After another big drop at the end of last week, the stock market found its footing Monday. The S&P 500 closed slightly higher Monday and Tuesday, and volume declined.
However, the week is unlikely to stay quiet. January inflation data will be released later this morning, and is a major data point affecting interest rate expectations. Analysts currently think core prices rose 1.7% in January (year-over-year), down slightly from 1.8% inflation in December. However, even a slightly higher or lower number could make waves; a 0.2% monthly increase in Core CPI would push the annualized inflation rate over the all-important 2% level.
The 10-year yield has been quiet ahead of the announcement, trading sideways since Monday morning. That’s given utilities a bit of a reprieve, at least in the short term. A decline in the odds of a March rate hike may also be affecting interest-rate sensitive investments. While Fed policy doesn’t explicitly take stock market performance into account, the odds of a March rate hike have fallen along with the market, from 79% to 72%. See my recent Wall Street’s Best Daily column for more details on the Fed’s likely reaction to the correction.
We tightened up our portfolio a little further in Friday’s Special Bulletin, selling half of Pembina Pipeline (PBA) and Exxon Mobil (XOM), so we don’t have a ton of selling left to do. But I’m making one more defensive move today, selling half of Ecolab (ECL), which continues to slide.
Most of the rest of our stocks are holding up well, and I’m actually going to put Broadridge (BR) and our PowerShares Preferred Portfolio (PGX) back on Buy today. Elsewhere, General Motors (GM), BB&T Corp (BBT), Carnival (CCL), CME Group (CME) and UnitedHealth Group (UNH) all look healthy.
HIGH YIELD TIER
BUY – General Motors (GM 41 – yield 3.7%) – GM has tightened up since our last update, trading between 40 and 42. The stock remains well above its 200-day moving average and I’m going to keep it cautiously on Buy. GM did an impressive job of improving profitability in 2017. In 2018, the company is hoping to buoy sales volumes with a boatload of new crossover models and a full line of “next-gen” pickup trucks. And 2019 could see the launch of GM’s autonomous ridesharing fleet. The dividend of 38 cents per quarter hasn’t been increased since early 2016, but GM’s yield remains a relatively high 3.7%.
Next ex-div date: March 8, 2018
HOLD – ONEOK (OKE 57 – yield 5.2%) – OKE has managed to remain above its 50-day moving average since the correction began, making the stock one of the healthier-looking energy sector names. I’ll keep it on Hold for now, since the sector is still seeing some fierce selling, but still anticipate putting it back on Buy soon. ONEOK will report fourth quarter and full year earnings February 27. Analysts are currently expecting fourth quarter EPS of $0.52, up 20.9% from $0.43 last year, and revenue of $3.56 billion, up 33.9% from $2.65 billion. For the full year, EPS are expected to hit $1.70, up 2.4% from $1.66, and revenues are expected to hit $11.91 billion, up 33.5%.
Next ex-div date: May 3, 2018 est.
HOLD – Pembina Pipeline (PBA 32 – yield 5.3%) – We sold half our PBA in Friday’s special bulletin, booking a profit of about 7%, not including dividends. We’ll hold the rest of the shares for now—we like the monthly dividends—but the stock remains on the chopping block. PBA is below is 50- and 200-day moving averages and not far above its 52-week low. Pembina will report 2017 results before the open on February 23.
Next ex-div date: February 22, 2018
SOLD – Welltower (HCN 55 – yield 6.3%) – We sold HCN at last Wednesday’s average price of 57.27. Our total return was -18%. The stock has since fallen further. I know it’s hard to take double-digit losses—it’s easier to hang on and hope they go away—but with interest rates in a persistent uptrend, HCN’s future is getting darker, not brighter. If you haven’t yet, Sell.
Next ex-div date: n/a
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 95 – yield 1.5%) – AXP bounced nicely Monday. The stock remains below its 50-day moving average but never breached its 200-day, so we’re continuing to Hold. The temporary suspension of share buybacks could still weigh on the stock over the next couple months, but earnings estimates are strong and rising.
Next ex-div date: April 5, 2018 est.
BUY – BB&T Corp (BBT 53 – yield 2.5%) – BBT bounced off its 50-day line for a second time last week, and is now back above 53. I don’t expect it to go straight up here, but the stock is healthy so it’s still a Buy. Rising interest rates are a tailwind, as is the tax bill, and analysts expect EPS to grow a whopping 40% this year.
Next ex-div date: May 9, 2018 est.
BUY – Broadridge Financial Solutions (BR 95 – yield 1.5%) – Broadridge released very strong second quarter earnings Thursday, and the ensuing pop in the stock has almost erased the damage done by the prior selloff. Revenues grew 13% to $1.01 billion; analysts were expecting 5% growth. And adjusted EPS more than doubled from $0.39 to $0.79 per share; analysts were only expecting a 39% increase. Management raised their 2018 EPS guidance thanks mostly to a big bottom-line boost from the tax cut. They’re projecting revenue growth of 2% to 4%, up only slightly from the prior range of 2% to 3%, but adjusted EPS are now projected to rise 27%-31%, up from prior guidance of 15%-19%. The stock bounced nicely following the release, on good volume, and upward estimate revisions are likely to fuel more buying, so I’ll put BR back on Buy today for investors with an excess of dry powder.
