The broad market strengthened over the past week, led by a rebound in tech stocks. Other leading sectors included real estate, energy and, for a second week, materials. Utilities also rebounded, as interest rates pulled back. The only industry group that hasn’t advanced over the past five days are the financial stocks.
Volume remains light, so don’t go wild, but if you have some cash to put to work, you can invest opportunistically here. Our strongest Buy-rated stocks today are 3M (MMM), Carnival (CCL), Cummins (CMI), and, for high yield investors, Pembina Pipeline (PBA). On the flipside, Wynn Resorts (WYNN) gapped down last week, and I’m moving the stock to Hold until it regains some strength.
Read on for updates on all our holdings, including earnings expectations.
HIGH YIELD TIER
HOLD – GameStop (GME 21 – yield 7.2%) – GME is bumping along just above its lows. Volume remains light. GameStop is a struggling brick-and-mortar video game retailer branching out into the faster-growing collectibles, electronics and digital markets. The stock’s P/E is just above 6. Hold.
Next ex-div date: September 6, 2017 est.
HOLD – General Motors (GM 36 – yield 4.2%) – GM has advanced for eight days in a row, and is now trading at its highest level since March. The automaker will report second-quarter earnings this Tuesday, July 25, before the market opens. Auto sales have been declining this year, and analysts are expecting GM’s EPS to fall 8.1%, to $1.71 from $1.86 in the second quarter last year. Revenues are expected to decline 3.7%, to $40.78 billion from $42.37 billion. Hold.
Next ex-div date: September 7, 2017 est.
BUY – Pembina Pipeline (PBA 34 – yield 4.3%) – The rally in energy stocks this week has pushed Pembina to a new 52-week high. High yield investors can buy on pullbacks. Pembina will report second-quarter results on August 2 before the market opens. Analysts expect very strong earnings and sales growth, thanks to a number of new infrastructure projects completed last year. EPS are expected to rise 47.4%, to $0.28 from $0.19 in the same quarter last year. Revenues are expected to rise 27.1%, from $789.56 million to $1 billion. Risk-tolerant investors whose priority is monthly income can buy a little here.
Next ex-div date: July 21, 2017
SOLD – Verizon (VZ 43 – yield 5.3%) – We sold the rest of our VZ position at last Wednesday’s average price of 43.19. Coupled with our first sale in May, our total return was -10%. The stock has rebounded slightly, but as I noted last week, we don’t have a lot of positive catalysts to look forward to; analysts expect Verizon’s EPS to expand a modest 1.1% this quarter (results out July 27), and revenues are expected to shrink 2.2%. The company’s revenues and margins just haven’t been able to hold up to the intense competition on price among cell carriers. If you want to try to sell at a higher price, I suggest you set a stop loss around 42.5 while you wait.
Next ex-div date: October 4, 2017 est.
BUY – Welltower (HCN 74 – yield 4.7%) – HCN began to bounce back this week as interest rates moderated and real estate stocks rallied. Income-focused investors with moderate risk tolerance can buy a little here. The health care REIT will report earnings on July 28 before the market opens. Analysts expect FFO (funds from operations) of $1.04, down 11.5% from $1.16 last year. Revenues are expected to decline less, about 0.9%, to $1.07 billion from $1.08 billion.
Next ex-div date: August 4, 2017 est.
DIVIDEND GROWTH TIER
BUY – Broadridge Financial Solutions (BR 75 – yield 1.8%) – BR’s sideways meander just above its 50-day moving average continues. Dividend growth investors can buy a little here. The company provides software and services used in the financial industry.
Next ex-div date: September 12, 2017 est.
BUY – Carnival (CCL 67 – yield 2.1%) – CCL broke out of its trading range to the upside on Monday to hit a new closing high yesterday. After the stock’s tight four-week consolidation, the breakout is a sign of good things to come. Dividend Growth investors who don’t own it yet can buy here.
Next ex-div date: August 23, 2017 est.
