Significant divergences have developed in the market over the past two weeks. Since Thanksgiving, the Dow has climbed 2.6% and the S&P 500 is 1.0% higher, but the Nasdaq has declined 1.6%. Last Wednesday, the Nasdaq suffered its largest selloff in three-and-a-half months even as the Dow closed higher. The Dow then went on to hit a record high on Thursday, followed by another on Monday.
The Dow’s advance has been led by industrial and financial stocks, expected beneficiaries of the tax bills working their way through Congress. Bigger picture, the U.S. economy and the manufacturing sector, in particular, remain healthy, supported by strong global growth and a weaker U.S. dollar (which makes U.S. exports more affordable). Tech companies, on the other hand, could pay higher taxes under the tax bill the Senate passed Friday, which is contributing to the decline in the Nasdaq.
However, all three indexes declined yesterday, with the Dow falling the most, as utilities and industrials suffered big losses.
It remains to be seen whether the rotation from tech into older economy names is a temporary tax-bill-related phenomenon or a longer-term cycle. But historically, a day like last Wednesday, when the Nasdaq closes more than 1% lower and the Dow closes at least 0.4% higher, is followed by at least a month of Dow outperformance.
Elsewhere, oil prices remain near two-and-a-half year highs after OPEC and Russia reached a deal on Thursday to extend production cuts. Energy stocks have been the best-performing sector over the past five days. And interest rates remain subdued, as the market considers a December rate hike a certainty.
Individual updates on all our holdings are below.
HIGH YIELD TIER
BUY – General Motors (GM 43 – yield 3.6%) – GM suffered three days of high-volume selling at the end of last week, although the pullback wasn’t particularly large percentage-wise. The selloff started on Wednesday as the Nasdaq broke down. GM declined again on Thursday, even as the company unveiled its self-driving car technology to analysts at a special investor event. Friday brought another, smaller decline, after the company reported a 2.9% sales decline in November, slightly below expectations. GM’s presentation to investors emphasized the company’s commitment to the electric, autonomous future, and its advantages over competitors, especially tech companies who are far from ready for large-scale production. GM has already built 180 autonomous vehicles, and is the only company building autonomous vehicles in an assembly plant. However, there was little in the presentation that wasn’t already priced into the stock. That said, the latest pullback looks like part of a normal consolidation for now. GM remains deeply undervalued at a P/E of 9.0, despite beating estimates by a large margin in each of the last four quarters. While the stock’s yield has come down significantly since we added it to the portfolio, making it less attractive to high-yield investors, I’ll keep the stock on Buy for risk-tolerant investors primarily looking for capital gains. GM trades ex-dividend tomorrow.
Next ex-div date: December 7, 2017
HOLD – ONEOK (OKE 52 – yield 5.7%) – OKE has rebounded nicely over the past week, along with the rest of the pipeline sector. The stock reversed course just under 50 last Tuesday, only slightly below where it found support in August and above its lows from June. That keeps OKE’s year-long trading range intact, and risk-tolerant high yield investors can continue to hold.
Next ex-div date: February 2, 2018 est.
BUY – Pembina Pipeline (PBA 35 – yield 4.9%) – PBA is trending up nicely, making a series of higher highs and higher lows over the past six months. The Canadian pipeline stock is investing heavily in its network, and recently announced two more capital projects coming online in 2018 and 2020. High yield investors looking to add monthly income to their portfolio can buy a little here.
Next ex-div date: December 27, 2017 est.
HOLD – Welltower (HCN 66 – yield 5.3%) – HCN traded sideways for most of the past week, before pulling back toward its late October low of 65 yesterday. If the stock can put in a double bottom here and rebound, we’ll hang on, but a break through 65 would be concerning. Long-term, the company’s portfolio of senior housing and outpatient properties should see strong tailwinds from the dual trends of the aging U.S. population and the fight to lower health care spending. And the stock’s 5.2% yield is competitive. High yield investors can hold.
Next ex-div date: February 2, 2018 est.
DIVIDEND GROWTH TIER
BUY – BB&T Corp (BBT 50 – yield 2.7%) – BBT broke out to a new all-time high thanks to this week’s rally in financial stocks. Long-term, BBT is in a choppy uptrend, and I expect another rally will follow this latest breakout sooner or later. The company has a 30-year dividend history and a portfolio of high-quality loans. Long- and medium-term dividend growth investors can buy a little here.
Next ex-div date: February 14, 2018 est.
BUY – Broadridge Financial Solutions (BR 89 – yield 1.5%) – BR remains more volatile than usual as it consolidates its early-November earnings gap up. The company provides a variety of solutions to the financial industry, including technology, software and investor communications services. Analyst estimates for this year and next have both been rising steadily, and analysts currently expect Broadridge to deliver 19% earnings growth for their current fiscal year, which ends in June 2018. Dividend growth investors can buy a little here, or try to wait for the stock’s 50-day moving average, currently around 85, to catch up.
