Good news. The U.S. economy is delivering Goldilocks-like growth—strong but not too strong—and the stock market is back in a good mood. Inflation rose 0.2% in February, meeting expectations but down a notch from last month’s 0.5% rate. And Friday’s jobs report showed that job creation remains robust, but wages are still increasing slowly (up 0.1% in February). The report pushed the yield on the 10-year treasury to within 0.06 percentage points of 3%, but it stopped just shy of breaking through.
It all adds up to three rate hikes this year, markets think, which they’ve decided is just right.
That’s sent the S&P 500 up 2% since the start of the month, and the Nasdaq up 3%, flipping the market’s intermediate-term trend back up. However, the Dow is trading about flat since the start of the month, held back by the tariff tantrum in industrial stocks and underperformance from some other large-cap sectors, like utilities, materials, consumer staples and energy.
I’m also seeing some underperformance in our portfolio—a lot of our holdings are simply moving sideways—which is troubling given the healthy market. I may try to replace some of our laggards with stronger stocks from healthier sectors over the next few weeks.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 27 – yield 8.6%) – AB pulled back to its 50-day moving average yesterday after the company reported that assets under management fell in February. The early-February market drop certainly played a role; AUM in equity strategies declined 3.9%, compared to a 2.5% drop in AUM overall. But bond market weakness—which is likely to be more persistent—also contributed; fixed income AUM fell 2.0%. Fund flows were also negative in retail and institutional funds (reflecting clients withdrawing money), though private wealth saw net inflows. The stock remains above its 50-day though, and volume yesterday was no higher than normal, so I’ll keep AB on Buy for high-yield investors for now. As a reminder, AB is organized as a partnership, so it’s not appropriate for all accounts and taxes entail some extra paperwork.
Next ex-div date: May 3, 2018 est.
HOLD – General Motors (GM 38 – yield 4.0%) – GM has spent the past week steadily climbing back to 38, after starting the month with a big drop through its 200-day moving average. The drop followed a disappointing February sales report (unit sales were expected to decline 3% but fell 7%). On top of that, analysts predict that Trump’s steel and aluminum tariffs will raise costs for U.S. automakers. On the plus side, volume during the pullback was only moderately elevated, and GM’s recovery over the past two weeks has been steady. On the other hand, the stock is now below its 50- and 200-day moving averages, and at its lowest point since September. For now, I’ll keep it on Hold, but a full or partial sale isn’t off the table. We currently have a two-thirds position and a 31% profit.
Next ex-div date: March 8, 2018
HOLD – ONEOK (OKE 58 – yield 5.2%) – ONEOK, a natural gas pipeline and processing company, continues to trend up gently. The stock is above its 50-day moving average and about halfway between its February correction low and its previous high. A breakout past 60 would be bullish. Hold.
Next ex-div date: May 3, 2018 est.
HOLD – Pembina Pipeline (PBA 32 – yield 5.3%) – PBA continues to struggle, bouncing along just above its lows from last summer. The stock is below its 50- and 200-day moving averages, and the trend is sideways at best. The high, safe monthly dividends would be hard to replace, but I might I might swap PBA out soon if I can find a stronger alternative. For now, high-yield investors can Hold.
Next ex-div date: March 22, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 95 – yield 1.5%) – AXP is back below its 50-day moving average, which is trending down. The stock fell following AmEx’s investor day presentation last week. While management painted a bright picture of the future, analysts may be concerned about how their decision to reduce merchant fees will affect EPS. The decision will bring AmEx’s fees more in line with competitors’, and theoretically persuade more merchants to accept AmEx. In addition, AmEx is increasing small-business lending and improving its digital interfaces and tweaking rewards offerings to attract millennials. The stock is still well above its 200-day and its low from February, but the trend is sideways. Hold for now.
Next ex-div date: April 5, 2018
BUY – BB&T Corp (BBT 55 – yield 2.4%) – BBT’s uptrend is intact, although the stock is taking longer to break out than expected. Still, the two recent bounces off the 50-day—the second higher than the first—are bullish. Dividend growth investors can buy here.
