The S&P declined 1.8% last Wednesday, its worst drop since September. The pullback sent one of Cabot’s market timing indicators (the Two-Second Indicator) into negative territory while another (the Cabot Tides) is now neutral. We’ve seen a decent rebound in most of our stocks since, but the market needs to behave for the next couple of weeks to keep the bullish case intact. Long-term, the market’s trend remains up.
Elsewhere, oil prices have firmed thanks to increasing confidence that OPEC will extend production cuts, and the odds of a June rate hike have fallen somewhat—although it’s still more likely than not. Utilities have been rallying, while financials and industrials have stumbled.
I’m putting GameStop (GME) on Hold today after the stock suffered a sharp drop yesterday. I have no other rating changes, although Home Depot (HD) has weakened due to a sector selloff.
Lastly, you may be interested to know that this dispatch comes to you all the way from Shanghai, where I’m attending business courses. I’ve been thoroughly impressed by the speed at which Chinese businesses are moving. Today’s highlight was a visit to a three-year-old electric car company that plans to have an SUV available in the Chinese market by next year.
HIGH YIELD TIER
HOLD – GameStop (GME 23 – yield 6.7%) – Problem child GameStop is giving us trouble again. This time, it’s the delay of a big title from Take-Two Interactive. The game’s release date has been pushed back to next April, which means it won’t contribute to this year’s earnings as expected. GME fell nearly 6% after the news was released yesterday. I’m putting the stock on Hold today as a result. However, the company will release its earnings tomorrow after the market closes. Analysts are expecting EPS of $0.51 and revenue of $1.94 billion, down from $0.66 and $1.97 billion in the same quarter last year. If results disappoint, GME may fall below 22 again, but we’ll probably continue to hold as long as support at 20 holds (depending on the reason for the miss, of course). On the other hand, if earnings beat expectations, it would be nice to see GME break above 25. We’ll hold on and see.
Next ex-div date: June 6, 2017 est.
HOLD – General Motors (GM 33 – yield 4.6%) – GM fell as low as 32 during last Wednesday’s selloff, but bounced nicely, and has risen every day since. Investors generally approve of the restructuring moves the company has made in the past week, which include pulling out of the Indian market and selling a South African plant. The moves are expected to save GM about $100 million per year.
Next ex-div date: June 7, 2017
BUY – Pembina Pipeline (PBA 32 – yield 4.5%) – PBA still looks solid, and the latest bounce in the oil price won’t hurt. Risk-tolerant high yield investors can buy a little here.
Next ex-div date: June 21, 2017 est.
HOLD – Verizon (VZ 45 – yield 5.1%) – We sold half our Verizon shares last Wednesday, at the day’s average price of 44.72, for a 10% loss (price-only). It looks like that may have been the low for now, so we’ll hang onto the rest of our shares. If the stock heads south again though, it could find support around 43, where it bounced in early 2016 (and where our loss would hit about 15%.) Hold.
Next ex-div date: July 5, 2017 est.
DIVIDEND GROWTH TIER
BUY – Carnival (CCL 62 – yield 2.3%) – CCL remains in a perfect uptrend. The stock pulled back just to its 50-day moving average during Wednesday’s weakness, then bounced nicely. Carnival is seeing higher cruise demand in almost all markets this year, and analysts expect 5% sales growth and 8% EPS growth. China is one of Carnival’s fastest-growing markets; I’ve seen ads for their cruises around Shanghai. Dividend growth investors can still buy here.
Next ex-div date: May 24, 2017
BUY – Cummins (CMI 155 – yield 2.6%) – Industrials were some of the worst-hit stocks during last week’s selloff, and CMI pulled back all the way to 150, the stock’s lowest point since its earnings gap up at the start of the month. But Friday brought a strong rebound, so I’m going to keep the stock on Buy.
Next ex-div date: August 18, 2017 est.
HOLD – Prudential Financial (PRU 105 – yield 2.9%) – Financials also tanked last week, and PRU fell below 105 again (it’s third such dip in the last three months). The stock’s longer-term range between about 102 and 110 remains intact. Hold.
Next ex-div date: August 18, 2017 est.
BUY – Wynn Resorts (WYNN 124 – yield 1.6%) – WYNN looks like it’s forming a nice consolidation pattern after April’s gap up. The stock may trade here, between 120 and 129, for a few more weeks. On the other hand, Macau estimates are rising, so we might see another rally before too long. If your primary goals are growth and dividend growth, you can buy here.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 198 – yield 2.4%) – MMM bounced off its 50-day moving average nicely during last week’s pullback. If you’re interested in long-term capital appreciation and safe income, you can buy here.
Next ex-div date: May 17, 2017
HOLD – Automatic Data Processing (ADP 100 – yield 2.3%) – ADP remains above its 200-day moving average. It’s not our strongest stock, but investors who already own it can hold.
Next ex-div date: June 7, 2017
HOLD – Consolidated Edison (ED 81 – yield 3.4%) – ED is within 30 cents of its all-time highs from last summer. The company did beat earnings expectations in the latest quarter, so estimates have been rising, but the latest push is primarily thanks to broader utility sector strength. The sector was the only one to resist Wednesday’s selloff, and has remained strong since.
Next ex-div date: August 14, 2017 est.
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.1%)
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. (Although at this point, you may want to begin your bond ladder with a fund maturing in 2018.)
Next ex-div dates: all June 1, 2017 est.
BUY – Home Depot (HD 155 – yield 2.3%) – HD has declined 2.2% over the past five days, amid a fierce selloff in retail stocks. The S&P SPDR Retail ETF (XRT) has fallen 2.9%. Home Depot isn’t seeing the same kind of sales dropoffs as most of its retail peers, and 25 analysts have increased their current year estimates over the past week (the company reported estimate-beating earnings on Tuesday and held an investor day on Thursday.) I think this pullback is likely temporary, but the weakness in the retail sector could still be a drag on HD. Buy cautiously.
Next ex-div date: May 30, 2017
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX is a Hold for investors who want reliable monthly income. The preferred share ETF doesn’t have capital appreciation potential, but it trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share.
Next ex-div date: June 15, 2017 est.
HOLD – Xcel Energy (XEL 47 – yield 3.1%) – Like ED, XEL got a nice boost from the rotation into utilities this week, rising 2.1% to hit a new all-time high. If you own it, hold on and enjoy the yield.
Next ex-div date: June 13, 2017
Closing prices as of May 23, 2017
