We’re only six trading days into the New Year, but so far, 2017 is shaping up nicely. Friday’s jobs report revealed an 0.4% increase in average hourly earnings in December, while the unemployment rate stayed steady at 4.7%. In the stock market, the major indexes are all at or within 1% of all-time highs. The Nasdaq is leading, with a 3.1% gain since the start of the year, as investors rotate back into growth leaders that had fallen behind in recent months.
Meanwhile, most of the outperformers of the last two months—including financials, energy stocks and industrials—are consolidating, but we haven’t seen significant pullbacks.
We have two rating changes today. General Motors (GM) is finally showing some mojo and I’m putting it back on Buy, while UPS (UPS) moves to Hold until we see technical strength return.
HIGH YIELD TIER
BUY – Game Stop (GME 25 – yield 6.0%) – GME has drifted lower since the start of the year, and touched its 50-day moving average just above 24 this week. That average has just turned up, and could provide support for a short-term rally in the weeks ahead. GameStop is undervalued, with a P/E of 6.6, and analysts expect a return to EPS growth next year. GME is a Buy for risk-tolerant investors seeking high current yields and medium-term capital appreciation.
Next ex-div date: March 2017
BUY – General Motors (GM 37 – yield 4.1%) – GM is up 6% over the past five trading days. The stock jumped nearly 4% yesterday alone, after management announced at an industry conference much stronger than expected 2017 guidance and a $5 billion stock buyback program. GM finally looks strong both technically and fundamentally, and I’m putting the stock back on Buy for risk-tolerant investors today.
Next ex-div date: March 2017
HOLD – Mattel (MAT 30 – yield 5.1%) – MAT is 8.6% higher since the start of the year. The stock got a nice pop after Mattel introduced a kid-focused home assistant called Aristotle at the Consumer Electronics Show. Powered by Microsoft’s Cortana, the device is being called a “smart baby monitor” but also includes many of the features of Amazon’s Echo and other in-home assistants. Hold.
Next ex-div date: February 2017
BUY – Pembina Pipeline (PBA 32 – yield 4.6%) – Like most energy stocks, PBA spent the past week consolidating. After a lackluster 2016, the Canadian pipeline company’s revenues and EPS are expected to surge 42% and 47% next year. PBA is a Buy for medium-term investors seeking high monthly income.
Next ex-div date: January 23, 2017
DIVIDEND GROWTH TIER
HOLD – AbbVie (ABBV 64 – yield 4.0%) – ABBV has risen 2.7% over the past five trading days, versus 6.0% for the biotech index. After a lackluster 2016, biotech stocks could finally see investors return in 2017. However, uncertainty about the new administration’s attitude toward high drug prices remains a dark cloud. Hold. AbbVie trades ex-dividend today.
Next ex-div date: January 11, 2017
BUY – Carnival (CCL 54 – yield 2.6%) – CCL has risen 4.2% since the start of the year and is trading within a couple cents of its 52-week high. The cruise company is seeing strong bookings and pricing to start 2017, although increasing oil prices and the rising dollar will provide significant headwinds to earnings growth. However, the stock looks healthy, and a breakout to new highs could trigger a sustained rally. CCL is a Buy for dividend growth-focused investors, especially on pullbacks.
Next ex-div date: February 2017
BUY – Costco (COST 162 – yield 1.1%) – COST gapped up to 163 after the company reported December sales results last Wednesday. Net sales were 5% higher than last December, while comp sales rose 3%. Both numbers are an improvement over recent months, which averaged net sales growth of about 3% and comp sales growth around 2%. COST is now consolidating just above 160, and is a Buy for dividend growth investors.
Next ex-div date: February 2017
BUY – Prudential Financial (PRU 106 – yield 2.7%) – PRU continues to trade in a very tight consolidation pattern around 105, normal behavior after the stock’s big November advance. The insurer will report full-year and fourth-quarter 2016 results on February 8. Analysts expect revenues to be 3% higher than in 2015, but are anticipating a 10% drop in EPS. However, the stock is looking ahead to the higher interest rates of the next few years. PRU is buyable here.
