It’s Trump Week, and stocks are in a holding pattern until the 45th President is sworn in this Friday. In fact, stocks have scarcely budged for the past month on the heels of the furious post-election rally. Wall Street was all in after Trump’s surprise election; now it’s waiting to see if the new President will deliver on his many economy-friendly promises.
Meanwhile, fourth-quarter earnings kicked off with mostly solid results from the banks; December retail sales improved 0.6%, fueled by big jumps in car sales (+2.4%) and gas station sales (+2%), which were propped up by higher oil prices; and average hourly wages rose at their fastest rate in seven years. All are signs of an economy that’s already improving, but stocks have mostly held steady in anticipation of a change in the White House.
Most stocks, at least. A few of our stocks, including Mattel (MAT), General Motors (GM), Wynn Resorts (WYNN) and Carnival (CCL), have gotten out of the gates quickly in 2017. But we’ll start this week with one of our few stocks that have gone in the other direction to start the year … and yet remains a BUY.
HIGH YIELD TIER
BUY – Game Stop (GME 23 – yield 6.3%) – GME had a rough week thanks to some underwhelming holiday sales results. Same-store sales plummeted 18.7% in November and December, dragged down by weak sales of its Call of Duty: Infinite Warfare and Titanfall 2 games. Investors punished the stock accordingly, dropping shares from 24 to 22 in one trading session. A month ago, GME was still trading above 26.
Still, GameStop is undervalued, with a P/E of 6.1, and analysts expect a return to EPS growth next year. Plus, even after such a sharp fall, GME is still well above its November nadir below 21. For now, GME remains a Buy for risk-tolerant investors seeking high current yields and medium-term capital appreciation.
Next ex-div date: March 6, 2017 est.
BUY – General Motors (GM 37 – yield 4.1%) – GM has stagnated a bit since jumping 6% in the first five trading days of the year. Stronger-than-expected 2017 guidance and a $5 billion stock buyback program, announced at an industry conference, fueled the first-week run-up. Even after some mild consolidation, GM finally looks strong both technically and fundamentally, which is why the stock is back on Buy for risk-tolerant investors.
Next ex-div date: March 8, 2017 est.
HOLD – Mattel (MAT 31 – yield 4.9%) – MAT is 9.2% higher since the start of the year. The stock got a nice pop after Mattel introduced a kid-focused home assistant called Aristotle at the Consumer Electronics Show. Powered by Microsoft’s Cortana, the device is being called a “smart baby monitor” but also includes many of the features of Amazon’s Echo and other in-home assistants. Hold.
Next ex-div date: February 10, 2017 est.
BUY – Pembina Pipeline (PBA 33 – yield 4.5%) – Like most energy stocks, PBA has been up and down to start the year. However, after a lackluster 2016, the Canadian pipeline company’s revenues and EPS are expected to surge 42% this year and 47% next year. PBA is a Buy for medium-term investors seeking high monthly income. PB trades ex-dividend next Monday.
Next ex-div date: January 23, 2017
DIVIDEND GROWTH TIER
HOLD – AbbVie (ABBV 62 – yield 4.1%) – ABBV had a big sudden drop-off last week, plunging from 64 to 61 in one trading session. It has since recovered some of those losses, however, and I still like the prospects for biotech stocks this year after a rough 2016. That said, uncertainty about the new administration’s attitude toward high drug prices remains a dark cloud. Hold.
Next ex-div date: April 12, 2017 est.
BUY – Carnival (CCL 53 – yield 2.6%) – A fast start to the year pushed CCL to new 52-week highs, though the stock has since pulled back a bit. The cruise company is seeing strong bookings and pricing to start 2017, although increasing oil prices and the rising dollar will provide significant headwinds to earnings growth. But the stock looks healthy and the recent breakout to new highs bodes well. CCL is a Buy for dividend growth-focused investors, especially on pullbacks like the current one.
Next ex-div date: February 22, 2017 est.
BUY – Costco (COST 164 – yield 1.1%) – COST gapped up to 163 after the company reported December sales results earlier this month. Net sales were 5% higher than last December, while comp sales rose 3%. Both numbers are an improvement over recent months, which averaged net sales growth of about 3% and comp sales growth around 2%. COST is now consolidating just above 160 and is a Buy for dividend growth investors.
Next ex-div date: February 8, 2017 est.
