Best Income Stocks to Buy for Dec. 23

Zacks highlights three Zacks Rank #1 income-oriented stocks: Jackson Financial (JXN), Valero Energy (VLO) and Suncor Energy (SU). Zacks Consensus estimates for current-year EPS have risen 6.1% for JXN, 18.2% for VLO and 8.6% for SU over the past 60 days, while trailing‑12‑month dividend yields are 3.0% (JXN, vs industry 1.6%), 2.8% (VLO, vs 2.7%) and 4.0% (SU, vs 3.6%), supporting buy recommendations for income-seeking investors.

Analysis

Market structure: Recent estimate upgrades (VLO +18.2%, SU +8.6%, JXN +6.1% over 60 days) suggest near-term winners are refiners and upstream-linked energy producers that benefit from firm crack spreads and higher hydrocarbon prices, while marginal US/European downstream players and low-margin producers are vulnerable. VLO’s yield 2.8% vs industry 2.7% and SU’s 4.0% vs 3.6% indicate cash-return capacity; Jackson (JXN) at 3.0% benefits from rising rates but is exposed to long-duration liability re-pricing. Cross-asset: a sustained $5–10 move in WTI within 1–3 months will materially shift equity P/L, push energy credit spreads +/-30–60bp, raise implied vols in energy names, and move CAD/USD by ~2–3% per $5 oil change, impacting SU materially.

Risk assessment: Tail risks include a sudden global demand shock (WTI -20% in 60 days), an OPEC+ surprise cut reversal, Canadian regulatory/tax action on oil sands, or an adverse life-insurer reserving ruling for JXN; each could shave 20–40% off equity value in worst-cases. Time horizons: expect price/earnings momentum over weeks for VLO/SU tied to Q4 results and oil inventory prints, but JXN’s fundamentals react over quarters to rate paths. Hidden dependencies: refined margin durability depends on seasonal gasoline/heating oil demand and inventory normalization; JXN’s capital generation hinges on credit spreads and reinvestment yields. Catalysts: weekly EIA stocks, OPEC meetings within 30–90 days, US CPI/Fed guidance altering 10y by >25–50bp.

Trade implications: Direct: initiate a tactical 2–3% long in VLO (relative upside from estimate upgrades) and a 1.5–2% long in SU for income, both sized to allow 8–12% stop losses; prefer VLO if WTI holds >$75 for 30 days. Options: buy a 3-month VLO 1:2 call spread (e.g., buy ATM, sell 2x 10–15% OTM) to cap cost if you expect positive prints; sell 3–6 month covered calls on SU to harvest yield if unwilling to sell. Pairs: long VLO / short a broader integrated with weaker upgrade cadence (e.g., underperforming refiner) to capture relative crack spread exposure. Sector rotation: overweight US refiners/energy midstream, underweight long-duration financials with weak deposit/franchise metrics.

Contrarian angles: Consensus underweights FX/regulatory risk for Suncor (SU) — a CAD appreciation of 3% or a widened heavy-light differential could cut SU EPS by >10% in 12 months, so avoid size-up without hedges. Market may be over-rewarding short-term earnings upgrades in VLO; if crack spreads revert by 25% in 2 months, VLO downside could be 15–25% — use options to define risk. For JXN, the market might underprice a Fed pivot: a 50bp drop in 10y over 6–12 months would compress JXN’s net investment income and valuations; conversely, sustained higher rates are a hidden tailwind. Historical parallel: 2015–16 refined-margin cycles show fast mean reversion; avoid full conviction until 2–3 positive inventory/earnings beats confirm trend.

Key Decisions for Investors

• Establish a tactical 2–3% long position in Valero (VLO) within the next 2–6 weeks; size to a max loss of 8–12% and use a 3-month call spread (buy ATM, sell 2x 10–15% OTM) to leverage upside from continued estimate upgrades and supportive crack spreads.
• Initiate a 1.5–2% income-oriented position in Suncor (SU) and immediately sell 3–6 month covered calls ~10% OTM to capture the 4.0% yield while hedging downside; if CAD strengthens >3% or WTI closes <$70 for 10 consecutive sessions, trim to half size.
• Add a smaller 1% opportunistic long in Jackson Financial (JXN) on dips of 8–12% with a protective 6–9 month put (strike ~10% below entry) to guard against reserve/regulatory or rate-reversion risks; increase only if 10y US Treasury rises >50bp confirming higher reinvestment yields.
• Execute a relative-value pair: long VLO vs short a large integrated energy name lacking recent upgrades (size net exposure to 1–1.5% of portfolio) to isolate refinery crack spread upside; unwind if WTI drops >15% within 30 days or if weekly EIA builds exceed 5m bbls.