

The muni market is gaining steam from several factors, too. The US economy is growing, resulting in more tax revenues. And the cap on tax deductions from payments of state and local taxes (SALT) is bringing in

Neil George's Profitable Investing? (ISSN 2577-9311) is published monthly by InvestorPlace Media, LLC, 9201 Corporate Blvd., Suite 200, Rockville, MD 20850-3334. Please write or call if you have any questions. Phone: 800/211-8566. Email: service@. Web site: profitableinvesting.

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strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can

the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure

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2

Profitable Investing | June 2019 | profitableinvesting.

Bloomberg US REITs S&P 500 Utilities Total Return Index

25

S&P 500 Utilities Total Return Index

15

20

10

15

5 10

50

0-5

Jun Jul Jun Jul

Aug Sep Oct 2018

Aug Sep Oct 2018

Nov Dec Jan Nov Dec Jan

Feb Mar Apr 2019

May -5

Feb Mar Apr May 2019

Source: Bloomberg Finance, L.P.

Bloomberg Barclays Municipal Bond Total Return Index

7.00

BlooVmabnegrugarBdarHcilgahysDMiviudneincidpaYileBldonEdTFIndex Total Return Index Value Unhedged USD

30

Vanguard Real Estate ETF

6.00

Vanguard Utilities ETF

25

Vanguard Information Technology ETF

5.00

Energy Select Sector SPDR Fund

20

Vanguard Health Care ETF

4.00

15

3.00 10

2.00 5

1.00 0

0.00

-5

Jun Jan Jul

Aug FSebep2018 Oct

NovMar Dec Jan 2019

FeAbpr

Mar Apr 2019

MaMy ay

Source: Bloomberg Finance, L.P.

even more state and local tax revenues, Buy BLE under $14.58, NVG under

thanks to changes in the Tax Cuts and $15.80 (raised) and NZF under

JisoLHAbAuavigssephntriVSa,SAPoadPghrnpnDeiaccgR0saretue5uraPs/(rto1pPTdir7rtpcT/feCo1aulfle9xyiJlor-AraEeIixn987rds)et290lem&y...rdo447mpIfontfecBrwd2oooima0nnmtd1ee,7SITnwe.eidrncemuhxvrCiiEetlioTeesrFsptooEdrTraeFtsme BaonnddETF seLeokwionng02r/e20l/i1e9f f5r3o.0m the SALT cap.

$15.80 (raised)--all in taxable accounts.

Utility Players Perform

95

9880.90.04 85

In the Total Return Portfolio, we have three closed-end muni funds that are working very well for us. I added the BlackRock Municipal

Another domestic US market tha86t0.00 is insulated from trade tensions is the utility market. Utilities continu7e5

to be strong performers during bot74h0.00

Income Trust II (BLE), the Nuveen the buoyant general market and 65

AMT-Free Municipal Credit

particularly during times of strife, 2.00

Income Fund (NVG) and the Nuveen like we're in now.

60

Municipal Credit Income Fund

Over the trailing year, US

505.00

(NZF) in April 2018. Since then, the

three hJaJaavnne generated gFaFeeibbns ranging MMaarr from 12.20% to as high as 17.69%. 2019

utilities have been very dependable

pUetrilf2io0tr1ie9mseTros,AtapwArlpriRthettuhrenSI&ndPeMx5Ma0yay0

50

The three still trade at discounts to

generating a return of 23.39%. The

their underlying muni bond portfolios, mix of dependable regulated services

and they pay a taxable equivalent

revenues and profit margins as well

diBZvTlToiSohdmUeebSsneEerdgquaUyitSryieRe1E.lp4IdT6rsBiamveerapglaiynsg

7.69%. for more

as unregulated regional and nation1.a6lB power generation and distribution

income and further gains with or without more troubles with China.

remains a great combination for 1.5B15

further income and growth.

1.46B

1.4B10

Profitable Investing | June 2019 | profitableinvesting.

1.3B 5

There are several utilities in the model portfolios, including the Incredible Dividend Machine where they fit nicely into the plan for dependable dividend streams each month of the year. And inside the Total Return Portfolio, I have two positions that should be bought or added to right now as a defensive play while trade tensions flare.

They start in the Indexed Equities segment with the Vanguard Utilities ETF (VPU). This provides synthetic broad exposure to the US utility companies. The ETF has generated a return over the trailing year of 22.33%, including its 2.86% dividend. Buy VPU now under a raised buy price of $135.00 in a tax-free account.

NextEra Energy (NEE) in the Growth and Income Plays segment has a combination of dependable regulated power business in Florida and the growth engine of its unregulated wind and solar businesses around the US, Canada and some additional cooperative assets in Spain. But the core of its business is firmly in America.

It keeps coming through, with a trailing year's return of 29.34%, including a modest dividend yielding 2.48%. NEE is a Buy under a raised price of $203.00 in a tax-free account.

