The broad market pulled back sharply this week, dragging the S&P 500 through the 2,100 level once again. Today’s Fed meeting, the shooting in Orlando over the weekend and the upcoming Brexit vote are all contributing to a heightened sense of uncertainty and a “risk-off” mood on Wall Street.
Britons will vote on whether to leave the E.U. next Thursday, and the outcome is very hazy, with the “stay” and “go” camps tied in most polls. In addition, while it’s highly unlikely the Fed will raise rates at today’s meeting, this afternoon could still bring surprises. The Fed’s economic projections, a new Fed “dot plot” and the Chair’s usual statement all have potential to contain unexpected flashes of insight into the Central Bank’s current thinking.
In short, uncertainty is high, and the market hates uncertainty. Investors are responding by fleeing stocks and seeking out “risk-off” assets like gold, utility stocks, and U.S. and German government bonds. Many of our stocks have pulled back with the market, but for the most part, these look like normal corrections so far. However, be sure to read the updates below closely for information on the health of individual stocks you own or are interested in.
While it’s unlikely we’ll see a strong rally from the broad market under these conditions, two of the biggest contributors to this uncertainty have expiration dates, so I don’t think we need to do too much risk reduction here. Keep your powder dry, employ stop losses in high-risk situations, and stay tuned for more updates.
HIGH YIELD TIER
BUY – General Motors (GM 29 – yield 5.3%) – GM has drifted downward over the past week, revisiting levels last seen in February. While the automaker’s most recent U.S. sales numbers were lackluster, sales in China—GM’s largest market—remain strong. My colleague Crista Huff, Chief Analyst of Cabot Undervalued Stocks Advisor, recently wrote this about the stock: “The market is expecting GM’s EPS to grow 13.1% this year. While earnings growth is expected to slow dramatically in 2017, the stock remains incredibly undervalued, especially in light of the big 5% dividend yield.” Risk-tolerant high yield investors can buy a little here.
Next ex-div date: September 8, 2016 est.
BUY – Mattel (MAT 31 – yield 4.9%) – MAT remains below its 50-day moving average but above support at 30. The company hasn’t announced any news recently. MAT is a Buy for high yield and total return investors.
Next ex-div date: August 15, 2016 est.
BUY – Pembina Pipeline (PBA 31 – yield 4.8%) – PBA is consolidating just above 30, holding its gains despite the slide in the price of oil over the past week. Pembina is a pipeline company operating in British Columbia and Alberta, Canada. The company pays a monthly dividend denominated in Canadian dollars. The current monthly rate is 16 Canadian cents, worth about 12 U.S. cents at current exchange rates. PBA is a Buy for risk-tolerant investors who want to add high monthly income to their portfolio.
Next ex-div date: June 22, 2016
DIVIDEND GROWTH TIER
BUY – Amgen (AMGN 153 – yield 2.6%) – AMGN is pulling back with the market in what looks like a normal correction so far. If all is well, the stock will find support around 150 or just below. The biotech company announced positive results from a Phase 2 trial of erenumab, or AMG 334, this week, bringing the first migraine-prevention drug one step closer to market. If you’re underinvested and risk tolerant, you can start a small position in AMGN here.
Next ex-div date: August 10, 2016, est.
HOLD – Costco (COST 156 – yield 1.2%) – COST, long a portfolio laggard, has been one of our best performers this week. After finding support at 140 in mid-May, the stock has run almost all the way back to the top of its trading range, helped by a gap up on earnings in late May. COST is likely to hit some resistance at 160, where the stock’s last rally was rebuffed at the beginning of April. But a break through that level could clear the way for new highs. Analysts are expecting Costco’s comps to improve in the second half of this year as the warehouse retailer completes the switch from AmEx to Visa as its exclusive credit card partner. Investors who already own COST can hold, if you don’t, a break through 160 could be a high-potential time to start a position.
Next ex-div date: August 10, 2016, est.
BUY – CVS Health (CVS 96 – yield 1.8%) – CVS is still bumping around support at 96. Analysts expect CVS to report solid 6.6% EPS growth this quarter and impressive 13.0% this year. Hold if you own it, buy a little if you don’t and are looking to add a reasonably valued, high-quality dividend growth stock to your portfolio.
