After one strong week in the market, over half the stocks in our portfolio are either at 52-week highs or close to their year-to-date highs. And that’s both good and bad.
On the one hand, a lot of stocks hitting new highs can be a sign of the market getting toppy. On the other hand, many of the stocks hitting new highs are fairly early in their runs: ONEOK (OKE) and AllianceBernstein (AB), for example. Both are buyable here, as are Broadridge (BR), Intel (INTC) and McGrath RentCo (MGRC), which are also at 52-week highs.
Given the market’s strength, I’m also moving one stock back to Buy today. American Express (AXP) has demonstrated it has solid support by bouncing off its 50-day line once again, and is thus a Buy for dividend growth.
Conversely, it’s time to Sell the second half of our position in Carnival (CCL), after the stock dropped (like a rock) to a new low yesterday. The market is healthy, but cruise stocks are notoriously cyclical, and this doesn’t look like a good time to own them. (The last two years were though—we’ll book a total return of about 33% on the investment, which we made in November 2016.)
As always, feel free to email me at chloe@cabotwealth.com with any questions or comments about this update.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 29 – yield 8.9%) – After a short six-day consolidation, AB hit another new 52-week high yesterday. There are clearly plenty of buyers here, and odds are that this breakout—the stock traded sideways from mid-January to mid-May—is the start of a strong, sustained rally. AllianceBernstein is a New York-based investment manager known for their active strategies. Risk-tolerant investors can buy here for high yield, just remember that distributions are variable (based on cash flow), don’t qualify for the lower dividend tax rate, and that you’ll get a K-1 at tax time.
Next ex-div date: August 2, 2018 est.
BUY – Community Health Trust (CHCT 28 – yield 5.8%) – CHCT was added to our portfolio at the stock’s average price of 27.98 on May 31 (the day after last week’s issue came out). After bouncing off its 50-day line two-and-a-half weeks ago, CHCT is trading near its highest level since January 2. Money continues to flow into REITs, amid falling expectations of a fourth Fed rate hike this year. As I wrote in last week’s recommendation, Community Health Trust owns clinics, medical offices and other healthcare facilities in non-urban areas. Properties are leased to healthcare providers under long-term leases, providing plenty of visibility about future revenues. CHCT primarily grows through acquisitions and funds from operations (FFO), a widely used measure of REIT cash flow, have increased nearly every quarter since the IPO. Analysts expect annual growth of about 17% this year and 19% next year. The company has a short dividend history but has increased the dividend by about 3% per year since 2015. Volume is light, but I like the stock’s three higher lows since February—two at the 50-day line—and recent breakout. Risk-tolerant investors looking to add yield to their portfolio can Buy some CHCT here (note that dividends are non-qualified).
Next ex-dividend date: August 16, 2018 est.
HOLD – General Motors (GM 43 – yield 3.5%) – GM has surged 15% since our last update. Japanese conglomerate SoftBank is investing $2.25 billion in GM Cruise Holdings, GM’s autonomous vehicle venture. The investment is expected to help GM Cruise make commercial autonomous vehicles widely available by 2019 (most likely including their own ride-hailing fleet to compete with Uber and Lyft). Following the announcement, GM opened 10% higher Thursday. That was followed by two days of additional gains, bringing the stock to 44. GM has been dragged down by slowing auto sales in recent months but is increasingly used as a vehicle by forward-looking investors looking for a way to invest in the future of mobility. The latest leap has brought GM back above its 50- and 200-day moving averages and to its highest level since the end of January. The stock is obviously looking a lot stronger today, but it’s also volatile and earnings estimates aren’t great, so I’ll keep it on Hold for now. GM trades ex-dividend tomorrow.
Next ex-div date: June 7, 2018
BUY – ONEOK (OKE 69 – yield 4.6%) – OKE also hit a new 52-week high this week. The stock recently broke out after 15 months of sideways action and selling pressure is light. I think high yield investors can Buy some here. Note that although ONEOK is a pipeline company, it’s not a master limited partnership (or MLP). The company is organized as a corporation and dividends qualify for the lower dividend tax rate.