REITs Rule

Real estate investment trusts (REITs) have been a foundation of the model portfolios of Profitable Investing, which I have been building upon over the past year. The combination of quality real assets with ample cash flows and higher tax-advantaged dividend payments continue to make for dependable growth and income, particularly during periods of strife in the general stock market.

And it isn't just about defense--the returns have been bountiful.

The general US REITs market, as tracked by the Bloomberg US REITs Index, has generated a trailing year return of 16.45%, which is multiples of the 5.44% return for the S&P 500 Index.

And with global trade tensions, focusing on US-based REITs should continue to provide a defensive source for further growth and income. In the Total Return Portfolio, the most

3

Jan

Feb

Mar

Apr

May

2019

American of REIT property companies, American Campus Communities (ACC), owns and leases US campus housing and other properties.

This is a very dependable market, and we have seen private equity firms buy out publicly listed REITs in this market in recent years. ACC is the remaining pure REIT in this space. And it keeps delivering, with a trailing year's return of 25.60%, including its dividend of 4.08%. Buy ACC under $47.00 in a taxable account.

Life Storage (LSI) is focused on US temporary storage properties. Storage is a dependable property segment, as it benefits from storage needs during good economic times and even more so in recessions, as households often downsize for cost savings or move for new opportunities.

Life Storage has generated a trailing year's return of 10.89%, including its dividend yielding 4.13%. LSI is a Buy under $102.00 in a taxable account.

The last of the REITs I want to highlight is Medical Properties Trust (MPW). This company does triple-net-leases on medical facilities around the US and a handful of countries in Europe as well as Australia. This means that its tenants are responsible for taxes, insurance and general upkeep, which frees the company from the risks of cost increases. None of its properties are affected by the trade war.

Medical Properties continues to perform, with a trailing year's return of a whopping 45.33%, including its dividend yielding 5.50%. MPW is Buy under $19.50 in a taxable account.

More Growth & Income

Food Security Solution Maker

In your May issue, I detailed the threats to global food supplies and the rapidly rising demand for crop security. Consumable crops for humans and livestock need to increase by 60% or more by 2050 just to meet population growth estimates as calculated by the Consultative Group for International Agricultural Research (CGIAR).

4

Bloomberg US REITs Index Total Return

7.00 BBlloooommbbeerrgg BUaSrcRlaEyITssMunicipal Bond Index Total Return Index Value Unhedged USD

6.00

15 5.00

4.0100 3.00

5 2.00

Jun Jul Jun Jul

1.000

0.00

-5

Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Aug Sep2018 Oct Nov Dec Jan Feb M2a0r 19 Apr May

2018

2019

Source: Bloomberg Finance, L.P.

US Lean Hogs Spot Price

Last Price

89.4

HABvilgoehoramognbee0r5g/1B7a/r1c9lays97M20..u47nicipal Bond Index Total Return Index Value Unhedged USD

Low on 02/20/19 53.0

95 98709..040 865.00

850.00

745.00

Jan Jun Jul

Feb Aug Sep Oct

2018

Mar No2v019 Dec

730.00

65 2.00

60 1.00

55

0.00 50

Apr

May

Jan Feb Mar Apr May Source2: 0B1lo9omberg Finance, L.P.

And one of the leaders in protecting pockets of Sub-Saharan Africa. But

harvests as well as enhancing yields the epicenter of the crisis is in Asia

isZFTSMUSCEquCityo1r.4p6oB ration (FMC), which I added to the Growth & Income Plays seLHcaigtsihtoPonrnic0eo5f/17th/1e9 T98o29..t44al Return Portfolio lasAvtemragoenth. 70.7

and, specifically, in China.

1.6B

This is resulting in culling pig 95

pthoepufilrasttioqnusarinteCr ohfintahibsyye2a0r%. Ainndju11..s95840tB96.B4

LBowuotnt0h2e/2r0e/1i9s a53m.0ore pressing threat the US Department of Agriculture1.845B

to food security that's impacting food supplies right now--not just over the coming years. Livestock and, in

(USDA) is confirming that Chinese80 pig production will continue fall i1n.3B 2019 and beyond by 20% or more. 75

particular, pigs are dropping dead

Outbreaks have been reported in 31.2720B

around the globe as they fall victim to African Swine Fever (ASF). This

provinces in China, which raised a6t5 least half of the global pork suppl1y..1B

disease isn't contagious to humans but is deadly for pigs that contract it easily

Year of the Pig

60 1B55

in pens and open fields. It results in

Ironically, 2019 in the Chinese

ne2a0r11cerJtaani2n01d2eath in201a3Fmebatter20o14f a few2M0a1r5 Zodi2a0c16is thAepr 2y0e1a7r of th2e01p8Migay. 2A01n9d 50

days upon contraction.