BUY – Cummins (CMI 165 – yield 2.6%) – CMI hit another new 52-week high on Monday. The company, which makes engines for trucks, busses, ships and heavy machinery, will report earnings on Tuesday, August 1, before the market opens. Analysts expect sales to increase 5.7%, to $4.79 billion (from $4.53 billion in the same quarter last year), while EPS are expected to rise 6.8% to $2.56 per share, from $2.40. Cummins has beaten earnings expectations in each of the last four quarters. If you don’t own CMI yet, I think it’s buyable on pullbacks. Management raised the dividend 5.4% last week, to $1.08 per quarter (from $1.025).
Next ex-div date: August 16, 2017
HOLD – Prudential Financial (PRU 111 – yield 2.7%) – Financial stocks cooled off this week, and PRU is consolidating its recent gains near the top of its trading range. I’ll put the stock back on Buy once it breaks out definitively. The insurer will report second-quarter earnings on August 2 after the market close. Analysts are expecting 46.2% EPS growth, to $2.69 (from $1.84 in the same quarter last year). Revenues are expected to rise 5%, to $12.4 billion from $11.8 billion.
Next ex-div date: August 18, 2017 est.
HOLD – Wynn Resorts (WYNN 134 – yield 1.5%) – WYNN gapped down to 129 Friday after a large Macau junket operator advised its customers to withdraw funds from their underground bank accounts, citing heightened anti-money-laundering moves. WYNN has typically rebounded quickly after similar shocks from Macau, and started to bounce back yesterday. However, I’ll put the stock on Hold today, just in case. If it rebounds quickly and breaks out to new high ground above 140, I’ll restore its Buy rating.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 211 – yield 2.2%) – MMM looks healthy, trading in a tight consolidation pattern near its recent highs. 3M has all the hallmarks of a long-term winner, including accelerating revenue growth, rising earnings estimates and a 100-year dividend history. The company will announce second-quarter earnings results on Tuesday, July 25, before the market open. Analysts are expecting 22.1% EPS growth, to $2.54 from $2.08 a year ago. Revenues are expected to rise 2.6%, to $7.86 billion from $7.66 billion last year. The stock may pause a bit longer here to let its 50-day catch up, but it’s still a solid Buy for all investors.
Next ex-div date: August 16, 2017 est.
SOLD – Automatic Data Processing (ADP 101 – yield 2.3%) – We sold ADP at the stock’s average price of 102.9 last Wednesday, for a total return of 9%. The company is the largest payroll processor in the U.S. and should be a main beneficiary of rising employment numbers, but has been having trouble signing new customers now that the vast majority of businesses are in compliance with Obamacare. When we added ADP in December, analysts were still expecting sales growth of about 7% to 8% for the fiscal year ending in June, but after second- and third-quarter revenues missed expectations (in February and May), sales growth expectations have fallen to 5.9%. And in fiscal year 2018 (the next 12 months), revenue and earnings growth are both expected to decelerate. ADP’s fourth-quarter earnings report is due before the market opens on July 27 and analysts expect sales to rise 4.9%, to $3.04 billion, but EPS are expected to decline 2.9%. A miss—or even a beat with disappointing new customer numbers—could see the stock gap down to 95 again. If you haven’t yet, I recommend selling ADP here.
Next ex-div date: September 7, 2017 est.
HOLD – Consolidated Edison (ED 81 – yield 3.4%) – Interest rates have moderated and ED continues to trade sideways. 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 152 – yield 2.3%) – HD still looks like trouble. The stock isn’t that far off its highs (about 4%), but the choppy action since mid-May (including the high-volume break through the 50-day last month) is a red flag. We’ve already sold half our position, but if you’re still fully invested, you might consider taking some off the table here. The home improvement chain will report earnings on Tuesday, August 15, before the market opens. Analysts are expecting 12.2% EPS growth, to $2.21 per share from $1.97 in the same quarter last year. Sales are expected to rise 5.0%, to $27.8 billion from $26.5 billion. Hold, for now.
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 3.1%) – Like ED, XEL remains below its 50-day moving average but has stopped falling for now. The correction could deepen if interest rates begin rising again though, so take some profits if you haven’t yet. Otherwise, hold. Xcel will report second-quarter results on Thursday, July 27, before the market opens. Analysts expect revenue to rise 9.3%, to $2.73 billion (from $2.50 billion last year). EPS are expected to grow 7.7%, to $0.42 from $0.39.
Next ex-div date: September 13, 2017 est.
Closing prices as of July 18, 2017.