Next ex-div date: July 20, 2016 est.
BUY – Equifax (EFX 122 – yield 1.1%) – EFX’s pullback to its 50-day is a buying opportunity for investors who haven’t had a chance to get in on the stock’s climb yet. Analysts expect the credit reporting company to reach 18.3% EPS growth this quarter and 15.8% growth this year.
Next ex-div date: August 19, 2016 est.
HOLD – Reynolds American (RAI 51 – yield 3.3%) – RAI is consolidating just under all-time highs. The stock is a solid Hold, although if you have a big profit, like us, and are looking to reduce risk or raise cash, you could take some off the table here. The tobacco company’s future looks bright though; analysts expect 19.6% EPS growth this quarter and 18.2% growth this year.
Next ex-div date: September 6, 2016 est.
HOLD – U.S. Bancorp (USB 41 – yield 2.5%) – USB is pulling back right in line with the rest of the financial stocks—the Financial SPDR (XLF) has fallen 4.0% over the last five trading days and USB has declined 3.5%. If Janet Yellen’s statement this afternoon makes a July rate hike seem more likely, we may see a quick rally in the bank stocks, but a few more months of sideways trading from USB seem more likely at this point. Two analysts have lowered their 2016 earnings expectations for USB in the last 30 days, likely due to lower interest rate expectations. USB is a Hold.
Next ex-div date: June 28, 2016 est.
BUY – Wynn Resorts (WYNN 102 – yield 2.0%) – WYNN look solid, consolidating right at the top bound of its multi-month trading range. The stock’s tight 90-100 trading range of the last three months has the potential to become a solid launching pad for the next stage of the stock’s rebound. WYNN is buyable here for risk-tolerant dividend growth and total return investors. Consider starting a small position here and adding to it if the stock successfully breaks out above 102.
Next ex-div date: August 11, 2016 est.
SAFE INCOME TIER
Next ex-div date: August 8, 2016 est.
HOLD – Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG 26 – yield 2.6%)
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.3%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.5%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
No news.
Next ex-div dates: all July 1, 2016, est.
BUY – Home Depot (HD 125 – yield 2.2%) – HD’s correction continues, sending the stock through its 200-day moving average to the downside yesterday. The stock is now about 9% off its all-time highs from mid-May, still within normal correction range. No analysts have revised their earnings estimates downward, so this selloff still seems to be about macro fears, and likely some profit taking as well. We’ll keep HD on Buy, although as I said last week, you might want to employ a stop loss if you bought HD above this level. Choose a price that limits your risk to an amount you’re comfortable with.
Next ex-div date: September 6, 2016 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.7%)
– PGX remains a solid long-term Hold for investors whose priority is monthly income. With very limited potential for price appreciation, it’s best to wait to buy PGX on dips below 15.
Next ex-div date: July 15, 2016 est.
BUY – J.M. Smucker (SJM 144 – yield 1.9%) – SJM gapped up after reporting impressive earnings last week, jumping 8% in one day. The stock has held the gains since, benefiting from the rotation back into risk-off assets over the past few days. The grocery company reported fourth-quarter EPS of $1.86, a full 56% higher than the consensus estimate. Revenue rose 25% year-over-year and beat estimates by 4%. The acquisition of Big Heart Pet Brands and the launch of Dunkin’ Donuts-branded K Cups were major contributors to the growth. The new Dunkin’ Donuts K Cups captured nearly 15% of the K Cup market within a year of launch, contributing to 9% overall growth in Smucker’s coffee segment. Management issued full-year EPS guidance of $7.60-$7.75, representing EPS growth of about 7% to 10%. Smucker’s management is executing well, and investors like the stock. SJM is Buy on pullbacks for safe income and total return.
Next ex-div date: August 10, 2016 est.
HOLD – Xcel Energy (XEL 43 – yield 3.2%) – Like ConEd, Xcel broke out to new 52-week highs this week, as interest rate expectations moderated and investors flocked back to low-risk investments. This afternoon’s Fed announcement could create more volatility in the normally staid utilities. XEL remains a long-term Hold for safe income.
Next ex-div date: September 13, 2016 est.
Closing prices as of June 14, 2016.