2019 while many in the US might be

The United Nations' World

ignoring this crisis, as it isn't largely

Organization for Animal Health has impacting US farms, it's resulting

beenZoiedtiesnIntcifying and tracking the dEiuZsTreSoaSSUps&&SeePPE55qit00nhu00ittryoIHon1edu.aEe4lgxt6huBhCroaaruseitSaemcatuosrcGwhICeSolLfleavEesla1sinItnedrexn

in record sales of pork from US producers to China. In the most re1c.6e2B5n0t weekly customs data, China imported

1.52B00

Profitable Investing | June 2019 | profitableinvesting.investorplace1.c.4o6mB

1.41B50

22001199

ZZTTSS UUSS EEqquuiittyy 11..4466BB

Zoetis Revenue Gains

11..66BB

11..55BB 11..4466BB 11..44BB

11..33BB

11..22BB

11..11BB

11BB

22001111

22001122

22001133

22001144

22001155

22001166

22001177

22001188 22001199

Source: Bloomberg Finance, L.P.

Zoetis Total Return Compared to S&P 500 and S&P 500 Health Indexes

ZSSZSSoo&&&&eePPPPttii5555ss0000IInn0000ccIHIHnneeddaaeellxxtthh CCaarree SSeeccttoorr GGIICCSS LLeevveell 11 IInnddeexx

225500

220000

115500

110000

5500

22001144

22001155

22001166

31,160 tons of US pork, which was the greatest weekly sum since April's hoimvigLHALLHALIepaoaovviinhggrswsweeohhttrraalaorooPPooiggnntrrdnnfveeiiicc11d00neee70033sig//7//t11t00,i66o337ro////ec11011n66ck990,oghtr64646565odei21210303v........na13133939etlsotn.hn,tnhCaeghceiononafcibesreanelsfsofor a hungry nation.

This is resulting in soaring pig wholesale prices in the US market. Since the year began, prices are up by 74.37%.

That's a bull market for pigs. There are two companies that I am proposing to tackle this market problem. The first is Hormel Foods (PHo22r00Rt11f66Lo)l,iow. hHicohrmiselinis22t00hp1177eroTdoutcaelrR, eturn processor and packager of pork products as well as other meats. The only caveat is, while the company does benefit from higher prices for its pigs, it also has to pay more for its overall pork production.

00

22001177

22001188

22001199

Source: Bloomberg Finance, L.P.

In turn, as for other consumer

products, Hormel can only raise

end prices so high before facing

sreavleesnudeesc.liAnensditnhevocloummpeaannydwoivlel ra6666l00l00..33

benefit from export sales of pig and

pork products at higher prices as 5555 demand from China remains robust

despite rising prices. The stock is trading at a mere 2.551006

times trailing sales--down from

nitehaarlsya2s.5a0feipnigMsaurpcphl.yMayndcathseatisitt44h55at

should benefit from increased export

sales to offset price challenges in 4400

tuhnedUerS2200$d11488o2m.2e5st(iclomwearrkeedt).

iBn22u0011ay99

HRL tax-free

account.

Healthier Pigs in a Poke

sawcTionhmeepakanendyyosttohhlauetrtiiolsinvaefgsotlroocbhkaelailsltehfaoideuern,rdsioniun636322n050555d..77er

animal health medicines and vaccines. Zoetis Incorporated (ZTS) is a Parsippany, New Jersey-based company that has more than 300 products that are in rising demand in more than 100 countries, including China.

And before you question whether China might impose tariffs or restrictions on Zoetis, remember that China is in crisis mode when it comes to its livestock production.

Just last year, Zoetis received two patents from the US Patent and Trademark Office to exclusively develop African Swine Flu vaccines. And the company is well on its way with needed products. With a strong history of vaccine development and sales, it's on the front line for heavy revenue growth over time.

Zoetis is already a strong performer. Over the past five years, the stock has turned in a return of 247.30%, as compared to the S&P 500 Index's 63.82% return and the S&P 500 Health Index's return of 63.87%.

Beyond livestock healthcare and vaccines, Zoetis is also a leader in pet health and medications. And with rising demand for domestic pets, the company has been gaining market share and growing earnings.

Revenues are up over the trailing year by 9.80%. Operating margins are very fat at 31.10%. This results in a whopping return on shareholder's equity at 64.90%. It retains the bulk of its profits at a rate of 81.70%, which, in turn, is channeled into drug, vaccine and other animal health products to support a robust pipeline of new revenue sources.

This sort of company doesn't come cheap--its price to trailing sales is a heady 8.30. But the underlying revenue continues to rise, year after year, providing proof that it's worth the money.

Buy ZTS under $107.00 in the Growth & Income Plays section of the Total Return Portfolio in a tax-free account. The dividend yield is currently 0.64% because it keeps a good chunk of profits to fund development. But its dividend has actually been increasing in distribution amounts by 16.18% on average over the past five years.

Profitable Investing | June 2019 | profitableinvesting.

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