BUY – Prudential Financial (PRU 104 – yield 2.7%) – PRU continues to trade in a very tight consolidation pattern around 105, normal behavior after the stock’s big November advance. The insurer will report full-year and fourth-quarter 2016 results on February 8. Analysts expect revenues to be 3% higher than in 2015, but are anticipating a 10% drop in EPS. However, the stock is looking ahead to the higher interest rates of the next few years. PRU is buyable here.
Next ex-div date: February 19, 2017 est.
BUY – U.S. Bancorp (USB 50 – yield 2.2%) – USB has been up and down to start the year, but still looks healthy. The bank will announce full-year and fourth-quarter 2016 earnings today (January 18). Analysts are anticipating EPS of $3.24, up 2.9%, on revenue of $21.14 billion, up 5.2%. USB is a Buy.
Next ex-div date: March 29, 2017 est.
HOLD – Wynn Resorts (WYNN 92 – yield 2.2%) – WYNN surged 8% the first week of the year on strong preliminary January gaming data out of Macau. It has since coughed up about half those gains, however, in part due to a report that gaming revenues on the Las Vegas strip were roughly flat in 2016. In light of its rollercoaster first two weeks of the year, WYNN is a Hold for more aggressive, volatility-tolerant investors.
Next ex-div date: February 9, 2017 est.
SAFE INCOME TIER
BUY – Automatic Data Processing (ADP 103 – yield 2.2%) – ADP’s fiscal year ends in June, so the company’s next earnings report, out before the market opens on February 1, will be for the second quarter of fiscal 2017. For the quarter, analysts expect EPS to rise 12.5% to $0.81 and revenues to increase 7.4% to $3.01 billion. A dividend aristocrat, ADP is a Buy for all investors.
Next ex-div date: March 8, 2017 est.
HOLD – Consolidated Edison (ED 75 – yield 3.6%) – ConEd reports earnings on February 16, and analysts expect the energy company to report 9.8% EPS growth for the fourth quarter, and -2.9% growth for 2016, followed by 4.5% growth in 2017. Hold.
Next ex-div date: February 13, 2017 est.
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.4%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY - Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.9%)
These four BulletShares funds make up our bond ladder. Each matures at the end of one of the next four years, at which time Guggenheim will distribute the fund’s net asset value to shareholders. In the meantime, the funds all pay monthly dividends.
Next ex-div dates: all February 1, 2017, est.
BUY – Home Depot (HD 136 – yield 2.0%) – After strong advances in 2014 and 2015, HD spent most of 2016 stuck in a trading range between 120 and 140. The stock is now back near the top of that trading range and could break out in 2017. However, EPS growth is expected to slow from a five-year average of 22% to about 13% in 2017, and to an average of 14% over the next five years. On the bullish side, management continues to improve operating margins—reaching 14% over the past 12 months—and the housing market remains robust. Home Depot could also be a beneficiary of corporate tax reform; the company pays the top corporate tax rate of 36%. For now, I’ll keep HD on Buy for long-term investors.
Next ex-div date: March 7, 2017 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.9%) – Interest rates have pulled back a bit to start the new year, and PGX, which owns preferred shares (a form of debt) is slightly higher. But the fund is still below 15, so it’s a Buy for long-term investors looking to add a reliable income stream to their portfolio.
Next ex-div date: April 13, 2017 est.
HOLD – J.M. Smucker (SJM 132 – yield 2.3%) – Smucker is still trading quietly around 130, where the stock bottomed in November. It’s a strong support level for the stock, but we don’t see any near-term catalysts for a rebound, so SJM is a Hold.
Next ex-div date: February 8, 2017 est.
HOLD – UPS (UPS 114 – yield 2.7%) – UPS’ pullback continues, and the stock broke below its 50-day moving average last week, a red flag. Risk-averse investors may want to lighten up here. We’ll try to hold through full-year earnings though, out before the open on January 31. Analysts are expecting EPS of $5.82, up 7.2%, and revenue of $61.03 billion, up 4.6%.
Next ex-div date: February 16, 2017 est.
HOLD – Xcel Energy (XEL 41 – yield 3.3%) – Xcel will report 2016 results before the market opens on February 2. Analysts are expecting revenues to have increased 4.8% year-over-year, to $11.55 billion, while earnings are expected to rise 5.3%, to $2.20 per share.
Next ex-div date: March 21, 2017 est.
Closing prices on January 17, 2017
