The stock market is at all-time highs. Over the past five trading days, the S&P 500 has gained 1.6% and the Dow and Nasdaq are both up 1.3%.
Under the hood, the rotation into the year’s underperformers that started last week has continued, while taking on some aspects of a generic risk-on trade. Financial stocks have outperformed all others since our last update, and tech stocks are up again this week. Materials and industrials also continue to do well.
More conservative stocks, like utilities and consumer staples, are underperforming. Interest rates remain elevated, contributing to a decline in real estate stocks. Futures are currently pricing in an 82% chance of another rate hike in December, though that could change quickly after the latest payroll numbers are released on Friday.
Overall, the market is looking healthier, and I’m putting three stocks (one from each tier) back on Buy today: Pembina Pipeline (PBA), BB&T Corp (BBT) and ConEd (ED).
HIGH YIELD TIER
HOLD – General Motors (GM 43 – yield 3.5%) – GM has surged over 7% so far this week, after reporting much stronger than expected September auto sales numbers. This latest rally has not only brought the stock to new all-time highs, it has also broken GM out of a very long trading range. GM last traded above 40 in 2013, before spending most of the next three and a half years between 30 and 39. So this week’s high-volume breakout to 43 is a very bullish signal. But while the buying power is impressive, earnings estimates give us good reason to remain cautious with GM. EPS are expected to be about flat this year and to contract 3% next year. I’ll keep the stock on Hold for now.
Next ex-div date: December 4, 2017 est.
BUY – Pembina Pipeline (PBA 35 – yield 4.9%) – Pembina completed its merger with Veresen, another Canadian pipeline company, last week. Management then immediately hiked the monthly dividend by 5.9%, as planned. The new dividend of 18 Canadian cents per month is currently worth about 14 U.S. cents, for a yield of 4.9%. PBA continues to trade near 52-week highs, holding its gains from early last week. I think high-yield investors who don’t own PBA yet can start positons here, so I’ll move the stock back to Buy today.
Next ex-div date: October 24, 2017
HOLD – Welltower (HCN 69 – yield 5.0%) – Last Wednesday’s big jump in interest rates (the 10-year yield moved from 2.23% to 2.30% almost overnight) caused HCN to open significantly lower, breaking through its 200-day to the downside. The health care property REIT has drifted even lower since, as interest rates have continued to climb slowly. There are a few support levels to watch now. HCN bottomed at 68.66 in May, when the 10-year rate briefly spiked over 2.4%. Going even further back, the stock found support at 65 multiple times in the first quarter, when rates were significantly higher than they are now (inflation was trending up). Finally, late last year HCN found support at 60, when rates surged after the election. We bought HCN at 75 this summer, so a pullback to 60 would bring our loss to 20%, the outer edge of what we’re comfortable with in the High Yield Tier. Do the math in your own portfolio, and decide how long you’re willing to hold HCN if rates continue to rise. In our own portfolio, we’ll move HCN to Hold today.
Next ex-div date: November 3, 2017 est.
DIVIDEND GROWTH TIER
BUY – BB&T Corp (BBT 47 – yield 2.8%) – BB&T Corp is a regional bank offering a broad range of financial services in the U.S. south, the mid-Atlantic region, Texas and some of the midwest. The stock has started to make up for its recent underperformance, advancing 5.0% over the past two weeks vs. the financial sector’s 3.6%. Financials are likely to continue to advance as long as interest rates remain firm, and I think dividend growth investors can buy BBT on pullbacks. I’ll put the stock back on Buy for investors interested in long-term gains and steady dividends.
Next ex-div date: November 8, 2017 est.
BUY – Broadridge Financial Solutions (BR 82 – yield 1.6%) – Broadridge is a tech company that provides information and services to financial companies. BR has remained above 80 since its breakout a week and a half ago, and hit a new 52-week high yesterday. BR looks very healthy, and dividend growth investors who don’t own it can buy a little here.
Next ex-div date: December 12, 2017 est.
