I’m making three portfolio moves today. I’m putting Pembina Pipeline (PBA) on Hold due to an earnings miss and taking half our profits in Wynn (WYNN) off the table, as the stock has stalled out. We’re also selling Home Depot (HD), as planned, due to significant technical erosion in the chart.
As for the market, earnings season has caused some choppiness, but overall the trend is up. The Commerce Department will release a new jobs report on Friday, and the earnings reports will continue, with releases from Prudential (PRU) and ConEd (ED) this week.
Read on for earnings details from General Motors (GM), Pembina (PBA), Welltower (HCN), Cummins (CMI), Ecolab (ECL) and Xcel Energy (XEL).
HIGH YIELD TIER
HOLD – GameStop (GME 21 – yield 7.1%) – Once again, GME found support above 20 last week, and is trading just above its lows. GameStop is a struggling brick-and-mortar video game retailer branching out into collectibles, electronics stores and digital sales. Its critics say the new revenues aren’t growing fast enough to replace dwindling sales of physical video games, and the dividend will have to be reduced. The bulls, including my colleagues Roy Ward and Crista Huff, believe the stock presents a compelling value here, with a yield over 7% and a P/E just above 6. Hold.
Next ex-div date: September 6, 2017 est.
HOLD – General Motors (GM 35 – yield 4.4%) – I sent out a Special Bulletin on GM yesterday. The stock opened 3.5% after July sales missed expectations. GM sold 226,107 autos in the U.S. last month, down 15% from a year ago. Analysts were expecting a 9% drop. The decline was mostly due to a planned 81% reduction in sales to rental fleets. Rental fleets primarily buy small passenger cars, which have low margins, and which they resell fairly quickly, depressing prices. Demand for small passenger cars has dried up in recent years, exacerbating the problem. While analysts may approve of GM’s long-term strategy, GM’s sales still fell more than expected, causing the drop in the stock. Sales also slipped at Ford (F) and Fiat Chrysler (FCAU), though they cut rental sales by less and their stocks dropped less. On the bright side, crossovers and trucks, which have high margins, accounted for 80% of GM’s retail sales last month. The stock found a floor quickly yesterday, right around its 50-day moving average, and I’ll keep it on Hold.
Next ex-div date: September 7, 2017 est.
HOLD – Pembina Pipeline (PBA 34 – yield 4.2%) – Pembina reported earnings that missed both EPS and revenue estimates last night, and I’m moving the stock to Hold this morning. EPS rose 30% to $0.26, but still missed estimates. Revenue of $1.17 billion was also up significantly year over year but below expectations. Management will hold an earnings call later this morning, for now, PBA is a Hold.
Next ex-div date: August 23, 2017 est.
BUY – Welltower (HCN 72 – yield 4.8%) – Welltower reported earnings on Friday. Adjusted FFO (funds from operations, a measure of REIT cash flow) rose from $1.16 per share in the second quarter of last year to $1.60 per share, beating analyst estimates by a huge margin. Revenues of $1.06 billion fell short of expectations though, declining 1.9% year over year (analysts were expecting a 0.9% decline) due to divestments. (Same-store operating income increased.) Expenses declined by 18% thanks to efficiency improvements, contributing to the FFO beat, and Welltower used some of the extra cash to reduce leverage. Management reiterated its full-year FFO guidance of $4.15 to $4.25 per diluted share. After initially opening higher on Friday, HCN pulled back to close nearly flat. The stock was then hit by yesterday’s selloff in healthcare and an analyst downgrade of peer HCA Healthcare (HCA), which missed estimates earlier last week. HCN is still cautiously on Buy for High Yield investors. The stock trades ex-dividend on Friday.
Next ex-div date: August 4, 2017
DIVIDEND GROWTH TIER
BUY – Broadridge Financial Solutions (BR 76 – yield 1.7%) – Broadridge will report earnings on August 10; analysts are expecting EPS of $1.69 and revenue of $1.3 billion, up 16.6% and 33.5%, respectively. BR met up with its 50-day moving average two weeks ago but is still in consolidation mode; a breakout through 77 would be bullish. Dividend Growth investors can buy here.
Next ex-div date: September 12, 2017 est.
BUY – Carnival (CCL 67 – yield 2.1%) – CCL got a nice boost after competitor Royal Caribbean’s (RCL) reported estimate-beating earnings yesterday. Royal Caribbean’s CFO said they’re seeing strong demand, and raised full-year guidance. (Carnival itself operates on a fiscal year that ends in November, and will report third-quarter earnings at the end of September.) I expect CCL’s tight six-week consolidation to provide a solid base for the stock’s next advance, possibly starting today. Dividend Growth investors who don’t own CCL yet can buy here.
Next ex-div date: August 23, 2017 est.
