After a broad market rally early last week, the major indexes have begun to diverge, with the Nasdaq continuing to new highs while the Dow and S&P 500 trade sideways. One explanation is that the improving market is starting to leave more conservative stocks behind—but a sustainable rally will eventually require broad market participation.
Earnings announcements have mostly been good, especially from major U.S. industrials and tech companies. Energy stocks are backsliding though, as oil prices fell to their lowest level in a month. Prices have now been under $50 for nearly two weeks, as production ramps up in Libya and the U.S. Low energy prices have tamped down inflation expectations, which in turn has made the Fed’s three 2017 rate hikes look less likely. The Fed is meeting again this week and will issue a statement this afternoon, but no hike is expected. However, analysts will be watching to see what the Fed says about the economy and their plans to wind down their balance sheet. And Friday brings the monthly jobs report; analysts are expecting an 0.3% increase in hourly earnings and 200,000 new jobs.
Read on for earnings updates and expectations on all our portfolio companies. I have no rating changes this week, and most of our holdings are acting quite well.
HIGH YIELD TIER
BUY – GameStop (GME 23– yield 6.5%) – GME pulled back to 22.5 at the end of last week but bounced nicely over the past two days. The stock is a Buy for risk- and volatility-tolerant investors. It’s still high risk, but for value-oriented and yield-focused investors, GME’s 6.5% yield and P/E of 6.9 offer an attractive risk-reward tradeoff. The company is transforming from a chain of video game stores to a multi-channel technology and collectibles retailer. The new businesses are doing well, but haven’t gotten large enough to offset rapidly falling video game sales yet. If all goes according to plan, revenues and earnings will start to rebound in 2018. GameStop will report first-quarter earnings on May 25 after the market closes. Analysts are expecting EPS of $0.66 and revenue of $1.95 billion, down from $0.66 and $1.97 in the same quarter last year.
Next ex-div date: June 6, 2017 est.
HOLD – General Motors (GM 33 – yield 4.6%) – GM reported strong earnings on Friday, but then April auto sales data disappointed yesterday, and the stock pulled back to 33. In the first quarter, EPS rose 34%, to $1.70, well above analysts’ $1.45 estimate. Revenue rose to $41.2 billion, also beating the $40.49 estimate by a wide margin. U.S. truck and SUV sales were the main growth drivers. However, data released yesterday showed that auto sales disappointed in April, falling for the fourth straight month (year-over-year). GM’s sales fell 5.8% year-over-year vs. the 2% decline expected. Once again, GM’s sales were the strongest among the big U.S. automakers. However, because automakers typically respond to weak demand by lowering prices, weakness at Ford (F) and Fiat Chrysler (FCAU) is also bad for GM. Technically, this latest pullback marks GM’s third “lower low” in the past two months (after the stock hit 34 in March and 33.5 in April). I’ll keep the stock on Hold for now but the latest weakness is a red flag.
Next ex-div date: June 7, 2017
BUY – Pembina Pipeline (PBA 31 – yield 4.6%) – PBA is about 4% lower this week. The pullback started last week due to the latest slide in oil prices, and then we saw a fiercer selloff Monday after Pembina announced a big acquisition. Pembina plans to acquire Veresen, another Canadian pipeline company, for C$9.7 billion. If the deal is completed, Pembina will raise its monthly dividend by one Canadian cent, to C$0.18. It’s not unusual for stocks to sell off after announcing a big acquisition, and PBA started to rebound yesterday. I’ll keep PBA on Buy, but the company is reporting first-quarter results tomorrow, May 4, after the close, and I don’t typically recommend starting new positions right before earnings. Analysts’ average EPS estimate is $0.26 (52.9% higher year-over-year), and their average revenue estimate is $1.03 billion (up 38.4% year-over-year).
Next ex-div date: May 23, 2017 est.
HOLD – Verizon (VZ 46 – yield 5.0%) – VZ continued its post-earnings slide this week, falling another 2%. However, the stock appears to have found support at 46, as hoped. VZ bounced here in November. As I wrote last week, we added VZ as a reasonably priced source of high income, not a capital appreciation play. So as long as support holds, we’ll sit tight.
Next ex-div date: July 5, 2017 est.
DIVIDEND GROWTH TIER
BUY – Carnival (CCL 63 – yield 2.2%) – CCL and peers Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH) all got a bump this week thanks to rumors that Chinese firm HNA is interested in acquiring a cruise company. That may or may not happen, but CCL remains a solid Buy on pullbacks for dividend growth investors. Cruise demand is strong and analyst estimates are moving up. CCL had a short consolidation from March 28 to April 25 and is now breaking out to new highs again.
