Though markets were mixed yesterday, it followed an impressive bounce in the major indexes last week (the stock market was closed Monday for Presidents Day). For the week, the S&P 500 and Dow rose 4.3% and the Nasdaq advanced by 5.3%. All three indexes closed above their 50-day moving averages.
The market is certainly healthier, but it probably won’t go straight up from here. In fact, it’s more likely that sellers will see this bounce as an opportunity, and we’ll get another, probably smaller, leg down before the market starts a sustainable new uptrend.
So keep pruning your portfolio, if necessary, until you own mostly healthy stocks that are likely to be the leaders of the next advance (long-term income holdings excepted).
With that in mind, we’re taking the rest of our profits in Wynn Resorts (WYNN) today, after buyers didn’t show up even during last week’s broad market rally. We’ll replace it with a new, healthier stock in next week’s issue.
Until then, if you have dry powder you’re looking to put to work, BB&T Corp (BBT), Broadridge (BR), Carnival (CCL), CME Group (CME) and UnitedHealth Group (UNH) all look ready to get going again as soon as the market lets them.
On the fixed income side, Treasury yields have risen to their highest level since 2013 after inflation picked up more than expected in January. Core CPI rose 0.3% month-over-month, up from 0.2% in December. Year-over-year, core prices (excluding food and energy) rose 1.8%, and the annual inflation rate would hit 2.9% if price increases continued at this rate (a big assumption). Stocks initially reacted to the report negatively, but recovered by the end of the day, after a separate report showed a decline in retail purchases, which could slow inflation somewhat.
There are other pressures pushing yields up though. The Fed continues to issue large quantities of new debt; this week’s auctions include $151 billion of short-term notes and $28 billion of two-year Treasuries. Altogether, the Treasury is expected to issue more than $1 trillion in new debt this year—the most since 2010 and double last year’s issuance. To get investors to buy the bonds, the Treasury is paying the highest yields since 2008. And the minutes from the Fed’s January meeting will be released today, which could either increase or decrease rate hike expectations for the rest of the year.
HIGH YIELD TIER
BUY – General Motors (GM 41 – yield 3.7%) – GM continues to tighten up, trading between 40 and 42. It hasn’t made up its early February losses yet, but it 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 stayed largely above its 50-day moving average as the market corrected, and then staged a nice rebound last week, bringing it about halfway back to its previous high. ONEOK is a natural gas pipeline and processing company. The company will report fourth-quarter and full-year earnings on 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%. For now, I’ll keep it on Hold.
Next ex-div date: May 3, 2018 est.
HOLD – Pembina Pipeline (PBA 33 – yield 5.2%) – PBA found support just above 31 last week, and may have bottomed for now. But the pipeline stock remains below its 50- and 200-day moving averages, and not far above its 52-week low, so it’s one of the weaker holdings in our portfolio. We should get a good signal one way or the other on Friday, when Pembina will report 2017 results. Thanks to a big merger last year, adjusted cash flow should be up nicely from 2016. (Pembina also reports EPS, as required by the SEC, but the number often includes high non-cash depreciation charges, so analysts mostly ignore it). Fourth-quarter revenue is expected to hit $1.63 billion, up 60% from $1.02 billion. PBA trades ex-dividend tomorrow.
Next ex-div date: February 22, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 97 – yield 1.4%) – AXP has rebounded nicely, and is approaching its 50-day moving average from below. Even though the stock remains below the 50-day line, it never breached its 200-day moving average, 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. Hold.
Next ex-div date: April 5, 2018 est.
BUY – BB&T Corp (BBT 55 – yield 2.4%) – BBT has made up almost all its losses from earlier this month. The stock is healthy and above its 50-day, and looks ready to break out to new highs any day. Rising interest rates are a tailwind, as is the tax bill, and analysts expect EPS to grow a whopping 40% this year. Buy.
Next ex-div date: May 9, 2018 est.
BUY – Broadridge Financial Solutions (BR 99 – yield 1.5%) – Broadridge hit a new all-time high last week, after releasing very strong second-quarter earnings the previous week. The company provides shareholder services and other services and technology used by financial companies. The stock is strong and remains a Buy, particularly on a pullback.
