Stocks pulled back yesterday, but the market’s intermediate-term trend remains up. The divergences I mentioned last week—between sectors, small- and large-cap stocks, and aggressive and conservative stocks—remain. Utilities, last week’s worst performers, bounced back this week while financials fell apart.
Stay the course, and resist overreacting to the oscillations.
Most of our holdings are consolidating or pulling back normally, and a couple are still near recent 52-week highs. I do have one rating change today: I’m putting Intel (INTC) on Hold as a precaution, following a sharper-than usual pullback.
One more thing before I go: I know I’ve mentioned our Cabot Wealth Summit here before, but my colleague Crista Huff recently described it much more compellingly than I ever could. (It helps that she’s from Colorado, and can see Salem with fresh eyes.) In hopes that you might find her perspective as persuasive as I did, I wanted to share some of what she wrote here. So here’s Crista:
“This year’s Cabot Wealth Summit takes place August 15-17 in Salem, MA—a short, surprisingly scenic drive north up the Massachusetts coast from Boston. (For scenery comparison, driving across Kansas or Nebraska rates a one out of ten, whereas driving from Boston to Salem rates at least an eight.) Everything about Salem is small-townish, picturesque and friendly. The Hawthorne Hotel bears no resemblance to either a Hyatt chain hotel nor Motel 6. It’s so New England!
“Once you arrive at the conference, you’ll spend lots of time with everyone at Cabot: all of the wonderful people who are based in Salem that handle your questions and service; and all the analysts, including those who fly in from the South, the West, and Europe! What’s more, whether you’re new to stock investing (and maybe attending because your spouse twisted your arm!) or an equity options aficionado, you’ll meet many dozens of friendly investors with whom to share, learn and enjoy evening camaraderie.”
All I can add is that year after year, I’m consistently impressed by how interesting, intelligent and kind all our conference attendees are. And some of my favorite conversations have been with beginning investors who accompanied someone else to the conference but found they were excited by what they were learning! So whatever your reason for coming, we’d love to have you join us and I’d love to meet you. Learn more here.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 29 – yield 8.7%) – AB is enjoying a brief but normal consolidation just under its recent 52-week highs. A few more weeks of consolidation, or even a pullback, are certainly possible here. But the stock spent six months in a trading range before breaking out in in mid-May, so long-term I think there’s still plenty of gas in the tank here. Risk-tolerant investors can buy here for high yield and gradual appreciation, 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 5.7%) – After a brief consolidation, CHCT is again at its highest level since January 2. Risk-tolerant investors looking to add yield to their portfolio can Buy some CHCT here. The company owns medical offices and other healthcare real estate, primarily in non-urban areas (where it’s still cheap). Distributions are non-qualified.
Next ex-dividend date: August 16, 2018 est.
HOLD – General Motors (GM 42 – yield 3.6%) – GM has pulled back this week, which is normal after the stock’s big gap up (some sources are citing tension with China, but most of the cars GM sells in China are made in China). While the buying power during the gap up was impressive, GM is still within its 9-month trading range. I’d like to see the stock start a sustained, renewed uptrend and break out past about 46 before putting it back on Buy. (I also don’t love the stock’s sensitivity to news.) For now, Hold for yield.
Next ex-div date: September 6, 2018 est.
BUY – ONEOK (OKE 69 – yield 4.6%) – OKE remains near 52-week highs. Although the primary draw here is yield, 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 owns pipelines, 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 pulled back to and bounced off its 200-day moving average nicely this week. The stock is still close to its high for the year and looks healthy. STAG is an industrial REIT that mostly owns warehouses, so it’s benefitting from the proliferation of e-commerce distribution centers as well as from overall economic growth. 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 97 – yield 1.4%) – Financials stumbled again this week, and AXP is back below is 50-day line. That’s discouraging, especially since the moving average provided good support twice last month. Still, longer-term support from the 200-day, currently around 96, remains intact. This latest setback just means it might take AXP a bit longer to break out past upside resistance than previously hoped. AXP is a Buy for steady dividends and growth, assuming support from the 200-day holds.
Next ex-div date: July 5, 2018
HOLD – BB&T Corp (BBT 52 – yield 2.9%) – Like the rest of the financial sector, BBT is lower this week. The stock is in an increasingly firm trading range between about 51 and 56. Long-term investors can probably nibble when the stock is in the lower half of that range, although I’ll keep BBT on Hold as long as momentum stays primarily sideways. Still, the long-term picture is good, earnings estimates are firm, and looser regulations mean BB&T is likely considering acquisitions again, which would give a nice boost to growth.
Next ex-div date: August 8, 2018 est.
BUY – Broadridge Financial Solutions (BR 116 – yield 1.3%) – Broadridge’s addition to the S&P 500 this week caused a volume spike, but the stock is behaving normally. Broadridge, an investor communications firm, is a steady grower that has increased its dividend every year for 10 years. Trending up nicely just above its 50-day moving average, BR is a good Buy for dividend growth right here.
Next ex-div date: September 14, 2018 est.
HOLD – CME Group (CME 167 – yield 1.7%) – CME is pausing normally after recently hitting a new all-time high. 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.
HOLD – Intel (INTC 53 – yield 2.3%) – INTC is lower this week following an analyst downgrade and a report that the company is losing share in the desktop chip market to AMD. The issues are primarily medium-term, potentially affecting Intel’s sales in the second half of this year but not beyond that. Still, the pullback has brought INTC below its 50-day line for the first time since early February. I’m going to move INTC to Hold today while we wait to see if this stumble is the beginning of something bigger or just a brief pullback.
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 75 – yield 3.8%) – ED has bounced back a bit this week, thanks to a decline in treasury yields and rebound in utility stocks. Rates and associated securities remain volatile, buffeted by trade war talk and the constant stream of economic data. The good news is that ED is no longer underperforming the utilities index. Hold.
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 ECL 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 64 – yield 2.1%) – After hitting a new 52-week high two weeks ago, MGRC has pulled back just about to its 50-day line. The stock is in a strong uptrend so this pullback is a good buying opportunity for investors looking for steady 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 16, 2018
BUY – UnitedHealth Group (UNH 253 – yield 1.4%) – UNH hit another new 52-week high last week. The stock is in a healthy uptrend with good support from its 50-day, currently at 238. UNH can be bought for steady dividends and growth. 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.
Next ex-div date: September 6, 2018 est.
HOLD – Xcel Energy (XEL 44 – yield 3.3%) – XEL is rebounding with the rest of the utility stocks and heading back toward its 50-day line, currently around 45. The trend here is sideways-to-down for now, 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.
Next ex-div date: September 11, 2018 est.
Closing prices as of June 19, 2018
