It’s been a constructive week for the market, and for our portfolio. After bouncing off its 200-day moving average two weeks ago, the S&P 500 turned positive for the year yesterday, its first return to the black in four weeks.
Many of our portfolio holdings that had been struggling are looking healthier, and I’m putting Ecolab (ECL) back on Buy today after an impressive surge from the stock over the past two weeks.
Also looking much healthier are Cummins (CMI), 3M (MMM) and UnitedHealth (UNH). In addition, Intel (INTC) and Broadridge (BR) remain exceptionally strong, both hitting new highs this week. And high-yield holdings ONEOK (OKE) and STAG Industrial (STAG) are both seeing renewed strength.
We have a lot of earnings announcements coming up (with a cluster next Thursday, April 26) so I don’t want to get too much more aggressive right now, but I think you can be getting ready to do some buying, especially if the recent shakeouts have left you underinvested.
Elsewhere, oil prices are at their highest level since 2015 (barring late August’s brief post-hurricane spike). Treasury yields are back to where they were about three weeks ago, following an uptick in the core CPI and a better than expected jobless reading last week. The yield curve continues to flatten, with the spread between two- and 10-year Treasury note yields down to its lowest level since 2007. And the dollar continues to fall, pushed down by weak-dollar rhetoric from the Trump administration.
Read on for updates, including earnings dates and expectations, on all our holdings.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 27 – yield 8.6%) – AB is acting well. The stock pulled back last Wednesday after management announced that assets under management declined slightly in March, but AB recovered quickly. AB will report first quarter earnings April 26; analysts expect revenues of $866 million and EPS of $0.68, up 13% and 48% year-over-year. Support looks solid and risk-tolerant investors can buy for high yield. Remember that AB’s distributions vary based on cash flow and don’t qualify for the lower dividend tax rate, and the partnership issues a K-1 at tax time.
Next ex-div date: May 3, 2018 est.
HOLD – General Motors (GM 39 – yield 3.9%) – GM remains above its 50-day moving average, but just below the 200-day. Yesterday China announced that it will allow foreign automakers to increase their ownership of joint ventures in the country to over 50% for the first time, which will allow GM and others to keep more of their Chinese profits. GM will report first quarter results April 26. Analysts are expecting sales to fall 16% this quarter, while EPS are expected to decline 27%. However, GM has beaten earnings estimates by double-digits in each of the last four quarters. (And this quarter’s big drop is temporary; sales are expected to fall only 1% next quarter and EPS are expected to rise 1.6%.)
Next ex-div date: June 7, 2018 est.
HOLD – ONEOK (OKE 60 – yield 5.0%) – OKE has broken out to its highest level since early February, thanks to a rally in energy stocks. ONEOK owns 38,000 miles of natural gas and natural gas liquids (NGL) pipelines, as well as natural gas and NGL storage, processing and fractionation facilities (fractionation is the breaking down of NGLs into component liquids like ethane and propane.) The stock has been range-bound since the start of 2017, but yields a well-covered 5% and has increased its dividend every year since 2003. ONEOK will report first quarter earnings May 2.
Next ex-div date: May 3, 2018 est.
BUY – STAG Industrial (STAG 24 – yield 5.8%) – STAG closed at its highest level since February 5 yesterday, thanks to a pop in the REIT sector triggered by strong housing market and industrial production data. The stock had been lagging the market slightly over the past week, with Thursday’s interest rate spike (itself following stronger-than-expected jobs data) triggering a short REIT selloff. But the sector recovered quickly, and STAG popped over 1% on Monday, followed by a 2% surge yesterday. The warehouse REIT will report first-quarter earnings May 1, after the close. Risk-tolerant high yield investors can Buy STAG here for monthly income.
Next ex-div date: April 27, 2018
DIVIDEND GROWTH TIER
HOLD – American Express (AXP 94 – yield 1.5%) – Amex will report first quarter earnings after the market close today. Analysts expect the credit card company to report revenues of $9.14 billion, up 15.9%, and EPS of $1.71, up 26.7%. Since finding support at its 200-day moving average three weeks ago, AXP has been trending up nicely just above the moving average line, and is getting close to its 50-day. Hold for medium- and long-term gains. Amex will hold its annual shareholder meeting May 7.
