After a lousy end to last week, markets opened sharply higher on Monday. Weekend polls suggested waning support for Brexit, somewhat reducing the uncertainty surrounding tomorrow’s vote. In general, we’re feeling cautiously bullish today, although I’d keep new positions small ahead of the big vote.
Most of our holdings are healthy, and several are hitting new highs or positioned to do so soon, including Equifax (EFX), Wynn (WYYN) and J.M. Smucker (SJM). Several more names are well positioned to begin new rallies if the market gets in gear, including Mattel (MAT) and Reynolds American (RAI). Even Costco (COST) is acting better than it has in months and is close to earning back its Buy rating. One dark cloud is CVS Health (CVS), which I’m putting on Hold today as the stock’s slump intensifies. Amgen (AMGN) also pulled back this week, but remains above a key support level.
As always, feel free to email me at chloe@cabot.net with any questions about today’s update.
HIGH YIELD TIER
BUY – General Motors (GM 30 – yield 5.2%) – After re-testing its April lows last week, GM has found support and begun rebounding over the past two days. If the market strengthens, we’d expect to see the stock bounce back to the upper limit of its range, around 32, in coming weeks. With a P/E of 4.5, GM remains a great value and is a Buy for risk-tolerant investors.
Next ex-div date: September 8, 2016 est.
BUY – Mattel (MAT 32 – yield 4.7%)
– Since gapping higher in early February, MAT has built a nice base between 30 and 35, which should serve as a solid launching pad for the stock’s next move higher. On the downside, we expect support to hold at 30. Mattel is investing in innovative tech-based toys and pivoting its older lines, like Barbie, to be more progressive. 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 has been resilient this month in the face of oil price volatility. The stock is trading just under its recent 52-week high, consolidating its gains while its 50-day moving average catches up. Pembina is a pipeline company operating in British Columbia and Alberta, Canada. The company pays a monthly dividend of 16 Canadian cents. PBA is a Buy for risk-tolerant investors who want to add high monthly income to their portfolios.
Next ex-div date: June 22, 2016
DIVIDEND GROWTH TIER
BUY – Amgen (AMGN 149 – yield 2.7%) – Biotech stocks declined this week after analysts warned that rising Medicare costs could trigger the formation of an advisory board with authority to reduce Medicare payment levels. Prescription drugs account for only 11% of Medicare spending and so are an unlikely target, but could be affected. However, any cuts wouldn’t take effect for several years. AMGN has pulled back to its May lows around 150. We’ll look for the stock to find support here if all is well. AMGN is a Buy for risk-tolerant dividend growth investors. If you bought at a higher level, like us, consider placing a stop loss that limits your risk to a level you’re comfortable with.
Next ex-div date: August 10, 2016, est.
HOLD – Costco (COST 157 – yield 1.1%)
– COST’s straight-up rally continues, bringing the stock within shouting distance of its late-May highs. The warehouse retailer has completed its switch from AmEx to Visa as its exclusive credit card partner, which is expected to save Costco up to $220 million a year in interchange fees. The switch may also expand Costco’s customer base, since more shoppers have Visas than AmEx cards. If COST can break through resistance around 160, I’ll likely put the stock back on buy in the coming weeks.
Next ex-div date: August 10, 2016, est.
HOLD – CVS Health (CVS 93 – yield 1.8%)
– CVS lost more ground this week, breaking through a potential support level at 95. A Goldman Sachs analyst downgraded the stock on Monday, citing rising competition from other pharmacy benefit managers, particularly OptumRx, which is owned by UnitedHealth Group. CVS is still expected to post 13% EPS growth this year, and analysts expect growth to average more than 14% over the next five years. That is slightly lower than the company’s 16% EPS growth rate achieved over the past five years, but still strong and consistent. Our loss in CVS remains small, at 3%, so we’ll hang on and watch for support to develop at 90, where the stock bottomed in November and February. But I’m going to switch CVS to Hold today—there are healthier stocks in our portfolio for new money. In addition, members who already own CVS should place a stop loss at a price that limits your risk to a level you’re comfortable with.
Next ex-div date: July 20, 2016 est.
BUY – Equifax (EFX 125 – yield 1.1%) – As expected, EFX found support at its 50-day moving average last week and is now back near its all-time highs. I hope you took advantage of the slight pullback to start a new position in the stock. EFX’s advance is relentless and healthy, and if you own it, you should hang on tight.
Next ex-div date: August 19, 2016 est.
HOLD – Reynolds American (RAI 51 – yield 3.3%) – RAI got one step closer to its all-time highs this week after the Supreme Court threw out a European Union suit against the company. The Court ruled that because no U.S. property was injured, the EU cannot sue Reynolds under the U.S. racketeering law in question. If RAI can break through overhead resistance at 52 in coming days, the stock’s March-June trading range could provide a solid launching pad for a sustained rally. However, RAI tends to perform best when market conditions are dicey, so I don’t know how the stock will react if Brexit is resolved to the market’s satisfaction and sentiment improves. But I’ll likely put the stock back on Buy if it breaks definitively through 52.
Next ex-div date: September 6, 2016 est.
HOLD – U.S. Bancorp (USB 41 – yield 2.5%)
– USB is likely to stay trapped in its trading range between 38 and 44 until interest rate hikes become a near-term possibility again. Hold.
Next ex-div date: June 28, 2016 est.
BUY – Wynn Resorts (WYNN 102 – yield 2.0%)
– WYNN inched above 100 earlier this month and has largely remained above that psychologically important level. WYNN is buyable here or on dips 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
HOLD – Consolidated Edison (ED 77 – yield 3.5%) – ED is a long-term Hold for safe income. I don’t recommend buying the stock until it has some time to cool off from its recent rally.
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 128 – yield 2.2%)
– HD found support at its 200-day moving average last week, and has begun rebounding. The stock remains about 7% off its all-time high from May but could make up the ground quickly if the market firms up and economic data remains decent. HD remains on Buy, but keep positions small until the stock’s technical momentum returns.
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. The preferred share ETF offers very limited potential for price appreciation, so it’s best to wait to buy on dips below 15.
Next ex-div date: July 15, 2016 est.
BUY – J.M. Smucker (SJM 146 – yield 1.8%)
– SJM has held tight to its post-earnings gains, and even inched up slightly. The owner of major grocery brands including Jif, Folgers and Dunkin’ Donuts, J.M. Smucker generates reliable cash flow and is Buy for investors who want safe income and total return.
Next ex-div date: August 10, 2016 est.
HOLD – Xcel Energy (XEL 43 – yield 3.2%) – Like ConEd, Xcel is on Hold for valuation reasons. Long-term safe income investors who own the stock can hang on tight, but if you’re investing new money, our Buy-rated positions have higher potential and lower risk today. Hold.
Next ex-div date: September 13, 2016 est.
Closing prices as of June 21, 2016.
