It’s been an eventful week in the market, as some big earnings blowups worsened the ongoing exodus from leading growth stocks and big tech names. Other aggressive investments, like small- and mid-cap stocks, have also seen selling.
On the other side of the coin we’re seeing strength in energy, industrial, consumer staples and bank stocks, which are benefiting from reasonable valuations and their leverage to strong economic data. However, utilities and real estate stocks are lagging, probably due to the uptick in interest rates earlier last week.
Will the rotation last? It’s certainly possible, especially since the resurgent sectors underperformed for so long before becoming popular again (so they have plenty of room to run). However, our options expert Jacob Mintz noted yesterday that options order flow is already turning bullish again this week, and buyers may be ready to rotate back into some big names.
Closer to home, I’m selling a third of our shares in Broadridge Financial (BR) today, due to technical weakness. I also sold the rest of our Intel (INTC) in a special bulletin Monday. And many other stocks have reported earnings this week or are reporting soon.
HIGH YIELD TIER
BUY – AllianceBernstein (AB 30 – yield 8.4%) – AB reported estimate-beating second quarter earnings Thursday. Earnings per unit rose 27%, to $0.62; analysts were expecting earnings of $0.59 per unit. Assets under management rose nearly 7% year over year, although they were lower than in the first quarter. The company also announced a 62-cent dividend, payable August 23. AB is near multi-year highs and has good support from its 50-day line, so I’ll keep it on Buy for high yield investors. Just be aware that AB’s distributions are variable and don’t qualify for the lower dividend tax rate.
Next ex-div date: August 3, 2018
BUY – Community Health Trust (CHCT 30 – yield 5.3%) – Community Healthcare Trust will report earnings August 7, after the close. Analysts are currently forecasting 37% revenue growth, to $12.2 million, and EBITDA growth of 13%, to $8.8 million. The stock is pulling back normally and is buyable right here for risk-tolerant investors looking to add yield to their portfolio.
Next ex-dividend date: August 16, 2018 est.
HOLD – General Motors (GM 38 – yield 4.0%) – As expected, GM’s second-quarter earnings announcement was followed by a big drop last Wednesday. EPS and revenues beat expectations, but management lowered their full-year earnings guidance from 6.41 to 6.00 per share. The primary culprits are higher commodity costs, which are expected to persist all year, and changes in foreign exchange rates. The drop brought GM close to the bottom of its recent trading range, but the stock bounced around 36.50 (above lows from March and May) and is now recovering. GM remains volatile, news-driven and range-bound, but the dividend is solid, and the long-term growth potential of GM’s mobility investments is strong. Risk-tolerant high yield investors can continue to Hold.
Next ex-div date: September 6, 2018 est.
BUY – ONEOK (OKE 70 – yield 4.5%) – ONEOK reported second-quarter earnings after the close yesterday, and will hold an earnings call today. Revenue of $2.96 billion was 8% higher year-over-year but missed estimates. However, EPS of $0.68 beat the consensus estimate by one cent and were more than twice as high as in the same quarter last year. Management also increased their full-year net income and EBITDA guidance numbers. I’ll watch the stock’s reaction today, but for now I’m keeping OKE on Buy.
Next ex-div date: August 3, 2018
BUY – STAG Industrial (STAG 27 – yield 5.2%) – STAG also reported after the close yesterday. I haven’t seen the stock’s reaction yet but the report was good. Core FFO of $0.45 beat estimates by one cent and rose 10% year-over-year. Revenue was also higher year-over-year and beat estimates nicely. The stock recently pulled back just to its 50-day line, which should provide good support for STAG’s next advance. High yield investors can buy some here.
Next ex-div date: August 30, 2018
DIVIDEND GROWTH TIER
BUY – American Express (AXP 100 – yield 1.4%) – American Express, which already reported earnings two weeks ago, has pulled back to its 50-day moving average following a negative article published in the Wall Street Journal Monday. The WSJ reported that AmEx recruited small- and mid-size business customers by offering them competitive currency conversion rates, but later raised the rates without warning. The practice has apparently been going on for 10 years. An AmEx spokeswoman told the WSJ that AmEx never told customers their rates were fixed, and defended their practices as “transparent.” For now, the stock remains above its 50-day line, as well as its lows from June. Most likely this story will blow over, but even if there are legal or regulatory consequences, they won’t be felt for a long time. For now I’ll keep AXP on Buy for steady dividends and growth.