Next ex-div date: July 5, 2018 est.
HOLD – BB&T Corp (BBT 51 – yield 2.6%) – BBT will report first quarter earnings tomorrow, April 19, before the market opens. Even though revenues are expected to be about flat, at $2.83 billion, EPS are expected to double, to $0.92 from $0.46 in the first quarter last year. That’s thanks in large part to savings from the new tax rates that took effect this year. Despite the tax tailwind, financial stocks have been lagging the market in recent days, in part because of continued flattening in the yield curve. When the yield curve flattens—meaning the difference between short- and long-term interest rates gets smaller—banks like BB&T see their lending margins compressed. BBT in particular saw fairly large pullbacks Friday and yesterday, although volume wasn’t elevated. Momentum is neutral to negative; the stock remains below its 50-day and above its 200-day, and both are trending down. For now, I’ll keep BBT on Hold for Dividend Growth investors.
Next ex-div date: May 9, 2018 est.
HOLD – Broadridge Financial Solutions (BR 112 – yield 1.3%) – BR broke out to a new all-time high yesterday. The stock refused to cede any ground after its latest run-up, spending the last five weeks consolidating while its 50-day line tried to catch up. The 50-day didn’t quite get there, but if the stock follows through on yesterday’s breakout, I’ll put it back on Buy. For now, BR is a solid Hold for dividend growth. Broadridge provides investor communications and other technology to financial companies, and a large percentage of revenue is recurring.
Next ex-div date: June 14, 2018 est.
HOLD – Carnival (CCL 64 – yield 2.8%) – CCL has been moving up since our last update, but it’s still below its 50- and 200-day moving averages, and close to its lows for the year. Rising oil prices are raising concerns about cruise line profit margins. Business remains good, but cruise stocks are highly cyclical, and if higher oil prices trigger a reversal for the sector, we won’t hesitate to take the rest of our profits and move on.
Next ex-div date: May 23, 2018 est.
BUY – CME Group (CME 165 – yield 1.7%) – CME will report earnings April 26, before the market opens. Higher market volatility means more transactions on CME’s exchanges, and analysts expect the company to report EPS of $1.83, up 50.0% from $1.22 last year. Revenues are expected to rise 19.3%, to $1.11 billion. Technically, CME looks healthy. After dipping below its 50-day moving average for a few weeks, the stock is now back above the support line and trending up. Buy for dividend growth.
Next ex-div date: June 7, 2018 est.
HOLD – Cummins (CMI 167 – yield 2.6%) – CMI sprang back to life this week, after a positive article in Barron’s over the weekend called the year-to-date selloff in the stock “overdone.” CMI surged through its 50-day moving average on Monday and then closed just above its 200-day yesterday. The pop coincided with—but outpaced—a rally in industrial stocks supported by strong industrial production data. Cummins will report earnings May 1. Analysts expect revenues of $5.14 billion, up 12.1%, and EPS of $2.89, up 22.5% from $2.36 last year. Hold.
Next ex-div date: May 18, 2018 est.
BUY – Intel (INTC 54 – yield 2.2%) – Since bouncing off its 50-day two weeks ago, INTC has moved straight up, breaking out to a new 10-year closing high yesterday. The chipmaker will report earnings April 26. Analysts are expecting EPS of $0.72, up 9.1% from $0.66 last year. Sales are expected to rise a more modest 1.7%, to $15.05 billion. Intel is in an uptrend, and earnings are accelerating, so I’ll keep it on Buy for dividend growth investors.
Next ex-div date: May 4, 2018
SAFE INCOME TIER
HOLD – 3M (MMM 220 – yield 2.5%) – MMM is heading back toward its 200-day moving average from the downside, raising the prospect that its early April lows marked a bottom. The industrial conglomerate will report earnings this coming Tuesday, April 24. Analysts are expecting sales growth of 7.3%, to $8.25 billion, and EPS growth of 16.2%, to $2.51. Hold for now.
Next ex-div date: May 16, 2018 est.