HOLD – Cummins (CMI 157 – yield 2.7%) – I sent out a Special Bulletin moving Cummins to Hold yesterday after the company reported second-quarter earnings that fell short of estimates and the stock dropped 6%. Sales actually beat estimates, rising 12.1% to $5.08 billion—analysts were expecting $4.79 billion. But EPS of $2.53 fell short of estimates. Analysts were expecting $2.58, up from $2.40 last year. This was the first time in over a year that Cummins has missed estimates. The main culprit was higher warranty costs related to two different product issues, one in Power Systems and one in the on-highway business. Both are being resolved, and management expects warranty costs to decline in the second half, although they will remain higher than normal. Management is adjusting elsewhere and reiterated its EPS guidance, while also raising sales growth estimates from 4%-7% growth to 9%-11% growth. However, there are a few other issues coming up in the second half as well: Chinese demand is expected to soften, commodity costs are expected to increase, and management is planning to increase investment in new technologies. Now trading at 157, CMI is well below its 50-day moving average, and at its lowest point since early June. CMI is a Hold until we see how the stock acts in the coming days.
Next ex-div date: August 16, 2017
HOLD – Prudential Financial (PRU 114 – yield 2.6%) – Prudential will report second-quarter earnings after the close today. Analysts are expecting 46.7% EPS growth, to $2.70 (from $1.84 in the same quarter last year). Revenues are expected to rise 5.6% to $12.5 billion from $11.8 billion. If things go well, PRU looks poised to give us the breakout through 115 we’ve been waiting for.
Next ex-div date: August 18, 2017 est.
SELL HALF – Wynn Resorts (WYNN 128 – yield 1.6%) – WYNN has been limping along under its 50-day moving average since last week’s earnings report, and it’s time to take some of our gains off the table. Wynn’s second-quarter results actually beat estimates, but analysts were disappointed by the results from Wynn Palace, which is still fenced in by construction. CEO Steve Wynn has assured investors the situation is temporary, but the stock looks like it’s stalled out for now. It hasn’t broken down, so we’re not running for the exit, but we will reduce our risk by selling half our positon. We’ll record the sale at today’s average price, likely for a profit of about 38%, not including dividends.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
HOLD – 3M (MMM 203 – yield 2.3%) – MMM has begun to recover from last week’s post earnings drop. Second-quarter EPS actually beat estimates, but revenue fell short of expectations due to changes in exchange rates and pricing weakness. MMM is now a Hold.
Next ex-div date: August 16, 2017 est.
HOLD – Consolidated Edison (ED 83 – yield 3.3%) – ED is back above its 50-day moving average. The utility will report earnings after the close tomorrow; analysts are expecting EPS of $0.62, up 5.1% from $0.77 last year, and revenue of $2.74 billion, down 2.0%. Safe Income investors can hold for long-term gains and income.
Next ex-div date: August 14, 2017
BUY – Ecolab (ECL 131 – yield 1.1%) – ECL was added to our portfolio at the stock’s average price of 129.4 yesterday, just after the company reported earnings (not intentionally; we always add stocks to the portfolio on the first trading day of the month.) ECL initially opened lower yesterday, despite beating earnings and revenue estimates. Revenues rose 4.2% year over year, to $3.46 billion, $60 million above the consensus estimate. Adjusted EPS rose 5% to $1.13, beating estimates by one cent. The stock recovered most of the drop by the end of the day, but remains below its 50-day moving average. However, ECL is less than 3% off all-time highs, so I’ll keep the stock rated Buy for now.
Next ex-div date: September 15, 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.
SELL – Home Depot (HD 150 – yield 2.4%) – HD has spent the past week trying to recover from the selloff triggered by the Kenmore news (Kenmore appliances will now be sold on Amazon.) The stock has regained 2% but remains below its pre-selloff level. I said last week that we would try to sell HD on a bounce toward 150, and that’s what we’re going to do today. Growth expectations remain high, but the stock’s chart is lousy and the hex Amazon has cast over the entire retail sector isn’t going anywhere. If you’re going to try to sell at a higher price, be aware that Home Depot will report second-quarter earnings on August 15 before the market opens. Analysts are expecting EPS of $2.21, up 12.2% from $1.97 in the same quarter last year. Revenues are expected to grow 5% to $27.8 billion from $26.5 billion. We’ll sell at today’s average price.
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: August 15, 2017 est.
HOLD – Xcel Energy (XEL 48 – yield 3.0%) – XEL reported second-quarter results on Thursday, and is up about 2% since our last update. Revenue of $2.64 billion fell $10 million short of estimates, but was 5.6% higher year over year. EPS rose 15% to $0.45, beating estimates by two cents. The utility generates reliable cash flow and pays a very predictable dividend, and remains a good long-term hold.
Next ex-div date: September 13, 2017 est.
Closing prices as of August 1, 2017.
