All eyes are on the White House again this week, but there are still important things happening on the Street. The Fed will release a statement after their meeting this afternoon updating their expectations for 2017; markets are currently betting on three rate hikes over the next 11 months. The January Jobs Report will be released Friday morning; markets are currently expecting the unemployment rate to be unchanged at 4.7%, while hourly earnings are expected to grow 0.3%, slightly below December’s 0.4% pace. And earnings season is in full swing, with reports from Facebook, Merck, Chipotle, Amazon, Visa and more coming in the next three days.
In the stock market, last week brought the long-awaited breakout to new highs, including the Dow’s first, highly awaited, close above 20,000. However, the indexes lost confidence over the weekend and fell back into their trading ranges this week. But even though the breakout petered out, Cabot’s market timing indicators say you can be leaning bullish.
We’re making a defensive move first though: It’s time to sell AbbVie (ABBV), one of the weakest stocks in our portfolio. AbbVie’s earnings failed to impress last week, the stock is stuck in a trading range with a slight downward bias, and the biotech rally has failed—or at least been delayed—once again.
We also sent out two special bulletins in the past week, addressing earnings misses from Mattel (MAT) on Thursday and UPS (UPS) yesterday. Both stocks are still on Hold, but we’ll probably cut UPS loose in coming days—the challenges facing the company are longer-term. See below for the full updates.
HIGH YIELD TIER
BUY – Game Stop (GME 24 – yield 6.0%) – GME is looking relatively healthy, largely ignoring the past two days of market weakness. The stock’s resilience suggests that there aren’t many sellers left at these levels. GME is 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 4.2%) – We sold a third of our GM position last Wednesday, at the day’s average price of 37.99, booking a 20% profit not including dividends. I’m still optimistic about GM’s future, but the stock faces resistance here, at the top of its multi-year range, and a review of our 2016 results has made us more proactive about taking profits. For investors who don’t own it, GM is still a Buy for high yield and medium-term capital appreciation. After a normal 1% pullback over the past five trading days, the stock is now trading right at its 50-day moving average. GM will report earnings February 7. Analysts expect the automaker to report fourth quarter sales and EPS growth of 4.7% and -15.8%, and full-year sales and EPS growth of 7.4% and 19.7%.
Next ex-div date: March 8, 2017 est.
HOLD – Mattel (MAT 26 – yield 5.8%) – As I wrote in Friday’s special bulletin, Mattel’s fourth-quarter and full-year earnings missed estimates badly, sending the stock 17% lower in one day. Faced with slow toy sales in the two weeks before Christmas, Mattel offered retailers big discounts to move merchandise, damaging margins and revenues. The demand issues, which were industry-wide, appear to have abated during Christmas week, so management says margins will begin improving again next quarter. As for the stock, it has solid support at 25, but hasn’t started rebounding yet. We’ll keep it on Hold until it does, or sell if it breaks down. In your own portfolio, consider using a stop loss around 25.
Next ex-div date: February 14, 2017
BUY – Pembina Pipeline (PBA 31 – yield 4.7%) – After this week’s energy stock pullback, PBA is trading right above its 50-day moving average. The pipeline company doesn’t have direct exposure to oil prices, but revenues do depend on production levels in western Canada and North Dakota. Even after the latest pullback, PBA is still near the top of the 28-32 trading range that has hemmed the stock in since April. Risk-tolerant investors looking to add monthly dividends and energy exposure to their portfolio can Buy here, or wait for a price closer to the bottom of PBA’s range.
Next ex-div date: February 22, 2017 est.
DIVIDEND GROWTH TIER
SELL – AbbVie (ABBV 61 – yield 4.2%) – AbbVie released fourth-quarter earnings Friday that beat EPS estimates by one cent, but year-over-year revenue growth under 7% fell short of estimates. Full-year revenues also fell short; 2016 revenue of $25.56 billion was 12% higher than in 2015 but missed the analyst consensus slightly. EPS growth of 12% met expectations. Management reiterated 2017 guidance, which reflects 14% EPS growth at the midpoint. The numbers aren’t terrible, but they’re not impressive either, and the stock’s response has been tepid. We were considering dumping underperforming ABBV last week, and the last few days have done little to persuade us otherwise. With the stock smack in the middle of its trading range and totally lacking momentum, we’re going to Sell ABBV today. If you want to try for a better price in coming days, feel free, but consider setting a stop loss around 60 first. For our part, we’ll sell at today’s average price, and focus our energies on healthier stocks.
