The major indexes all closed higher for the fifth week in a row last week, and the S&P and Dow are now about flat year-to-date. The biggest news last week was the Fed’s announcement predicting fewer rate hikes this year than originally anticipated. The rally was also helped by gains in oil prices and strong data on retail, housing and unemployment. Overall, the market looks healthy, and we think you can continue to get a little more aggressive, putting cash to work and taking on a little more risk if you’re comfortable with it.
One interesting aspect of this rally, pointed out by my colleague Jacob Mintz of Cabot Options Trader earlier week, is how quickly investor fear (measured by the VIX) has dried up, considering how markets suffered major losses so recently. The market’s reaction to yesterday’s reprehensible bombings in Brussels—an event that could have caused a major selloff in more panicked times—further demonstrates the confidence behind this rally.
Markets will be closed Friday, which is likely to mean lower overall volume and volatility for the rest of this week. I hope you enjoy your Easter celebrations or your long weekend, and I’ll have an exciting new stock pick for you when we return Wednesday.
HIGH YIELD TIER
BUY – General Motors (GM 32 – yield 4.8%) – GM has announced plans to unveil 60 new models to the Chinese market over the next five years, 40% of which will be SUVs and high-end minivans. Though the growth of the Chinese auto market slowed to 4.7% last year, from 7% in 2014, GM still expects the market to deliver solid growth of 3% to 5% over the next few years. GM is trading just under its 200-day moving average, at a very reasonable P/E of 5.4. GM is a Buy for high yield investors.
Next ex-div date: June 8, 2016 est.
BUY – Mattel (MAT 32 – yield 4.7%)
– Mattel’s consolidation continues, after the stock’s quick 21% gain last month. High yield investors who don’t own Mattel yet can start a position here.
Next ex-div date: May 16, 2016 est.
DIVIDEND GROWTH TIER
HOLD – Costco (COST 152 – yield 1.1%) – Costco isn’t demonstrating much buying power these days—the stock only recovered about half the losses sustained in January’s correction before losing momentum. The warehouse retailer’s earnings missed estimates in the latest quarter, and while the stock wasn’t taken to the woodshed, its best days may be behind it. On the other hand, COST is now trading above its 50- and 200-day moving averages, both of which are trending up. We’ll Hold our half position for now.
Next ex-div date: May 11, 2016 est.
BUY – CVS Health (CVS 102 – yield 1.7%)
– CVS looks solid, consolidating just above its 200-day moving average for the last week. The stock’s next challenge is to bridge the gap between 100 and 105 created by the stock’s gap down at the end of October. Momentum and future expectations look strong enough to do it. CVS is a Buy for medium- and long-term investors interested in dividend growth.
Next ex-div date: April 22, 2016
BUY – Equifax (EFX 113 – yield 1.2%) – EFX is within spitting distance of its all-time highs from late December after rising above 110 last week. The stock’s 50-day moving average has also turned up. EFX is a good buy here for medium- and long-term dividend growth investors.
Next ex-div date: May 20, 2016 est.
BUY – Reynolds American (RAI 50 – yield 3.4%) – RAI’s pullback continues but still looks pretty normal, with the stock nearing convergence with its 50-day moving average. If you don’t own RAI yet, this is a good buying opportunity for both long- and medium term-investors.
Next ex-div date: June 6, 2016 est.
HOLD – U.S. Bancorp (USB 41 – yield 2.5%) – Financials pulled back following the Fed’s announcement last Wednesday, since fewer rate hikes mean interest margins will remain low. However, the pullback was mild and short-lived, and USB remains a decent Hold for risk-tolerant investors. The stock trades ex-dividend on Tuesday.
Next ex-div date: March 29, 2016
SAFE INCOME TIER
BUY – Consolidated Edison (ED 75 – yield 3.6%) – The Fed’s announcement last Wednesday gave utility stocks a boost, since low interest rates benefit debt-heavy utilities. ED is probably a little overextended short-term but remains a decent Buy on pullbacks for long-term investors whose priority is reliable income.
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%)
No news.
Next ex-div dates: all April 1, 2016, est.
BUY – Home Depot (HD 131 – yield 2.1%) – HD is now flat year-to-date, and only a stone’s throw from is 52-week high. Housing and other construction data remains mostly positive, and HD’s future earnings expectations are positively stunning. Home improvement retailer HD is good long-term Buy for all investors, ideally on pullbacks.
Next ex-div date: June 7, 2016 est.
BUY – PowerShares Preferred Portfolio (PGX 15 – yield 5.8%)
– Investors’ panicky reaction to anything rate hike-related seems to have subsided, and I’m putting PGX back on Buy today for investors who want to add a reliable monthly income stream to their portfolios. The ETF is very low risk but has little to no capital appreciation potential.
Next ex-div date: April 15, 2016 est.
BUY – J.M. Smucker (SJM 128 – yield 2.1%)
– SJM is trading in a narrowing range between its 50-day moving average and 52-week highs, but seems to need a little push to reach new territory. We don’t mind waiting though—the high quality company is a very reliable dividend payer and free cash flow generator. SJM is a Buy for all investors.
Next ex-div date: May 11, 2016 est.
BUY – Target (TGT 82 – yield 2.7%) – TGT just finished its sixth positive week in a row. The stock looks well supported and earnings expectations are sunny. High quality TGT is a good Buy right here for both safe income and dividend growth investors.
Next ex-div date: May 16, 2016
BUY – Xcel Energy (XEL 41 – yield 3.3%)
– Like ED, XEL got a nice pop from the Fed’s announcement last Wednesday, pushing the stock to a new 52-week high. The utility is a reliable dividend payer that generates very consistent single-digit net income growth. Most investors should simply Hold on to their shares here, but if you’re eager to start a position, you can do so on pullbacks.
Next ex-div date: June 14, 2016 est.
Closing prices as of March 22, 2016.