Next ex-div date: March 14, 2018
BUY – Carnival (CCL 69 – yield 2.6%) – CCL closed below its 50-day moving average briefly last week, but is back above it, and I’m going to keep the cruise stock on Buy. The stock spent the last five months consolidating, so it’s not overbought, and earnings are growing by double digits. CCL had finally broken out to a new high just before the market correction started, so I expect it to do well once the market becomes more supportive.
Next ex-div date: February 22, 2018
BUY – CME Group (CME 160 – yield 1.7%) – Talk about a port in a storm. CME has not only remained above its 50-day line since the correction started, the stock is near all-time highs, and just increased its dividend from 66 cents to 70 cents per quarter. That’s a 6% increase, in line with recent dividend boosts, and helps bump CME’s Dividend Growth Rating up from 6.0 to 7.4. The past two weeks have saved CME from a period of low volatility that depressed trading in certain futures contracts—not that the company needed saving, revenues and EPS both beat estimates in the fourth quarter. The renewed volatility and earnings beat have analysts raising their 2018 estimates and upgrading the stock, and CME looks healthy as a horse. Buy.
Next ex-div date: March 8, 2018
HOLD – Cummins (CMI 166 – yield 2.6%) – In Friday’s Special Bulletin, I wrote: “I noted Wednesday that CMI might pull back further before rebounding, possibly touching its 200-day moving average at 164, and that’s what the stock did yesterday. CMI previously found support at the 200-day in August and November, so if it bounces here all is well. If it doesn’t, we’ll probably sell half our position early next week.” So far, the 200-day line is holding, so CMI remains a Hold.
Next ex-div date: February 22, 2018
HOLD – Wynn Resorts (WYNN 165 – yield 1.2%) – After initially popping on the news that Steve Wynn had resigned last Wednesday, WYNN has pulled back again and is trading just under its 50-day moving average. I don’t expect much from the stock in the intermediate term; there’s too much uncertainty about what Wynn’s resignation and the ongoing gaming board investigations will mean for the company. We could just sell our few remaining shares and move on to more promising opportunities, but earnings estimates remain stellar. For now, we’ll Hold.
Next ex-div date: February 13, 2018
SAFE INCOME TIER
HOLD – 3M (MMM 231 – yield 2.4%) – MMM has held pretty steady since our last update. The stock remains below its 50-day but well above its 200-day moving average. We still have a 23% profit (on a total return basis) and will continue to Hold. MMM trades ex-dividend tomorrow.
Next ex-div date: February 15, 2018
HOLD – Consolidated Edison (ED 77 – yield 3.7%) – ED continues to chop around above 75, and has held above its lows from this time last year. With rates rising, utilities aren’t going to set the house on fire anytime soon, but if you have a long time horizon and a decent profit, like us, you can continue to Hold. ConEd will report 2017 earnings tomorrow, February 15, after the close, but earnings typically don’t have much of an impact on the stock. Analysts are expecting fourth quarter EPS of $0.77 and revenue of $2.8 billion, up 13.2% and 3.4% year-over-year. For the full year, analysts are expecting revenue to be about flat at $12.08 billion, and EPS growth of 3.3%, to $4.09.
Next ex-div date: May 14, 2018 est.
SELL HALF – Ecolab (ECL 129 – yield 1.3%) – ECL still looks lousy, the stock is below its 200-day and closed at the lowest level since May 2017. But earnings estimates are rising (12 analysts have increased their 2018 estimate in the past month) and the industrial company will release fourth quarter and full year results February 20, before the open. Analysts are expecting to see 7.5% revenue growth and 11.2% EPS growth in the quarter, to $3.6 billion and $1.39 per share. For the full year, analysts are expecting revenue of $13.79 billion and EPS of $4.69, up 4.8% and 7.3%. Still, there’s a ton of selling pressure here, and we don’t have a profit cushion, so we’re going to lighten up our exposure by selling half our shares today.
Next ex-div date: March 16, 2018 est.
HOLD – ExxonMobil (XOM 76 – yield 4.0%) – We sold half our position in XOM in Friday’s Special Bulletin, at the day’s average price of $76.81. Our loss was about 12%. The selloff is losing some steam so we’ll Hold the rest of our XOM shares for now. Exxon is holding an analyst meeting March 7, when they’ll address some of the worrying issues from their earnings report.
Next ex-div date: May 10, 2018 est.
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.1%)BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.9%)
BUY – Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.3%)
Next ex-div dates: all March 1, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 14 – yield 5.8%) –Interest rates will likely continue to rise, but the panic has subsided somewhat, so I’m going to put PGX back on Buy today. The ETF holds preferred shares and pays dividends monthly, making it a good conservative holding for investors looking for regular income. PGX has low volatility but no capital appreciation potential; it generally trades between 14 and 16.
Next ex-div date: February 15, 2018 est.
BUY – UnitedHealth Group (UNH 227 – yield 1.3%) – UNH continues to trade close to its 50-day moving average. The stock’s long-term uptrend is intact and earnings estimates are moving up.
Next ex-div date: March 8, 2018 est.
HOLD – Xcel Energy (XEL 44 – yield 3.3%) – XEL is higher this week despite missing earnings estimates slightly last week. Management kept their 2018 guidance the same, but the stock is higher thanks to a slight bounce in the utilities sector. Long-term investors whose primary goal is income can continue to Hold.
Next ex-div date: March 20, 2018 est.
Closing prices as of February 13, 2018