Next ex-div date: May 9, 2018 est.
BUY – Broadridge Financial Solutions (BR 108 – yield 1.3%) – BR still looks impeccable, recently hitting new closing highs six days in a row. The only problem is that the stock is fairly extended now: its 50-day moving average is at 97 and the 200-day is way down at 85. Don’t start a big new position here; wait for a consolidation or a pullback to the 50-day. If you want you can nibble on pullbacks, and if you own it, hold on.
Next ex-div date: March 14, 2018
BUY – Carnival (CCL 68 – yield 2.7%) – CCL’s consolidation continues. The stock is now trading between its 50- and 200-day moving averages, right in the middle of its trading range. I still think the stock’s next significant move will be up: CCL spent the last five months consolidating, and had finally broken out to a new high just before the market correction started. Plus, analysts expect EPS to increase 13% this year and 15% next year. We’ll hang on to our remaining half position, and if you don’t own CCL and are looking for dividend growth, you can start accumulating shares here.
Next ex-div date: May 23, 2018 est.
BUY – CME Group (CME 165 – yield 1.7%) – CME hit a new all-time high on Friday before pulling back slightly to start this week. The company’s derivatives exchanges remain busy, and two more analysts raised their earnings estimates this week. Buy on pullbacks.
Next ex-div date: March 8, 2018
HOLD – Cummins (CMI 160 – yield 2.7%) – CMI got hit by the tariff tantrum at the start of the month, and hasn’t recovered as quickly as the rest of the industrials, suggesting a lack of buying power, even with the stock at the lowest price since November. We’ll hold for now, but CMI is back on the chopping block.
Next ex-div date: May 18, 2018 est.
SAFE INCOME TIER
BUY – 3M (MMM 238 – yield 2.3%) – MMM remains below its late-January high, as well as its 50-day moving average. The 200-day continues to provide solid support though, and there’s no real reason for concern, just a lack of momentum. And for the long-term, 3M remains a great holding: the company offers unparalleled free cash flow generation and a very reliable 2.3% yield—it has paid dividends consistently for 100 years, with increases every year since 1959.
Next ex-div date: May 16, 2018 est.
HOLD – Consolidated Edison (ED 75 – yield 3.8%) – Utilities continue to trade sideways, even after 10-year rates nearly hit 3% last week. The sector is likely to stay out of favor for some time, but we’re betting most of the pain came early in the rate hike cycle, as in recent years. Now that investors have adjusted their expectations, the rate hikes themselves are likely to be absorbed more easily. ED is a Hold for long-term investors looking for slowly rising income.
Next ex-div date: May 14, 2018 est.
HOLD – Ecolab (ECL 137 – yield 1.2%) – ECL finally came back to life over the past two weeks and erased its losses from the February correction. The stock is now above its 50- and 200-day moving averages and back in the higher range where it traded in December and January. The advance occurred on good volume and makes me more constructive on ECL. For now, hold.
Next ex-div date: March 19, 2018
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: est. June 1, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%) – 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. The recent interest rate spike brought PGX down to under 14.75, where it’s buyable.
Next ex-div date: March 15, 2018 est.
BUY – UnitedHealth Group (UNH 227 – yield 1.3%) – UNH continues to trade in a tight range between 220 and 230. The stock is just under its 50-day; currently at 229 and trending up. UNH is still below its late-January highs, but its long-term uptrend is intact. Safe income investors can buy some here. The company has an eight-year history of dividend growth, funded by a massive health insurance business and a growing medical services business.
Next ex-div date: June 14, 2018 est.
HOLD – Xcel Energy (XEL 44 – yield 3.3%) – XEL has been trading sideways for more than a month and long-term investors whose primary goal is income can continue to hold. The utility just increased its dividend by 5.6%, the 14th consecutive annual increase in a row. XEL is a Minnesota-based utility, the largest producer of wind energy in the U.S., and has a highly reliable income stream. XEL trades ex-dividend today.
Next ex-div date: March 14, 2018
Closing prices as of March 13, 2018