Next ex-div date: February 2017
BUY – U.S. Bancorp (USB 51 – yield 2.2%) – USB pulled back with the financial sector this week, but still looks healthy. The bank will announce full-year and fourth-quarter 2016 earnings on January 18. Analysts are anticipating EPS of $3.24, up 2.9%, on revenue of $21.14 billion, up 5.2%. USB is a Buy.
Next ex-div date: March 2017
HOLD – Wynn Resorts (WYNN 95 – yield 2.1%) – WYNN surged 8% this week on strong preliminary January gaming data out of Macau. Investors may also be anticipating strong visitor numbers during Chinese New Year, which starts January 27. Whatever the reason, WYNN is heading back toward the middle of its multi-month trading range, and is a Hold for more aggressive, volatility-tolerant investors.
Next ex-div date: February 2017
SAFE INCOME TIER
BUY – Automatic Data Processing (ADP 102 – yield 2.2%) – ADP’s fiscal year ends in June, so the company’s next earnings report, out before the market opens on February 1, will be for the second quarter of fiscal 2017. For the quarter, analysts expect EPS to rise 12.5% to $0.81, and revenues to increase 7.4% to $3.01 billion. Dividend aristocrat ADP is a Buy for all investors.
Next ex-div date: March 2017
HOLD – Consolidated Edison (ED 73 – yield 3.7%) – Analysts expect ConEd to report 9.8% EPS growth for the fourth quarter, and -2.9% growth for 2016, followed by 4.5% growth in 2017. Hold.
Next ex-div date: February 2017
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.4%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY - Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 24 – yield 4.9%)
These four BulletShares funds make up our bond ladder. Each matures at the end of one of the next four years, at which time Guggenheim will distribute the fund’s net asset value to shareholders. In the meantime, the funds all pay monthly dividends.
Next ex-div dates: all January 4, 2017, est.
BUY – Home Depot (HD 136 – yield 2.0%) – After strong advances in 2014 and 2015, HD spent most of 2016 stuck in a trading range between 120 and 140. The stock is now back near the top of that trading range, and could break out in 2017. However, EPS growth is expected to slow from a five-year average of 22% to about 13% in 2017, and to average 14% over the next five years. On the bullish side, management continues to improve operating margins—reaching 14% over the past 12 months—and the housing market remains robust. Home Depot could also be a beneficiary of corporate tax reform; the company pays the top corporate tax rate of 36%. For now, I’ll keep HD on Buy for long-term investors.
Next ex-div date: March 2017
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.9%) – Interest rates pulled back this week, and PGX, which owns preferred shares (a form of debt) is slightly higher. But the fund is still below 15, so it’s a Buy for long-term investors looking to add a reliable income stream to their portfolio.
Next ex-div date: January 13, 2017 est.
HOLD – J.M. Smucker (SJM 129 – yield 2.3%) – Smucker is still trading quietly around 130, where the stock bottomed in November. It’s a strong support level for the stock, but we don’t see any near-term catalysts for a rebound, so SJM is a Hold.
Next ex-div date: February 2017
HOLD – UPS (UPS 114 – yield 2.7%) – UPS’ pullback continues, and the stock broke through its 50-day moving average yesterday, a red flag. Risk-averse investors may want to lighten up here. We’ll try to hold through full-year earnings though, out before the open January 31. Analysts are expecting EPS of $5.82, up 7.2%, and revenue of $61.03 billion, up 4.6%.
Next ex-div date: February 2017
HOLD – Xcel Energy (XEL 40 – yield 3.4%) – Xcel will report 2016 results before the market opens February 2. Analysts are expecting revenues to have increased 4.8% year-over-year, to $11.55 billion, while earnings are expected to rise 5.3%, to $2.20 per share.
Next ex-div date: March 2017
Closing prices as of January 10, 2017