HOLD – Consolidated Edison (ED 78 – yield 3.6%) – ConEd will report first-quarter results May 3, after the close. Analysts are expecting EPS of $1.32 and revenue of $3.24 billion, up 3.9% and 0.3%, but the stock rarely reacts strongly to earnings. Instead, ED is driven by interest rates and appetite for low-risk stocks. After pulling back to its 50-day last week, ED bounced off the moving average Friday and is now rallying again, along with the rest of the utilities sector. Safe Income investors can Hold for slowly rising income, and I might put ED back on Buy again soon if support continues to hold.
Next ex-div date: May 14, 2018 est.
BUY – Ecolab (ECL 148 – yield 1.1%) – After surging to a new all-time high last week, ECL repeated the performance this week, and Monday’s move was accompanied by significantly higher-than-average volume. The stock is now up nearly 11% since the start of April, more than twice as much as the industrials index (XLI). Although there’s no obvious reason for it, the strength is more than enough for ECL to earn back its Buy rating. If you don’t own it, try to start new positions on a pullback. Ecolab, which sells chemicals, technology and services to a variety of industries, will report earnings May 1. Analysts are expecting revenue growth of 7.0%, to $3.38 billion, and EPS growth of 12.5%, to $0.90.
Next ex-div date: June 15, 2018 est.
HOLD – PowerShares BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.0%)
BUY – PowerShares BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – PowerShares BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.8%)
BUY – PowerShares BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
Guggenheim’s sale of their ETF business to Invesco has been completed, and the BulletShares funds are now called the PowerShares BulletShares funds (what a mouthful). Other than the name change, I don’t expect anything about the funds’ management to change, although if you’re looking for more information about how the BulletShares funds work or can be used, Invesco has launched a friendly new website at bulletshares.invesco.com. We’ve used the funds to construct a bond ladder, which is a conservative strategy for generating income by buying a series of individual bonds or defined-maturity bond funds that mature in successive years. Because the BulletShares funds mature at the end of the year in their name (at which point Invesco disburses the net asset value of the ETF back to investors), they are a good store of value even when interest rates rise. The longer-dated funds may pull back temporarily when rates rise, as we’ve seen with the 2021 fund over the past few months, but as long as you hold until maturity you can ignore the pullbacks. And if you reinvest the proceeds of the maturing fund in a new, longer-dated holding every year, you can secure a rising income stream as rates rise. The 2018 BulletShares fund is on Hold; it matures at the end of this year and its yield will gradually decline as Invesco moves the fund into cash. So if you’d like to construct your own bond ladder today, start with BSCJ or its 2019 high-yield counterpart, BSJJ.
Next ex-div dates: est. May 1, 2018 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.8%) – Another good option for the conservative portion of your portfolio, PGX is an ETF that holds preferred shares and pays reliable monthly distributions. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16. Currently trading around 14.50, PGX is buyable now for investors looking for a good store of value and regular income.
Next ex-div date: May 15, 2018 est.
HOLD – UnitedHealth Group (UNH 239 – yield 1.3%) – UNH surged to its highest level since late January after reporting earnings yesterday. EPS were up 28% and beat estimates by 5%, and revenue rose 13% to $55.2 billion, beating the consensus estimate by $330 million. Even better, management increased their EPS guidance for the full year 2018 to $12.40-$12.65 per share, up from the previous range of $12.30-$12.60. The broader health care sector also got a boost on Monday from news that Amazon is shelving plans to become a wholesale distributor of prescription drugs due to cost and complexity. UNH is now back above its 50- and 200-day moving averages. The stock’s intermediate-term trend is still sideways, but it’s getting healthier. Hold.
Next ex-div date: June 14, 2018 est.
HOLD – Xcel Energy (XEL 46 – yield 3.2%) – XEL is reporting first quarter earnings April 26, although, like ED, the stock is not especially responsive to earnings news. Analysts currently expect EPS of $0.51 and revenue of $2.93 billion, up 8.5% and down 0.5% respectively. XEL bounced off its 50-day line last week and is trending up along with the rest of the utilities sector. Investors whose primary goal is income can continue to Hold.
Next ex-div date: June 12, 2018 est.
Closing prices as of April 17, 2018
