Markets closed at 1pm on Monday and were closed yesterday, so there have only been three and a half trading days since our last update. Still, plenty happened, as the fierce rotations we saw in June continued into a second month.
Stocks were pummeled Thursday, with tech showing the worst losses. The Nasdaq closed down 1.4%, and the S&P 500 and Dow both lost about 0.8%. Financials and energy stocks were among the only names spared, as oil prices continued their recovery and the Fed approved the banks’ new capital plans. Trading was calm Friday, but the divergences returned Monday morning: the Nasdaq ended the half day down 0.5% even as the Dow rose 0.6% to hit a new high.
All told, since our last update, financials have gained 3.7%, energy stocks are up 3.2%, tech stocks are down 1.3% and utilities have fallen 2.4%. It’s hard to say how much of the rotation is end-of-quarter window dressing and how much represents the new status quo, so I don’t recommend overreacting (e.g. dumping all your utilities and buying a bunch of bank stocks) until we have a little more evidence.
Accordingly, I’m not making any rating changes today, although I do suggest a few profit-taking opportunities below.
HIGH YIELD TIER
HOLD – GameStop (GME 22 – yield 7.0%) – After finding support at 20.50 two weeks ago, GME closed higher on seven consecutive days, a sign that buyers are finally taking control. It’s tempting to put the stock back on Buy today, but we’ll wait for the broad market to find firmer footing first.
Next ex-div date: September 6, 2017 est.
HOLD – General Motors (GM 35 – yield 4.3%) – GM and peers got a nice pop after June auto sales data was released Monday. While overall sales declined for the fourth straight month, sales to consumers (as opposed to commercial fleets) remain strong. Demand is particularly high for SUVs, trucks and crossovers, which are more expensive and higher-margin than passenger cars. GM has a strong lineup of crossovers, and saw their sales rise 23% last month. GM’s average transaction price also rose slightly. If there’s a second-half rotation into the underperformers of 2017, GM could be a beneficiary. Hold.
Next ex-div date: September 7, 2017 est.
BUY – Pembina Pipeline (PBA 33 – yield 4.4%) – Oil prices have bounced back to $47/barrel over the past two weeks, and PBA has followed suit. But unlike oil prices, which remain well below their Springtime level, PBA hit a new 52-week high Monday. I wrote last week that PBA looks closer to breaking out of its trading range to the upside than to the downside, and that’s even more true today. Risk tolerant high yield investors can buy a little here.
Next ex-div date: July 21, 2017 est.
HOLD – Verizon (VZ 45 – yield 5.2%) – It’s still early, but VZ may have found support just below 45 Friday—the stock has closed higher on each of the last two trading days. Of course, Monday was only a half day, so as far as rebounds go it’s in its infancy. We’ll continue to Hold and watch closely.
Next ex-div date: July 6, 2017
BUY – Welltower (HCN 75 – yield 4.6%) – Welltower, the latest addition to our high yield tier, is a REIT that owns senior housing and health care facilities. It’s our policy to add new recommendations to our portfolio on the first trading day of the month (to give subscribers a chance to replicate our results) so we were able to add HCN a bit below where we recommended it, at Monday’s average price of 75.33. The stock’s pullback to 75 looks normal, and HCN is a good Buy here for income-focused investors with moderate risk tolerance.
Next ex-div date: August 4, 2017 est.
DIVIDEND GROWTH TIER
BUY – Broadridge Financial Solutions (BR 76 – yield 1.7%) – BR has been treading water for the past few weeks, caught between the selloff in tech stocks and the rally in financials (the worst- and best-performing sectors of the past month, respectively.) The stock looks like it has solid support here, around 75, but there’s probably no harm in waiting for the Nasdaq to shape up before starting new positions.
Next ex-div date: September 12, 2017 est.
BUY – Carnival (CCL 65 – yield 2.1%) – CCL is consolidating just North of 65. If you don’t own it yet, I still think the stock is buyable here; 14 analysts have raised their current year EPS in the last 30 days. The only tiny reason for concern is the stock’s big run so far this year; if institutional investors are repositioning themselves into 2017 laggards for the second half, CCL might pause here.
