The market has maintained its intermediate-term uptrend, and you can continue to become more invested, cautiously. Today we’re putting Target (TGT) back on Buy after the retailer reported improvement in some key metrics in the latest quarter.
Markets look set to open higher again today after the release of some positive economic data, including a new high in construction spending and some improvement in the manufacturing sector.
HIGH YIELD TIER
HOLD – General Motors (GM 30 – yield 5.1%) – GM got hit by a negative analyst opinion last Wednesday, opening about 5% lower. The Morgan Stanley analyst argued that a recession would hit both GM and Ford harder than they think, although he did not predict such a scenario coming to pass. The stock has since recovered, but still remains constrained below resistance at 30. February auto sales numbers reported yesterday showed that consumer demand remains strong (although GM’s sales declined due to a planned reduction in sales to rental companies). We’ll continue to hold GM but recommend you wait for technical strength to improve before adding to or starting new positions.
Next ex-div date: March 9, 2016
BUY – Mattel (MAT 32 – yield 4.7%) – Mattel continues to perform well. Retailers are embracing the company’s new line of more diverse Barbies, with Target announcing a special collaboration with the toymaker this week. In addition to stocking the new dolls, which come in a range of body shapes and ethnicities, Target is using the dolls to promote its 2016 swim collection, which also targets women of all shapes and sizes. MAT remains on Buy for high yield investors.
Next ex-div date: May 16, 2016 est.
DIVIDEND GROWTH TIER
HOLD – Costco (COST 151 – yield 1.1%) – Costco will report second-quarter earnings after the market close today, followed by a conference call tomorrow morning. Analysts are expecting EPS of $1.28 on revenue of $28.4 billon, up 2.4% and 3.5% year over year. COST remains just above its 200-day line, about 10% off its highs from early December. We’re holding.
Next ex-div date: May 11, 2016 est.
HOLD – CVS Health (CVS 98 – yield 1.7%)
– CVS continues to bang its head on resistance just under 100. The stock last crossed the century level in November, when it gapped down from 103 to 99 on high volume. That’s likely creating some resistance, but we still think the stock is a great long-term holding. Analysts expect 18% revenue growth this quarter, and 14% EPS growth over the next five years. CVS is a strong Hold for investors interested in value and dividend growth.
Next ex-div date: April 20, 2016 est.
HOLD – Equifax (EFX 106 – yield 1.2%)
– EFX broke through its 50-day moving average to the upside this week, and remains above it. The credit-tracking agency is expected to deliver EPS growth averaging over 10% in each of the next five years, and we think it’s a solid Hold for Dividend Growth. The stock traded ex-dividend yesterday.
Next ex-div date: May 20, 2016 est.
BUY – Reynolds American (RAI 50 – yield 3.3%)
– After breaking out to a new 52-week high Thursday, RAI has pulled back slightly and looks very healthy. The company’s 2016 guidance is very optimistic, prompting five analysts to boost their EPS estimates in recent weeks. Management also recently increased the dividend by 16.7%. RAI is a Buy on pullbacks.
Next ex-div date: March 8, 2016
HOLD – U.S. Bancorp (USB 40 – yield 2.6%)
– USB revisited its lows last Wednesday after JPMorgan’s oil and gas exposure revelation spooked financial stocks. The stock has been chopping around between about 38 and 40 for a month, and while the lower band of support isn’t strong, it’s holding for now. USB remains a Hold for risk-tolerant investors.
Next ex-div date: March 29, 2016 est.
SAFE INCOME TIER
BUY – Consolidated Edison (ED 70 – yield 3.8%) – ED has pulled back slightly as the market has strengthened, as we expected. If you have a large profit and haven’t taken any off the table yet, you could cash in some of your chips now, but the stock remains a solid long-term Hold.
Next ex-div date: May 9, 2016 est.
BUY – Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG 26 – yield 3.2%)
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.4%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 24 – yield 4.9%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 2.0%)
Junk bond markets have rallied over the past few weeks, as several European companies including Deutsche Bank have taken advantage of the selloff to buy back their own bonds below face value. Our bond ladder remains a decent long-term store of value and provider of monthly income.
Next ex-div dates: all April 1, 2016, est.
BUY – Home Depot (HD 126 – yield 2.2%)
– The Commerce Department and National Association of Realtors both released housing data for January last week, and though the results were mixed, HD is acting well. Pending home sales pulled back in January, rising only 1.4% year-over-year, the second-smallest gain in 17 months. However, winter weather, tight supply and inflated prices were blamed for most of the slowdown. New single-family home sales also declined, pulling back from a 10-month high, but sales of previously owned homes (a much larger market) hit a six-month high. HD is trading just above its 50-day moving average and remains a Buy.
Next ex-div date: March 8, 2016
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.8%) – No news.
Next ex-div date: March 15, 2016 est.
BUY – Smuckers (SJM 128 – yield 2.1%) – Smuckers was added to our portfolio at yesterday’s average price of 128.72. The stock is consolidating just below its 52-week highs at 130, and above its 50-day moving average. Smuckers, which generates very reliable free cash flow and steady dividend growth, is a Buy here for all investors.
Next ex-div date: May 11, 2016 est.
BUY – Target (TGT 81 – yield 2.8%) – Target reported earnings that missed analyst estimates on Wednesday, as the sale of the pharmacy business to CVS began to impact revenues. However, analysts were excited by the 34% increase in online sales in the latest quarter, as well as the underlying growth in comparable revenues (which exclude the divested pharmacy business.) While reported revenue declined 0.6%, comparable sales rose 1.9% and traffic increased 1.3%. Comparable sales growth in Target’s “signature” categories (style, baby, kids and wellness) was even better, up more than three times as much as the company average. And digital sales growth of 34% boosted online sales to 5% of Target’s total sales (and compared favorably with Wal-Mart’s 8% online sales growth). The pharmacy divestiture also affected full-year adjusted EPS, which missed the analyst consensus slightly ($4.69 vs. $4.70), but comparable sales rose 2.1% for the full year. And management issued strong guidance for 2016, predicting adjusted EPS of $5.20 to $5.40, up between 11% and 15%. TGT has now gained nearly 20% since the February 11 market bottom, and I’m putting the stock back on Buy today. The stock still faces overhead resistance at its June-July highs around 85, but the momentum of the last few weeks suggests strong buying power has finally returned.
Next ex-div date: May 16, 2016, est.
BUY – Xcel Energy (XEL 39 – yield 3.4%)
– No news.
Next ex-div date: March 15, 2016 est.
Closing prices as of March 1, 2016.