Next ex-div date: August 3, 2018 est.
BUY – STAG Industrial (STAG 27 – yield 5.3%) – STAG hit its highest level since January 2 yesterday. The stock is above its 50- and 200-day moving averages, and is trending up nicely. The company is an industrial REIT that mostly owns warehouses. REITs are doing well again as rate hike expectations moderate, and we already have a 15% total return in STAG (added to the portfolio near the end of March). High-yield investors can buy some here. Note that STAG pays monthly distributions that don’t qualify for the lower dividend tax rate.
Next ex-div date: June 28, 2018
DIVIDEND GROWTH TIER
BUY – American Express (AXP 99 – yield 1.4%) – After selling off sharply last Tuesday (amid a spike in treasury rates and a drop in financial stocks), AXP bounced off its 50-day moving average and is now recovering nicely. The stock is choppy but in a rising range; upside resistance remains around 102.50. Rising interest rates should provide a long-term tailwind, as will the Dodd-Frank rollback, which gives the company more freedom to buy back stock, increase dividends and make acquisitions. I said two weeks ago that I’d put AXP back on Buy after another successful test of the 50-day moving average, and we saw that last week. The progressively higher lows are a sign of good support, so AXP moves back to Buy today. However, while I think the next move will be up, you may want to consider taking a half position until we see a breakout past 102.50.
Next ex-div date: July 5, 2018
HOLD – BB&T Corp (BBT 53 – yield 2.8%) – BBT hasn’t recovered from last week’s drop as nicely as AXP, and the stock’s main trend is sideways. The 50-day line isn’t providing much support; the stock has crossed it repeatedly in recent months. The 200-day moving average, currently nearing 51, could provide a better launching pad if it can catch up to the stock. For now, I’ll keep BBT on Hold.
Next ex-div date: August 8, 2018 est.
BUY – Broadridge Financial Solutions (BR 118 – yield 1.2%) – BR just managed to tap a new 52-week high yesterday, edging out its previous high from last month by a few cents. The stock’s uptrend isn’t new but it still looks strong—BR hasn’t been below its 50-day since February, and that was only for three days. The company processes proxy votes and distributes investor communications for something like 80% of the outstanding shares in the U.S. They also provide other technology and services to financial companies, like trade settlement and wealth management tools. The stock is low-yielding, but growth is steady: Broadridge has increased its dividend every year for 10 years. BR is a Buy for dividend growth, especially on pullbacks.
Next ex-div date: June 14, 2018
SELL – Carnival (CCL 61 – yield 3.3%) – CCL gapped down to a new 52-week low after Morgan Stanley issued a warning on the sector yesterday. Analysts at the investment bank predict higher fuel prices and excess capacity mean cruise companies’ 2018 results won’t live up to expectations. I don’t know if they’re right—I don’t try to predict these things—but I said last week that if I’d sell the rest of our CCL if it broke to new lows, and it has. The stock has been trending down since the end of January and has been below its 50-day line since the end of February, so the longer-term trend isn’t good either. I sold half our shares back in September for a 33% profit, and will sell the rest at today’s average price.
Next ex-div date: August 29, 2018 est.
HOLD – CME Group (CME 170 – yield 1.6%) – CME has suddenly come back to life. Last Tuesday’s Italian bond rout meant big business for the company, which operates the main exchanges for trading foreign exchange and treasury derivatives. Traders swapped a record 24 million treasury futures contracts last Tuesday, while the total number of contracts traded topped 50 million for the first time ever. The big day contributed to a 22% increase in CME’s average daily volume in May. The news catapulted CME’s stock back to the high side of its 50-day last Wednesday, and was followed by a climb to 170 this week. After lying low for most of the last three months, the stock is now back near its highs from early March. It hasn’t broken out yet, but the evidence has certainly improved. Hold. CME trades ex-dividend tomorrow.