Next ex-div date: October 4, 2018 est.
HOLD – BB&T Corp (BBT 51 – yield 3.0%) – I sold half our position in BBT last Wednesday, at the day’s average price of 50.66, for a profit of about 9.5%. As I wrote last week, BBT recently fell to a new six-month low, is lagging the financial sector, and has been mostly below its 200-day line for a month. I’m holding the rest of our shares to see if the stock can recover, which would mean pulling back above its 200-day line and staying there. If it falls to new lows instead, I’ll sell the rest of our shares.
Next ex-div date: August 9, 2018
SELL 1/3 – Broadridge Financial Solutions (BR 118 – yield 1.2%) – The slump in tech stocks over the past week dragged BR through its 50-day line, and I’m going to take some profits here, just to be on the safe side. I still like BR long-term: the stock’s uptrend has been impeccable until now and EPS are expected to rise 34% this year. However, the sharp drop is a yellow flag, and we have a big profit on paper that we haven’t banked any of yet. I’m going to sell a third of our shares at today’s average price, probably for a profit of about 47% (not including dividends). Broadridge will report fourth quarter and full year results before the open August 7 (the company’s fiscal year ends in June). Analysts are expecting fourth quarter revenues to fall slightly (about 2%), to $1.32 billion, but EPS are expected to jump from 1.71 to 1.87, about 9%. For the full year, EPS are expected to rise 34%, to 4.20 per share, while revenues are expected to rise 4%, to $4.33 billion.
Next ex-div date: September 14, 2018 est.
HOLD – CME Group (CME 159 – yield 1.8%) – CME has declined 6% since reporting earnings a week ago, despite beating EPS and revenue estimates. The stock initially opened higher after the report, but has fallen every day since. Trading volume wasn’t as high as in the first quarter, when markets were more volatile, but this quarter still had CME’s second-highest volume ever. However, analysts may be anxious about the third quarter, after CME noted on their earnings call that trading activity has declined 5% so far in July. We took some profits in CME back in May, so I’ll keep the stock on Hold for now. But if all is well, I want to see CME find support at its 200-day moving average, currently at 157, and stay within the 155-175 trading range it has established over the past six months.
Next ex-div date: September 7, 2018 est.
SOLD – Intel (INTC 48 – yield 2.5%) – I sold the rest of our Intel shares in Monday’s special bulletin, after the stock dropped 7% following earnings Friday. As I wrote Monday, Intel’s sales and earnings numbers both beat expectations, but sales of chips for data centers missed expectations. The data center business is not only one of Intel’s largest, but also the one where it was believed to be best insulated from competition. In addition, mass production of Intel’s newest line of chips has been delayed until the end of next year, and Intel said they may have trouble meeting demand in the second half. Analysts are concerned that the production delays will drive customers to Intel’s competitors, and earnings estimates are declining. More important, INTC broke through its 200-day moving average Friday, definitively breaking the stock’s uptrend. INTC has recovered slightly over the past two days, and if you’d like to hold some shares with a stop around 46, you might be able to get a better price (there’s also a dividend payment coming up Monday). However, there’s a lot weighing on the stock—Brian Krzanich’s resignation, rotation out of semiconductors, production challenges and now a selloff in tech and growth stocks. I think it will take a long time for INTC to get back in gear, and in the meantime more downside is likely. I sold the rest of our shares at yesterday’s average price of 48.19, for a total return of -4%.
Next ex-div date: August 6, 2018
BUY – Occidental Petroleum (OXY 84 – yield 3.7%) – Occidental will report second quarter results after the close August 8, with an earnings call the next day. Analysts’ expectations are high: 17.6% revenue growth, to $4.24 billion, and a ridiculous 700% increase in EPS, from 0.15 to 1.21. OXY is consolidating after a big gap up in May, with support around 81 and upside resistance at 87. I’ll keep the stock on Buy for now, although you may want to keep positions smaller than usual until after earnings.
Next ex-div date: September 7, 2018 est.