Next ex-div date: May 24, 2017
BUY – Cummins (CMI 161 – yield 2.6%) – Cummins, our latest recommendation, was added to the Dividend Growth Tier on Monday at the stock’s average price of 151.16. (We add new recommendations on the first trading day of the month.) The stock then popped 6% after reporting earnings yesterday. EPS of $2.36 beat the consensus estimate by 56 cents, and revenue rose 7% to $4.6 billion; analysts were expecting a 3% decline to $4.2 billion. In addition, management raised their 2017 revenue guidance. They now expect to deliver 4% to 7% revenue growth this year, up from previous guidance of 0% to -5%. Demand for Cummins’ engines and power solutions is improving as construction and industrial activity picks up worldwide, with growth in China especially strong. We’re off to a good start with CMI, and dividend growth investors who haven’t bought yet can try to do so on a pullback.
Next ex-div date: May 18, 2017 est.
HOLD – Prudential Financial (PRU 108 – yield 2.8%) – Prudential will report first-quarter results after the close today, May 3. Analyst estimates have been inching up and the consensus now calls for revenue of $12.74 billion, up 12.8% year-over-year, and EPS of $2.64 per share, up 21.1%. Hold.
Next ex-div date: May 19, 2017 est.
BUY – Wynn Resorts (WYNN 125 – yield 1.6%) – WYNN popped to a new 52-week high at 125 after reporting earnings last Tuesday (after the close), and is now consolidating the gains. On top of Wynn’s strong first quarter, Macau gaming revenue jumped 16.3% in April, the ninth straight month of growth and a slightly faster pace than expected. If you don’t own WYNN yet, try to buy on pullbacks.
Next ex-div date: May 9, 2017
SAFE INCOME TIER
BUY – 3M (MMM 197 – yield 2.4%) – MMM is consolidating at all-time highs after last week’s strong earnings report and guidance raise. 3M’s first-quarter EPS of $2.16 beat estimates by 10 cents, and rose 3.7% year over year. Revenue also rose, growing 3.8% to $7.47 billion, $220 million more than the 0.9% growth expected. Investors interested in long-term capital appreciation and safe income can buy MMM here.
Next ex-div date: May 17, 2017 est.
HOLD – Automatic Data Processing (ADP 104 – yield 2.2%) – ADP reported strong first-quarter EPS but slightly weaker-than-expected revenue this morning. EPS rose 12%, twice as much as expected, to $1.31, beating estimates by eight cents. Revenue of $3.41 billion was 4.9% higher year-over-year, but fell just shy of estimates. For now, ADP looks set to open just slightly lower this morning and I’ll keep it on Hold.
Next ex-div date: June 7, 2017
HOLD – Consolidated Edison (ED 79 – yield 3.5%) – ConEd will report first-quarter earnings tomorrow, May 4. Analysts expect EPS of $1.19, up 0.8% from $1.18 last year, and revenue of $3.21 billion, up 1.8%. Utilities have been outperforming for the past couple of months, and could cool off now that the broad market is becoming healthier. Plus, ED faces upside resistance just a few points north of here. If you still have a full position in ED and a decent profit, you could take some off the table here. We’ll continue to Hold.
Next ex-div date: May 15, 2017
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.4%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.0%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 25 – yield 4.8%)
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. At the end of each year, we’ll sell that maturing fund and reinvest the funds into a new longest-dated ETF to preserve the bond ladder. 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 June 1, 2017 est.
BUY – Home Depot (HD 155 – yield 2.3%) – After a definitive break through overhead resistance at 150 early last week, HD is consolidating ahead of earnings. The home improvement retailer will report first-quarter results on May 16 before the open. Analysts expect EPS to hit $1.60, up 11.1% from $1.44 in the same quarter last year, while revenues are expected to rise 3.9% to $23.65 billion. Try to buy on pullbacks.
Next ex-div date: June 6, 2017 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX remains just a hair below 15, so it’s still buyable for investors looking to add reliable monthly income (without capital appreciation) to their portfolio. The preferred share ETF trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share.
Next ex-div date: May 15, 2017 est.
HOLD – Xcel Energy (XEL 45 – yield 3.2%) – XEL reported earnings on Thursday that fell short of expectations, but the stock is trading about flat. EPS of $0.47 were flat year-over-year but missed estimates by three cents. Revenue rose 6.5% to $2.95 billion. Management reaffirmed their 2017 guidance. XEL is a Hold for its reliable low-single digit earnings growth and consistent dividend payments.
Next ex-div date: June 20, 2017 est.
Closing prices as of May 2, 2017
