Sometimes it's possible that two alternative worlds coexist. We are watching that coexistence right now with higher oil prices and higher retail store profits, and it's pretty much a wonder to me.
The charitable trust has been buying Schlumberger (SLB) and EOG Resources (EOG), wanting to own the best of breed of both oil service and growth oils. They are both sensational and I think can go much higher as oil creeps up to $60.
But I am also watching Ulta Salon (ULTA), Tractor Supply (TSCO), Lowe's (LOW), Walgreens (WBA) and Ross Stores (ROST) going higher, which would seem to be awfully counterintuitive.
So which is right -- oil or retail? I think the answer might be that both can be right as long as the price of gasoline doesn't go up that much -- and it doesn't look like it is -- and the retailers continue to deliver good numbers, which I think they will.
I have said out loud that I have warmed up to the oils, but I haven't suggested yet that it is time to buy the master limited partnerships connected with oil. That's what I think you can do right now. My three favorites right now are Magellan Midstream Partners (MMP), MarkWest (MWE) and Enterprise Product Partners (EPD). All three are growth MLPs, with the fastest growing being MarkWest as it's racing to put up new pipes in the Northeast to take Marcellus and Utica gas to market. These companies have a blended yield of about 4%, which is terrific given how little income you get from bonds.
With oil maintaining an upward bias and the consensus growing that we've seen the bottom, it's time to return to the group.
How about retail? I think you can make a strong case that some of these retailers have rested long enough at these prices. Costco's (COST) doing fine and I think its April numbers will show a nice bounceback for the weaker weather-addled March. Urban Outfitters (URBN) caught another upgrade today and it's pretty darned clear that it's continuing to do much better. Given the turn that I expect with Williams-Sonoma (WSM) in the second half of the year after the outrageous West Coast port struggle, that one makes sense here.
The spring planting season is upon is and that's always good news for Lowe's and Home Depot (HD), and I think the spend continues on homes. PVH (PVH) seems to have bottomed after that better-than-expected quarter, and heaven knows I like Under Armour (UA), Skechers (SKX) and VF Corp. (VFC). Apparel's on fire.
I regard the almost two-point decline in Under Armour's stock after Jordan Spieth's victory in the Masters as an overreaction to the downside!
Dillards (DDS) is finally down, which is a godsend. It almost never comes in. And then let's go back to the stock that caught my eye to begin with, the amazing Ulta Salon. Here's the stock of a company that's got the best repeat business model in the retail industry right now, the beauty parlor. With its racetrack setup, meaning that you have to go through lots of goody aisles filled with cosmetics and hair care products before you get to the parlor, it's got an annuity stream of front-of-the-store business.
Yep, think that we have a coexist moment and it has to be exploited. Magellan Midstream, MarkWest and Enterprise Product Partners are the best for MLP yield purposes, while Costco, Urban Outfitters, Williams Sonoma, PVH, VF Corp., Under Armour, Skechers, Lowe's, Home Depot, Dillards and Ulta I believe can all work their way higher, too.
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