Next ex-div date: April 12, 2017 est.
BUY – Carnival (CCL 55 – yield 2.5%) – Carnival peer Royal Caribbean reported strong 2016 results last week, including 26% EPS growth, slightly above expectations. CCL popped to a new 52-week high on the news (even though Carnival has already announced its own 2016 results). The technical strength is a positive sign. CCL is a Buy for dividend growth investors with moderate risk tolerance.
Next ex-div date: February 22, 2017
BUY – Costco (COST 164 – yield 1.1%) – Retail stocks, including COST, pulled back on Friday. The selloff appears to be related to concerns about how retailers could be affected by new taxes on imported goods. It’s a valid concern, but COST continues to trade in a tight range above 160, so we’ll listen to the stock and keep COST rated Buy for long-term dividend growth investors.
Next ex-div date: February 8, 2017
BUY – Prudential Financial (PRU 105 – yield 2.7%) – Prudential will report full-year and fourth-quarter 2016 results on February 8. Analysts expect full-year revenues to rise 3.2% from 2015, but are anticipating a 10.2% drop in EPS. However, the stock is looking ahead to the higher interest rates in the next few years and the 15% EPS growth expected in 2017. PRU is buyable here.
Next ex-div date: February 19, 2017 est.
BUY – Schlumberger (SLB 84 – yield 2.4%) – Energy stocks have stumbled this week on fears that rebounding U.S. production will push oil prices back down. So far, it looks like a normal pullback. SLB will be added to our portfolio at today’s average price, in accordance with our policy of adding new positions on the first trading day of the month (to give subscribers a chance to replicate our results). The oil services provider is a broad-based play on a recovery in the global energy industry. More conservative investors should consider waiting for the stock to start trading above its 50-day moving average again before starting a new position.
Next ex-div date: February 13, 2017
BUY – U.S. Bancorp (USB 53 – yield 2.1%) – USB climbed to a new 52-week high on Friday, and held most of the gains even as the market stumbled this week. Eighteen analysts have upped their 2017 earnings estimates this month. USB is a Buy on pullbacks.
Next ex-div date: March 29, 2017 est.
HOLD – Wynn Resorts (WYNN 101 – yield 2.0%) – WYNN is up 10% this week, after the casino company issued a surprise earnings release last Thursday that showed strong growth at the new Wynn Palace in Macau. The casino company’s fourth-quarter EPS actually fell short of the analyst consensus, but revenue beat estimates and rose 37% year over year. The Palace generated $419 million in revenue in the quarter, and appears to be taking market share away from competitors while capturing an estimated 58% of the growth in the lucrative VIP market. CEO Steve Wynn also noted on the earnings call that January is off to a very strong start, with daily totals putting the Palace on track to beat all expectations in 2017. Now back in the upper third of its trading range, WYNN is a Hold for volatility-tolerant investors.
Next ex-div date: February 10, 2017
SAFE INCOME TIER
BUY – Automatic Data Processing (ADP 101 – yield 2.3%) – ADP released second quarter 2017 earnings before the market opened this morning. Adjusted EPS of $0.87 were six cents higher than expected and revenues rose 6% year-over-year, but were slightly below estimates. New business bookings were lower than in the same quarter last year, when Affordable Care Act compliance was still providing a strong tailwind for customer acquisition. Based on the weakness in the second quarter, management downgraded their expectations for total new business bookings this fiscal year to $1.75 billion, the same as in fiscal 2016. Management had previously been forecasting 4% to 6% growth. They’ve also adjusted their 2017 revenue growth guidance accordingly, to 6%, down from the previous forecast of 7% to 8%. However, even without growth in their customer rolls, ADP achieved better-than-expected year-over-year adjusted EPS growth of 20% in the latest quarter, thanks to margin improvement and payroll growth at existing customers. And management has maintained their 2017 adjusted EPS guidance of 11% to 13% growth. ADP was lower pre-market, but we’ll wait to see how the stock reacts during normal trading before making any rating changes.