Next ex-div date: June 7, 2018
BUY – Intel (INTC 57 – yield 2.1%) – Intel hit another new 52-week high Monday, before pulling back slightly yesterday. Competitor Marvell Technology (MRVL) reported strong earnings Friday, and an analyst raised their price target for Advanced Micro Devices (AMD), adding to strength in semiconductor stocks. INTC is in a steady uptrend and can be bought on pullbacks.
Next ex-div date: August 3, 2018 est.
SAFE INCOME TIER
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 4.9%)
BUY – PowerShares BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
The BulletShares funds make up our 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 are short-term and mature at the end of the year in their name (at which point Invesco disburses the net asset value, or NAV, of the ETF back to investors), they are a good store of value even when interest rates rise. The funds have pulled back slightly in recent months due to the sharp rise in interest rates, but should still mature close to their NAVs. And if you reinvest the proceeds of the maturing fund in a new, longer-dated holding every year, you can secure rising income stream as rates rise. You can construct your own ladder with either the investment-grade or high-yield funds, or a mix, as we’ve done. Invesco is also introducing a new series of BulletShares funds that hold municipal bonds, which may be of interest to some investors. Note that the 2018 fund is rated Hold, its yield will gradually decline over the second half of this year 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. July 2, 2018 est.
HOLD – Consolidated Edison (ED 74 – yield 3.9%) – Treasury yields are bouncing back, and ED is back near its lows and under its 50-day moving average. Longer-term interest rate expectations are no higher than they were at the start of the year, so I expect support to hold here. We’re in for the long term anyway. Hold.
Next ex-div date: August 13, 2018 est.
HOLD – Ecolab (ECL 145 – yield 1.1%) – After pulling back to its 50-day last week, ECL is now trending up again. The pullback was a little more dramatic than is ideal, but then again so was ECL’s initial move up to 150. With the stock now supported by its 50-day once again, ECL’s next uptrend is more likely to be slow, steady and sustainable. Safe income investors can Hold. Ecolab makes chemicals and other products that are used for cleaning and more in a wide range of industries. The company has very predictable cash flows thanks to its high percentage of recurring revenues and has increased its dividend every year since 1987.
Next ex-div date: June 18, 2018
BUY – Invesco Preferred ETF (PGX 15 – yield 5.7%) – Preferred stocks continue to climb, despite the fact that yields are moving up, perhaps reflecting a higher appetite for safety among investors following last week’s exodus out of Italian bonds. PGX is still under 14.50, presenting a good buying opportunity for investors looking to add reliable monthly income to their portfolio. PGX is an ETF that holds preferred shares and pays monthly distributions. The fund has low volatility but no capital appreciation potential; it generally trades between 14 and 16, depending on the direction of interest rates. Buy for a good store of value and regular income.
Next ex-div date: June 15, 2018 est.
BUY – McGrath RentCorp (MGRC 68 – yield 2.0%) – MGRC has hit new 52-week highs on each of the last three days. The stock is in a strong uptrend and can be bought for dividends and growth. McGrath rents modular offices, classrooms, and more, and has a 25-year history of dividend growth. EPS are expected to rise by 34% this year and 7% next year.
Next ex-dividend date: July 13, 2018 est.
HOLD – UnitedHealth Group (UNH 244 – yield 1.5%) – UnitedHealth just increased their dividend by 20%, the health insurer’s eighth dividend increase in a row. The new dividend of $0.90 per quarter works out to an annual yield of 1.5% at current prices. UNH continues to trade just a hair off its January high, above both its 50- and 200-day moving averages. I’d put UNH on Buy on a decisive breakout past 250.
Next ex-div date: June 15, 2018
HOLD – Xcel Energy (XEL 43 – yield 3.3%) – XEL has dropped back to its lows thanks to the rise in Treasury yields over the past week. The yield on the 10-year is currently over 2.95%, although it’s still below its levels from late May. The trend here is sideways, but investors whose primary goal is income can continue to Hold. XEL is a Midwest-based utility that provides both conventional and wind power.
Next ex-div date: June 14, 2018
Closing prices as of June 5, 2018
