Markets remain volatile, and some stock indexes started to diverge toward the end of last week. The Dow ended Thursday up 94 points, while the Nasdaq dropped 54 points. However, all three indexes still ended the week higher, and the situation has been reversed this week. The Nasdaq closed at a new all-time high yesterday, while the Dow pulled back slightly (the S&P 500, for its part, closed at its highest level since February 1 Monday).
The rotation means some stocks are looking stronger than others, but overall the intermediate trend remains up. The one problem spot in our portfolio today are our utilities, which are near 52-week lows. Yesterday’s inflation data met expectations, so the Fed is expected to hike rates again today. That’s kept the 10-year yield near 3%, and is driving down demand for utilities. (Other high-yield investments, like REITs, are still looking okay.)
On the plus side, two more portfolio holdings have hit new 52-week highs since our last update: CME Group (CME) and UnitedHealth Corp (UNH). I’m putting UNH back on Buy today in recognition of the stock’s strength. In addition, AllianceBernstein (AB), ONEOK (OKE) and Broadridge (BR), which were already at 52-week highs last week, have hit more new highs.
There are still plenty of yellow flags out there, but the market’s trend remains up, so if you’re underinvested, feel free to do a little buying here. If you’re not sure what to buy, remember that your subscriber website is a great place to find information on strategy, portfolio allocation, managing risk and more.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.7%) – Investment manager AllianceBernstein is looking very healthy. Assets under management rose 0.6% in May, the company reported yesterday, thanks to both firm-wide inflows and market appreciation. After spending about six months in a trading range, AB broke out to new multi-year highs in mid-May, and continues to climb. The stock is at 52-week highs and selling pressure is light. 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.
Community Health Trust (CHCT 28 – yield 5.8%) – CHCT has been consolidating since our last update, after hitting its highest level since January 2 the previous week. Yesterday’s CPI (consumer price index) data was about in line with expectations, so the Fed is still expected to hike their target rate later today, but the move is already priced into fixed income markets and high-yield stocks like REITs. 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 44 – yield 3.4%) – GM continues to advance, motoring to its highest level since January 16 yesterday. The rally was triggered by SoftBank’s $2.25 billion investment in GM’s autonomous vehicle unit, which is expected to help GM Cruise make commercial autonomous vehicles widely available by 2019. GM gapped up 10% on the news and has been climbing since, bringing its total advance since May 30 to about 19%. The follow-through is a good sign, and GM is firmly back above its 50- and 200-day moving averages. I’ll consider putting the stock back on Buy after a reasonable pullback.
Next ex-div date: September 6, 2018 est.
BUY – ONEOK (OKE 69 – yield 4.6%) – OKE spent most of the last week consolidating, then edged higher to hit a new 52-week high yesterday. The stock’s early May breakout followed 15 months of sideways action, so there’s a good chance this is just the beginning of OKE’s uptrend. High yield investors can Buy here. Note that although ONEOK is a pipeline company, it’s not a master limited partnership (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 took a breather while investors waited for inflation data this week, but remains above its 50- and 200-day moving averages and close to its high for the year. The company is an industrial REIT that mostly owns warehouses. 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 101 – yield 1.4%) – AXP has been rising since bouncing off its 50-day moving average two weeks ago, and is now back near the top of its trading rage. Resistance remains around 102.50 but the lower end of the stock’s range has gradually been rising every time AXP finds support at one of its moving averages. AXP is a Buy for steady dividends and growth, although 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 54 – yield 2.8%) – BBT continues to trade sideways. Momentum certainly isn’t great, but earnings estimates are firm and the stock is trading about in line with the financial sector. The 200-day moving average, currently nearing 51, could eventually provide a 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 116 – yield 1.3%) – BR hit another new 52-week high Friday before pulling back this week. Broadridge will be added to the S&P 500 on Monday, an upgrade from the S&P MidCap 400. That could provide a slight tailwind for the stock, as funds following the index add BR to their portfolios (although it will also be removed from funds tracking the MidCap 400). Broadridge, an investor communications firm, is a steady grower that 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
SOLD – Carnival (CCL 62 – yield 3.2%) – I recommended selling CCL in last week’s update, after the stock gapped down to a new 52-week low following a downgrade from Morgan Stanley. I don’t have an opinion on Morgan Stanley’s warning, but CCL had been trending down since the end of January and was on the chopping block even before the drop to new lows. I sold half our shares back in September for a 33% profit, so after the latest sale—at last Wednesday’s average price of 60.90—our total return in CCL was 34%, including dividends.
Next ex-div date: August 29, 2018 est.
HOLD – CME Group (CME 170 – yield 1.6%) – CME is pausing normally after a weeklong rally brought the stock to a new all-time high last Wednesday. Average daily volume on CME’s exchanges rose 22% last month thanks in part to record trading in foreign exchange and treasury derivatives after the Italian bond rout. After lying low for most of the last three months, the stock is now back near its highs from early March. It hasn’t started a definitive new uptrend yet, but the evidence has certainly improved. Hold.
Next ex-div date: September 7, 2018 est.
BUY – Intel (INTC 55 – yield 2.2%) – INTC is pulling back a bit this week. In an interview with an analyst last week, Intel’s CEO agreed that competitor AMD will gain market share in server chips in the second half of this year, due to (already-announced) production delays at Intel. And earlier today, Qualcomm told the press that they won’t be pulling out of the server chip market as rumored. That means more competition for Intel, but so far the pullback in the stock looks normal. INTC had recently hit a new 52-week high and still has good support from its 50-day moving average. INTC is in a steady uptrend and can be bought here.
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 a bit 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%) – ED fell to a new 52-week low yesterday. The New York-area utility is underperforming its index, which stabilized last week (along with 10-year yields). If the divergence continues, we may take some more profits in ED soon. Longer-term, utilities are likely to remain under pressure due to the steady rise in interest rates expected to follow the Fed’s benchmark rate increases.
Next ex-div date: August 13, 2018 est.
HOLD – Ecolab (ECL 145 – yield 1.1%) – A long-term chart of ECL still shows the stock in an uptrend, but shorter-term the stock is choppy and directionless. Still, ECL seems to have decent support around 142, and is still well above its 200-day moving average. 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%) – 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 under 15 for a good store of value and regular income.
Next ex-div date: June 15, 2018 est.
BUY – McGrath RentCorp (MGRC 65 – yield 2.1%) – After hitting a new 52-week high last week, MGRC is pulling back toward its 50-day line. 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.
BUY – UnitedHealth Group (UNH 254 – yield 1.4%) – UNH hit a new 52-week high Monday. The stock is in a healthy uptrend with good support from its 50-day, currently at 238. I’m going to put UNH back on Buy today, but suggest you try to start new positions on pullbacks. The health insurer has increased its dividend every year since 2010 and is expected to grow revenues by 12% this year and 8% next year. UNH trades ex-dividend on Friday.
Next ex-div date: June 15, 2018
HOLD – Xcel Energy (XEL 43 – yield 3.4%) – XEL remains near its recent lows, but investors whose primary goal is long-term income can continue to Hold. XEL is a Midwest-based utility that provides both conventional and wind power. The stock trades ex-dividend tomorrow.
Next ex-div date: June 14, 2018
Closing prices as of June 12, 2018