Next ex-div date: December 14, 2017
HOLD – Carnival (CCL 66 – yield 2.7%) – CCL continues to chop around between 64 and 68, but popped to the top of its range on Monday after the Senate passed a tax bill that doesn’t mention cruise companies (some versions of the legislation have imposed a new tax on the travel industry.) The company still faces some reconstruction costs in the Caribbean, but the long-term uptrend in demand for cruises is intact. We’ll continue to hold.
Next ex-div date: February 2018
BUY – CME Group (CME 152 – yield 1.7%) – CME has advanced about 5% over the past week, bringing the stock to its highest level since 2007. The company has been in the news for introducing bitcoin futures, which are getting lots of media attention as a way to play the cryptocurrency boom without the technical hassle of buying and storing bitcoins. Bigger picture, CME is benefiting from the steady growth of the financial industry and the drive to securitize and trade everything. Dividend growth investors should try to buy on a pullback toward the 50-day, currently around 139. CME trades ex-dividend tomorrow. (CME also typically pays large special dividends at the end of each year, with an ex-dividend date in late December.)
Next ex-div date: December 7, 2017
HOLD – Cummins (CMI 165 – yield 2.6%) – Engine maker Cummins continues to recover slowly from the Tesla truck announcement. CMI has struggled since reporting earnings on October 31, but the stock’s long-term uptrend remains intact, so thus far we’re treating this as a normal pullback. Hold.
Next ex-div date: February 2018
BUY – Wynn Resorts (WYNN 159 – yield 1.3%) – WYNN remains at 52-week highs. Data released by Macau last week showed strong growth in November gaming revenues, pushing the YTD growth rate in the territory to nearly 20%. Closer to home, Wynn is preparing to shut down the Wynn Golf Club to begin construction on its new lagoon and boardwalk. Dividend growth investors should try to buy WYNN on pullbacks.
Next ex-div date: February 2018
SAFE INCOME TIER
BUY – 3M (MMM 238 – yield 2.0%) – MMM hit a new all-time this week thanks to the rally in industrial stocks, before pulling back slightly with the sector yesterday. Current and next-year earnings estimates for 3M, which makes technology and products used in industries from health care to road building, have been steadily rising. EPS are now expected to grow 11% in 2017. Safe income investors who don’t own MMM yet can buy some here.
Next ex-div date: February 2018
HOLD – Consolidated Edison (ED 88 – yield 3.1%) – ED continues to chop around near its highs, with Republicans’ tax proposals seen as a positive for the stock. Be aware of the potential for tax bill-related volatility short term, but long term, the New York-area utility is a solid source of safe income. In any case, Safe income investors can hold.
Next ex-div date: February 2018
HOLD – Ecolab (ECL 137 – yield 1.1%) – Buoyed by the rally in industrials, Ecolab suddenly broke out of its six-month trading range to the upside this week, hitting a new all-time high yesterday. Ecolab is a Dividend Aristocrat that provides cleaning- and liquids-related technologies and services to numerous industries, from oil refiners to restaurants. This year’s results will be impacted somewhat by Hurricane Harvey, which forced Houston-based Ecolab to shut down some plants. But longer-term, growth should remain strong and steady, as economic growth accelerates and businesses continue to move toward more sustainable, environmentally-friendly processes. The recent breakout is a technical positive for ECL and I’ll put the stock back on Buy next week if the rally proves durable. For now, safe income investors can 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 January 2, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX is an ETF that holds preferred shares. It doesn’t have capital appreciation potential, but trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share. It’s currently trading just a hair above 15, so I’ll keep it on Buy for investors who want to add a source of reliable monthly income to their portfolios.
Next ex-div date: December 15, 2017 est.
BUY – UnitedHealth Group (UNH 220 – yield 1.4%) – UnitedHealth was added to our portfolio at the stock’s average price of 225.15 on Friday, December 1. UNH traded ex-dividend on Thursday, and is slightly lower since. But the stock’s long-term uptrend is intact and its surge early last week, following the release of new 2017 and 2018 guidance, is a bullish sign. UnitedHealth also announced the formation of a $250 million venture fund, which will invest in early-stage health startups. Initial investments include a healthcare analytics company and the maker of an AI-powered digital health assistant.
Next ex-div date: February 2018
HOLD – Xcel Energy (XEL 51 – yield 2.8%) –XEL continues to trade near all-time highs and remains on Hold. Xcel is a Minnesota-based electric utility, which is also a U.S. leader in utility-scale renewable projects. The company should benefit from a lower corporate tax rate if a tax bill passes.
Next ex-div date: December 19, 2017 est.
Closing prices as of December 5, 2017.