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. The company operates 10 different cruise lines and is benefiting from rising interest in and spending on cruise vacations. This month, Carnival re-launched the San Juan-based Carnival Fascination (which had been chartered by FEMA to house relief workers), expanded its West Coast service, and made several new long-term sustainability commitments. 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 163 – yield 1.7%) – CME just closed at a new all-time high. Not only has the stock weathered this correction extremely well, the increased volatility is likely to provide a nice boost to the company’s first-quarter results. (CME operates exchanges where futures, options and other derivatives are traded.) Analysts are raising their 2018 estimates and upgrading the stock, which should fuel further gains. Buy.
Next ex-div date: March 8, 2018
HOLD – Cummins (CMI 167 – yield 2.6%) – CMI remains above its 200-day moving average, which provided support in August and November, and which looks more impenetrable every day. Hold. CMI trades ex-dividend tomorrow.
Next ex-div date: February 22, 2018
SELL – Wynn Resorts (WYNN 165 – yield 1.2%) – WYNN continues to trundle along around its 50-day. The stock’s failure to bounce last week (it’s barely moved since February 1) suggests that buyers won’t be able to retake control for some time. Earnings estimates remain stellar, but there’s a lot of uncertainty surrounding the company. Will gaming boards in Nevada, Massachusetts and Macau impose penalties related to Steve Wynn’s alleged history of sexual harassment? What impact will Wynn’s resignation have on the company’s day-to-day operations and long-term growth? I’m not hugely worried about more downside in the short-term, but I don’t want to maintain our small position out of inertia while the stock goes nowhere. And in this case, the dividend isn’t worth sticking around for. There are better opportunities out there, so we’re going to sell our remaining shares in WYNN today, for a profit of about 78% (price-only).
Next ex-div date: May 8, 2018 est.
SAFE INCOME TIER
HOLD – 3M (MMM 235 – yield 2.3%) – MMM made up some ground last week, but remains below its 50-day moving average and about 7% off its late-January high. The stock is well above its 200-day moving average though, and we still have a 23% profit (price-only). Hold.
Next ex-div date: May 16, 2018 est.
HOLD – Consolidated Edison (ED 76 – yield 3.7%) – Electric utility ConEd reported 2017 earnings after the close on Thursday, but as noted last week, the stock tends not to react strongly to earnings releases. Still, the news was good. Fourth-quarter EPS of $0.80 beat estimates by 4%, while revenue of $2.96 billion beat estimates by 6%. 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.
Next ex-div date: May 14, 2018 est.
HOLD – Ecolab (ECL 132 – yield 1.2%) – We sold half our positon in Ecolab last week after the stock closed at its lowest level since May 2017. The stock has since rebounded slightly, and the company reported solid earnings before the open yesterday. Fourth-quarter adjusted EPS rose 11%, to $1.39, in line with estimates. Revenues rose 9%, to $3.65 billion, a hair above estimates. In 2018, Ecolab’s management expects EPS growth of 12% to 16%. The stock’s reaction was neutral, and ECL closed just under its 200-day moving average yesterday. We’ll hold the rest of our shares for now.
Next ex-div date: March 16, 2018 est.
HOLD – ExxonMobil (XOM 76 – yield 4.1%) – We still have half a position in XOM, in which we are down about 13%. The stock probably bottomed last week, but hasn’t shown any signs of an imminent rebound, so we’d still like to sell the rest of our shares at a reasonable price. We’ll watch for a bounce this week, if we don’t get one, we’ll probably sell anyway next Wednesday.
Next ex-div date: May 10, 2018 est.
HOLD – 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 24 – yield 4.9%)
BUY – Guggenheim BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
Next ex-div dates: all March 1, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 14 – yield 5.8%) – PGX is an ETF that holds preferred shares and pays dividends monthly, making it a good conservative holding for investors looking for regular income. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16. Right now, PGX is trading around 4.4, offering a good value.
Next ex-div date: March 15, 2018 est.
BUY – UnitedHealth Group (UNH 227 – yield 1.3%) – Although it’s still about 8% off its pre-crash high, UNH has been moving up for the past two weeks. The stock is close to its 50-day moving average and its long-term uptrend is intact, so I’ll keep it on Buy. UnitedHealth is a major health insurer and provider of medical services.
Next ex-div date: March 8, 2018
HOLD – Xcel Energy (XEL 44 – yield 3.3%) – XEL’s rebound continued this week, the stock is nearly back to where it started February. Even though interest rates are still rising, expectations of its longer-term gains (where the 10-year yield will end 2018, for example) have peaked for now. That’s stanched the bleeding in utilities like XEL. 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 20, 2018