Next ex-div date: August 23, 2017 est.
BUY – Cummins (CMI 163 – yield 2.5%) – CMI hit a new 52-week high Monday. The industrial stocks have been on-again, off-again participants in the recent market rotations, causing some jumpiness, but I don’t see any big reason to be concerned about CMI right now. If you don’t own CMI yet, I think it’s buyable on pullbacks.
Next ex-div date: August 18, 2017 est.
HOLD – Prudential Financial (PRU 110 – yield 2.7%) – Financials’ six-day rally—sparked after the Fed approved the big banks’ new, more investor-friendly capital plans—has boosted PRU nearly to the top of its seven-month trading range. If the rotation into financials proves sustainable, and PRU breaks out, I’ll put it back on Buy.
Next ex-div date: August 18, 2017 est.
BUY – Wynn Resorts (WYNN 131 – yield 1.5%) – WYNN has pulled back 3.4% since our last update, on low volume. Macau gaming revenues rose 26% last month, which is impressive, but analysts were expecting 30% growth. As with CCL, WYNN could become collateral damage if institutional investors’ rotation into the dogs of the first half gathers steam. However, for now, WYNN’s pullback looks perfectly normal, and the long-term story is excellent. Buy.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 210 – yield 2.2%) – I wrote last week that MMM’s pullback—triggered by some weakness in industrial stocks—could go a little deeper but looked like a good buying opportunity. That’s still true, though the stock seems to have found support around 208, so now may be a good time to start positions. 3M has all the hallmarks of a long-term winner, including accelerating revenue growth, rising earnings estimates, and a 100-year dividend history.
Next ex-div date: August 16, 2017 est.
HOLD – Automatic Data Processing (ADP 102 – yield 2.2%) – ADP continues to tread water just above its 50-day line. I’m still lukewarm on the stock—the twin gaps down post-earnings in February and May are discouraging—but trying to give it a chance to prove me wrong (plus, we have a small profit cushion to work with). Hold.
Next ex-div date: September 7, 2017 est.
HOLD – Consolidated Edison (ED 81– yield 3.4%) – Utilities were some of the biggest losers of the June market rotation; the Utilities SPDR has delivered the worst performance over the past five days and one month. That’s dragged ED below its 50-day line for the first time since December. Now might be a good time to take some profits off the table if you haven’t yet. Otherwise, Hold.
Next ex-div date: August 14, 2017 est.
HOLD – 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, because of the funds’ maturity features. 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. Towards the end of each year, we’ll sell that maturing fund and reinvest the proceeds into a new longest-dated ETF to preserve the bond ladder. If you’re looking to start a new bond ladder today, start with the 2018 fund as your nearest-dated position and add a 2021 fund if you’d like to build a four-year ladder. You can use either investment grade funds (which begin BSC) or high yield funds (which begin BSJ) or a mix, like we have. All the funds pay distributions monthly.
Next ex-div dates: all August 1, 2017 est.
HOLD – Home Depot (HD 154 – yield 2.3%) – HD’s pullback was halted above 150 last week, and the stock is heading back toward its 50-day moving average. The break through that line last week, on high volume, remains a yellow flag, but I’ll keep HD on Hold for now. Analysts expect sales to rise 5% this year and next, driving 12% and 13% EPS growth.
Next ex-div date: September 5, 2017 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.5%) – 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: July 14, 2017 est.
HOLD – Xcel Energy (XEL 46 – yield 3.2%) – The rotation out of utilities over the past two weeks has pulled XEL below its 50-day moving average, and I wouldn’t be surprised to see the correction get a little deeper. Take a look at what happened to XEL when interest rates rose in 2015 and 2016 for an example of what that might look like. From February to June 2015, XEL pulled back 15%. The 2016 correction was shallower, about 10%, but also lasted about five months. A 10% retrenchment from its recent highs would take XEL down to about 43—where its 200-day moving average is, coincidentally. We’ll Hold, but feel free to take some profits off the table if you like. (Shorter-term investors could even sell here.)
Next ex-div date: September 13, 2017 est.
Closing prices as of mid-morning July 5, 2017.
