After chopping around for most of last week, the S&P 500 broke out to new highs on Friday after the jobs report showed that 255,000 jobs were added in July, well above the 182,000 expected. In addition to dispelling general fears about the state of the U.S. economy (boosting retail stocks), the jobs report bumped expectations of a December rate hike up from only 8% to nearly 50%.
Financial stocks responded with a 2% rally, while very conservative stocks like utilities have weakened. The utility sector is still up 17% year-to-date, but what goes up must come down, and we’ll be selling half our position in Xcel Energy (XEL) today. I encourage you to reinvest the profits in stocks with stronger growth potential, like fellow Safe Income tier holdings Home Depot (HD), J.M. Smucker (SJM) or UPS (UPS).
HIGH YIELD TIER
HOLD – General Motors (GM 31 – yield 4.9%) – GM is rebounding this week after the automaker reported that sales in China, its largest market, rose 18% in July to hit a new record. This comes after the stock pulled back last week following Ford’s earnings miss and July’s weaker U.S. auto sales. GM is executing well and is significantly undervalued.
Next ex-div date: September 7, 2016
BUY – Mattel (MAT 34 – yield 4.5%)
– MAT remains range-bound, with support at 30 and upside resistance at 34. Analysts expect the toy company to report 5.6% EPS growth this year, followed by 34.6% growth next year as the toy company’s turnaround proceeds.
Next ex-div date: August 19, 2016
HOLD – Pembina Pipeline (PBA 30 – yield 4.8%) – Pembina reported second-quarter earnings last week. Per share, cash flow from operating activities increased 18% year over year in Canadian dollars, thanks in part to significant margin improvement. The stock is reacting positively and remains a Hold for high yield investors.
Next ex-div date: August 23, 2016 est.
DIVIDEND GROWTH TIER
BUY – AbbVie (ABBV 67 – yield 3.4%) – After breaking through resistance on earnings last week, AbbVie spent the past five trading days consolidating its gains between 66 and 67. The drugmaker looks healthy and is a Buy for dividend growth investors.
Next ex-div date: October 13, 2016 est.
BUY – Amgen (AMGN 172 – yield 2.3%) – Like AbbVie, Amgen spent the past week consolidating recent gains, but looks healthy. Reasonably valued AMGN is a Buy for dividend growth.
Next ex-div date: August 15, 2016
BUY – Costco (COST 167 – yield 1.1%) – Costco reported July sales last Wednesday. Comp sales rose 1% excluding the effects of gas price and exchange rate changes, but were negatively affected by the timing of the Fourth of July. Adjusting for the timing of the holiday, same-store sales would have been up 3.5% in the U.S., the strongest growth since February. COST continues to trade in a tight range just below 170 and is a Buy for dividend growth investors.
Next ex-div date: August 10, 2016
HOLD – CVS Health (CVS 98 – yield 1.7%) – CVS is holding the gains from its post-earnings gap up, trading just under 98, a level where it found resistance in June and July. The stock is still well off its early-May highs as well as its 2015 peak above 110, and I’m fine waiting to see positive momentum resume before putting it back on Buy.
Next ex-div date: October 20, 2016 est.
BUY – Equifax (EFX 132 – yield 1.0%) – After pulling back slightly post-earnings, Equifax found support around 130 this week, just above the stock’s rising 50-day moving average. EFX is a Buy.
Next ex-div date: August 17, 2016
HOLD – Reynolds American (RAI 50 – yield 3.4%)
– Reynolds American hasn’t completely fallen apart post-earnings, but we haven’t seen buyers return to the stock in force either. With earnings growth expected to decelerate over the next few years, we may unload the second half of our position soon.
Next ex-div date: September 8, 2016
HOLD – U.S. Bancorp (USB 43 – yield 2.4%)
– Friday’s financial rally gave USB a nice boost. The regional bank stock is now back near the top of its multi-month trading range, but is still unlikely to outperform until interest rates start rising and the financial sector rebounds.
Next ex-div date: September 28, 2016 est.
HOLD – Wynn Resorts (WYNN 100 – yield 2.0%) – After pulling back last week on the news that Macau’s gaming regulators have only approved 100 gaming tables for its new property there, Wynn is steadily marching back to 100 this week. The stock remains a hold for its leverage to Macau’s recovery, strong long-term growth prospects (Wynn is building the first casino resort in Boston, Massachusetts) and the dividend’s ability to growth rapidly during good times. A decisive breakout through about 105 would earn the stock a place back on the Buy list.
Next ex-div date: August 11, 2016 est.
SAFE INCOME TIER
Next ex-div date: August 15, 2016
HOLD – Guggenheim BulletShares 2016 High Yield Corporate Bond ETF (BSJG 26 – yield 1.8%)
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%)
These four funds make up our bond ladder, a conservative strategy for owning fixed income that preserves capital and can create a growing income stream over time (if interest rates rise). If you’re interested in constructing your own bond ladder, read the explanation of the strategy in our July 28 recent issue.
Next ex-div dates: all September 1, 2016, est.
BUY – Home Depot (HD 136 – yield 2.0%) – HD is trading just off all-time highs ahead of the home improvement retailer’s earnings announcement next Tuesday. Analysts are expecting EPS of $1.97 on revenue of $26.47 billion, up 15.2% and 6.6%, respectively. I think HD is buyable right here.
Next ex-div date: September 6, 2016 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%)
– No news.
Next ex-div date: August 15, 2016 est.
BUY – J.M. Smucker (SJM 154 – yield 1.7%)
– SJM is consolidating in tight trading at all-time highs, and remains a solid buy for all investors. The company will report earnings August 23, before the market opens. Analysts are expecting EPS growth of 31.8%, to $1.74, despite a slight contraction in revenue to $1.9 billion.
Next ex-div date: August 10, 2016
BUY – UPS (UPS 110 – yield 2.8%) –
After pulling back post-earnings—despite a solid report—UPS bounced off its 50-day moving average last week and is now heading back North of 110. Friday’s strong jobs report may have helped assuage fears that an economic slowdown in the U.S. would crimp the shipper’s profits.
Next ex-div date: August 24, 2016 est.
SELL HALF – Xcel Energy (XEL 43 – yield 3.2%) – We still have a full position in Xcel (unlike ConEd, where we took profits last year) and the stock is up 40% since we bought in October 2014. But as the market rally gets going, interest in ultra-safe investments like utilities is expected to decline. I think it’s time to take some profits here, and we’ll sell half our XEL shares at today’s average price. Sell Half, Hold the Rest.
Next ex-div date: September 13, 2016 est.
Closing prices as of August 9, 2016.