HOLD – Carnival (CCL 64 – yield 2.2%) – CCL’s post-earnings rebound proved short-lived; the stock slipped below 65 again last Wednesday. Over the past two weeks, analysts have adjusted their 2017 and 2018 earnings estimates to account for hurricane damage; EPS are now expected to rise 7% this year (previously 8%) and 17% in 2018. The stock’s adjustment to these new expectations has dragged CCL 8% off its highs, the stock’s largest pullback in over a year. It’s impossible to tell if this is a normal pullback in CCL’s long-term uptrend, or the end of its run for now. But we already sold half our shares two weeks ago, so we’ll hold the rest of our positon while we wait and see. Shorter-term investors more concerned with capital gains may simply want to sell here.
Next ex-div date: November 21, 2017
BUY – CME Group (CME 137 – yield 1.9%) – CME Group, which owns options, commodity and other financial exchanges, is the latest addition to our portfolio. We added the stock to the Dividend Growth Tier at Monday’s average price of 135.89. CME Group is a good choice for investors who like steady growth; the company has increased net income every year for the past five years by an average of 11% per year. But CME Group is also a good pick for investors who like high dividends; the company has paid high special dividends at the end of each of the past five years. Last year’s special dividend of $3.25 more than doubled the stock’s annual yield. The stock is currently trading at its highest level since 2007, when it peaked around 140 shortly before the financial crisis. Dividend growth investors can buy now for steady growth, regular dividends and the high special dividend.
Next ex-div date: December 7, 2017 est.
BUY – Cummins (CMI 171 – yield 2.5%) – Cummins makes heavy-duty engines for trucks, ships, mining equipment and more. After trading sideways for two weeks, CMI attempted to break out past short-term resistance at 170 yesterday, and did hit a new 52-week high. Decisive follow-through to the upside in coming days would be a bullish sign. Dividend growth investors who don’t own CMI yet can buy a little here.
Next ex-div date: November 17, 2017 est.
BUY – Wynn Resorts (WYNN 147 – yield 1.4%) – Wynn owns two casino resorts in Macau and two in Las Vegas, and is building the first major casino in the Boston area. The stock hit a new 52-week high on Friday, but has pulled back slightly after the weekend’s deadly shooting in Las Vegas. In Macau, September data released on Monday showed revenue growth of 16% year-over-year versus expectations of 14%. WYNN remains in an uptrend, and dividend growth investors can buy here.
Next ex-div date: November 7, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 215 – yield 2.2%) – 3M is a diversified provider of technology and products ranging from Post-it Notes to electronic stethoscopes to the coating sprayed on road signs to make them more reflective. The company has paid dividends for 100 years. MMM is trading near 52-week highs, but still faces upside resistance around 215. The stock remains a long-term buy for safe income and dividend growth investors.
Next ex-div date: November 15, 2017 est.
BUY – Consolidated Edison (ED 81 – yield 3.4%) – ConEd is a New York-area utility. The stock pulled back just over 4% in September as interest rates rose, but has found support around 80. More interest rate-related volatility is likely ahead of the Fed’s December meeting, but this looks like a decent entry point for long-term investors who don’t own ED yet. The stock bottomed at this same level in July, and is trading just above its 40-week moving average. Long-term income investors can buy a little here.
Next ex-div date: November 13, 2017 est.
HOLD – Ecolab (ECL 131 – yield 1.1%) – Ecolab provides cleaning, efficiency and sustainability technology and services to a wide variety of industries. A Dividend Aristocrat, the stock is a solid long-term hold for income investors. However, it’s lacking short-term momentum, and is currently rated Hold.
Next ex-div date: December 15, 2017 est.
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%)
BUY – Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.3%)
Next ex-div dates: all November 2, 2017 est.
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. I generally put the ETF back on Buy when it trades below 15, but if you’re looking to add a low-risk position to the income portion of your portfolio, you could buy a little here.
Next ex-div date: October 13, 2017 est.
HOLD – Xcel Energy (XEL 47 – yield 3.1%) – Xcel Energy is a Minnesota-based utility and one of the largest producers of wind power in the U.S. The stock fell this month due to the rise in interest rate expectations. But the stock’s day-to-day moves don’t matter much to us: we’re in it for the long-haul. I’d consider putting XEL back on Buy on a pullback to the stock’s 200-day, currently around 45. Long-term safe income investors who already own the stock can continue to hold.
Next ex-div date: December 19, 2017 est.
Closing prices as of October 3, 2017.