Next ex-div date: March 8, 2017
HOLD – Consolidated Edison (ED 74 – yield 3.7%) – New York-area utility ConEd will report fourth-quarter and full-year 2016 earnings on February 16. Analysts are expecting fourth-quarter revenues to be up 1.3%, to $2.74 billion, while fourth-quarter EPS are expected to rise 8.2%, to $0.66. For the full year, revenues are expected to decline 1.4%, to $12.38 billion, while EPS are expected to fall 2.9%, to $3.96. ED is a Hold for long-term income investors.
Next ex-div date: February 13, 2017
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 25 – yield 4.9%)
These four funds make up our bond ladder, a conservative strategy for owning fixed income that’s particularly good at preserving capital when interest rates are rising. Each ETF will mature at the end of the year in the fund’s name, and Guggenheim will distribute the net asset value (NAV) of the fund to shareholders at that point—just like getting your principal back when a bond matures. Because of this maturity feature, these bond funds don’t lose value when interest rates rise like traditional bond funds. Guggenheim offers two series of BulletShares funds for each year—one that holds investment grade corporate debt and one that holds high yield (or “junk”) debt. The high yield ETFs obviously yield more, but come with a higher risk that some of the securities in the ETF will default, causing the fund to lose value (they also have higher expense ratios of 0.44%, compared to 0.25% for the investment grade funds). We’ve alternated the high yield and investment grade funds in our ladder, to create a nice mix of safety and yield, but if you have a lower or higher risk tolerance, feel free to adjust your own bond ladder accordingly. Note that the last letter in each of Guggenheim’s ETFs corresponds to the maturity year, so if you’re constructing a four-year ladder starting in 2017, your funds should end in H, I, J and K, whether you’re using high yield or investment grade funds.
Next ex-div dates: all March 1, 2017 est.
BUY – Home Depot (HD 138 – yield 2.0%) – Home Depot will report fourth-quarter and full-year results on February 21 before the market opens. Analysts are expecting quarterly EPS of $1.33 and full-year EPS of $6.34, up 13.7% and 17.4%, respectively. Revenues are expected to show 6.3% growth for the full year and 3.6% growth in the fourth quarter. HD is trading near the top of its multi-month range ahead of the announcement, and is a Buy on pullbacks for all investors.
Next ex-div date: March 7, 2017 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.9%) – Bond yields have stabilized in recent weeks and this afternoon’s Fed press conference is not expected to bring any surprises. Investors looking to add reliable monthly income (without capital appreciation) to their portfolio can buy PGX, a preferred share ETF, below 15.
Next ex-div date: February 15, 2017 est.
HOLD – J.M. Smucker (SJM 136 – yield 2.2%) – SJM was the subject of an analyst downgrade on Monday, based on lower projections for coffee and pet food sales this quarter. The stock pulled back but rebounded yesterday; SJM is now above its 50-day moving average, which is trending upward. The grocery company will report third-quarter earnings on February 17 before the market open. Analysts are expecting EPS of $2.01, up 24%, on revenue of $1.92 billion, down 2.7%. I’ll keep SJM on Hold.
Next ex-div date: February 8, 2017
HOLD – UPS (UPS 109 – yield 2.9%) – UPS is down about 7% after reporting earnings and guidance that disappointed analysts, as detailed in yesterday’s special bulletin. The company faced a surprisingly rapid shift to lower-margin products in the fourth quarter, as e-commerce exploded while industrial production softened. I’m keeping UPS on Hold for now but am leaning toward selling once the dust settles; the margin challenges, CapEx investments and currency headwinds facing the company in 2017 will likely keep the stock constrained for some time. A strong rebound in coming days could change my mind, but seems unlikely.
Next ex-div date: February 16, 2017 est.
HOLD – Xcel Energy (XEL 41 – yield 3.3%) – Xcel will report fourth-quarter and full-year 2016 results before the market opens tomorrow, February 2. Analysts are expecting revenues of $3.32 billion for the quarter, up 25%, and EPS of $0.44, up 8%. For the full year, analysts are expecting revenue growth of about 5%, to $11.5 billion, while earnings are expected to rise 5.3%, to $2.20 per share. XEL has spent the past month building a solid base around 41; long-term support is down at 38. XEL is a Hold for long-term income investors.
Next ex-div date: March 21, 2017 est.
Closing prices as of January 31, 2017