SAFE INCOME TIER
BUY – Invesco BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.4%)
BUY – Invesco BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.8%)
BUY – Invesco BulletShares 2021 Corporate Bond ETF (BSCL 21 – yield 2.4%)
BUY – Invesco BulletShares 2022 High Yield Bond ETF (BSJM 25 – yield 5.3%)
The BulletShares funds make up our bond ladder, which is a conservative strategy for generating a steady income stream 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. 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.
Next ex-div dates: est. August 1, 2018 est.
HOLD – Consolidated Edison (ED 79 – yield 3.6%) – ED continues to trade—choppily—between its 50- and 200-day lines. The utility will report second-quarter earnings tomorrow, August 2, after the close. Analysts are expecting EPS of $0.56, down 3.4% from $0.58, and revenue of $2.66 billion, up just 0.9% from $2.63 billion. ED isn’t a fast grower, but the dividend is as stable as the come. The stock will probably chop around some more short-term, but it remains a solid long-term Hold for safe income.
Next ex-div date: August 13, 2018 est.
HOLD – Ecolab (ECL 144 – yield 1.2%) – Ecolab reported second-quarter earnings yesterday, before the open. EPS of $1.27 were in line with analysts’ estimates, and up 12% from the second quarter of 2017. Revenues rose 7% to $3.69 billion, but missed estimates by a hair. On the call, management raised their full-year guidance slightly, said pricing is starting to catch up to higher raw materials costs, and confirmed that they’re considering a range of acquisitions. The stock’s reaction doesn’t tell us much, but as long as ECL remains above support we’re happy to hold for income; Ecolab is a Dividend Aristocrat with a 32-year history of dividend growth.
Next ex-div date: September 14, 2018 est.
BUY – Invesco Preferred ETF (PGX 14 – yield 5.8%) – 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: August 15, 2018 est.
BUY – McCormick & Co (MKC 118 – yield 1.8%) – McCormick was added to the Safe Income tier at last Thursday’s average price of 118.63. The spice and flavoring company is a reliable cash cow, with a big industrial business as well as major consumer brands like Old Bay and Frank’s RedHot. The recovery in consumer staples stocks continues, although MKC is consolidating its late-June gap up while it waits for its 50-day line to catch up. McCormick is also a Dividend Aristocrat, boasting a 31-year history of dividend growth plus a 9% dividend growth rate over the past decade. The company is expected to report 17% earnings growth this year and 8% growth next year, supported by 13% and 3% revenue growth. Longer-term, analysts expect EPS growth to average 11% per year over the next five years. (McCormick’s fiscal year starts in December, so the company already reported second-quarter earnings at the end of June. The company’s next earnings report will likely be released toward the end of September.) Safe income investors can Buy here.
Next ex-div date: October 5, 2018 est.
HOLD – McGrath RentCorp (MGRC 59 – yield 2.3%) – McGrath reported second-quarter results that beat estimates yesterday, after the market close. EPS of $0.65 were one cent above the consensus estimate, and up 35% year-over-year. Revenues rose 7%, to $117 million, vs. estimates of $113 million. The stock was up a bit pre-market and this could be the catalyst needed to snap MGRC’s pullback, which has now dragged on for almost two months.
Next ex-dividend date: October 15, 2018 est.
BUY – UnitedHealth Group (UNH 253 – yield 1.4%) – UNH still looks healthy, trending up just above its 50-day line. Drug prices are in the news again, and pharmacy benefit managers like UNH are among the bad guys this time, but so far their stocks are taking the hand-wringing with a grain of salt. Perhaps investors have noticed that the big insurers tend to come out of these controversies without losing much. I’ll keep UNH on Buy for Safe Income.
Next ex-div date: September 6, 2018 est.
HOLD – Xcel Energy (XEL 47 – yield 3.1 %) – XEL reported strong second-quarter earnings Thursday, including EPS and revenue numbers that beat expectations. EPS were expected to rise about 4% and instead rose by 15%. Revenues were expected to decline slightly but rose by 0.8%. Unusually hot and cold weather, which increases power consumption, contributed about three cents to the beat. Another 10 cents came from higher electric and natural gas margins, or the spread between the price of generating power and the prices paid by customers. Management raised their guidance for the full year based on the strength of the second quarter. The stock popped back above its 200-day line after the announcement, and is near the top of its year-to-date trading range. Hold.
Next ex-div date: September 11, 2018 est.
Closing prices as of July 31, 2018
