It’s been a choppy week in the market, relatively speaking. The major indexes pulled back late last week, then rallied Monday after Saudi Arabia and Russia said they would extend oil production cuts. Crude prices surged to their highest level in two weeks, and energy stocks led the market higher. Things cooled off again on Tuesday, as housing starts disappointed and the U.S. dollar fell to its lowest level since before the election.
Overall, I remain mostly bullish. While we’d still like to see the S&P 500 and Dow close the gap with the Nasdaq and fewer new lows each day, the market’s trend remains up.
Three of our holdings—Wynn Resorts (WYNN), Xcel Energy (XEL) and Home Depot (HD)—hit new 52-week highs this week. One, High Yield Tier holding Verizon (VZ), hit a new 52-week low. With VZ now below its most recent support level, we’re going to reduce our risk by selling the half the position today.
Our other holdings are acting fairly well. In particular, Pembina (PBA), Carnival (CCL), Cummins (CMI) and 3M (MMM) are buyable here. And we still have one earnings report to look forward to when GameStop (GME) reports next Thursday.
As always, feel free to get in touch with me at Chloe@CabotWealth.com with any questions or comments.
HIGH YIELD TIER
BUY – GameStop (GME 24 – yield 6.2%) – GME pulled back with the market late last week—lousy retail sales data was a contributor to Thursday’s broad market decline. The stock stabilized around 24 this week, and has good support here. GameStop will report first-quarter earnings next Thursday, May 25, after the market closes. Analysts are expecting EPS of $0.51 and revenue of $1.94 billion, down from $0.66 and $1.97 billion in the same quarter last year. The company is transforming from a chain of video game stores to a multi-channel technology and collectibles retailer. The new businesses are doing well, but haven’t gotten large enough yet to offset rapidly falling video game sales. If all goes according to plan, revenues and earnings will start to rebound next year. Value-oriented and yield-focused investors with good risk tolerance can buy GME here. The stock offers a remarkably high yield of 6.3% and a remarkably low P/E of 7.1.
Next ex-div date: June 6, 2017 est.
HOLD – General Motors (GM 33 – yield 4.5%) – GM spent the week treading water around 34. Most of the news about the company has focused on Greenlight Capital’s proposal that the company split its shares into two classes, which seems unlikely.
Next ex-div date: June 7, 2017
BUY – Pembina Pipeline (PBA 32 – yield 4.5%) – PBA is about 1% higher this week. On the heels of a strong earnings report, the stock is also getting a boost from the rebound in oil prices and energy stocks. PBA also got a nice review from analysts at J.P. Morgan this week, praising the company’s proposed acquisition of Veresen. Risk-tolerant high yield investors can buy some here.
Next ex-div date: May 23, 2017
SELL HALF – Verizon (VZ 45 – yield 5.1%) – VZ lost another 2.4% this week, breaking through support at 46 to hit a new 52-week low on Monday. The next support level for the stock is around 43, where it bounced in early 2016, and where our loss would hit about 15%. (We’re currently down around 9%.) While the dividend is generous, Verizon has missed estimates in last two quarters, and the break through support at 46 erodes our investment thesis. On the other hand, four analysts have raised their 2017 and 2018 EPS estimates in the last 30 days. Still, the latest pullback means it’s time to reduce our risk, and I’m going to sell half of Verizon today. I recommend you do the same, or set a stop loss at a reasonable level. Sell half, hold the rest.
Next ex-div date: July 5, 2017 est.
DIVIDEND GROWTH TIER
BUY – Carnival (CCL 61 – yield 2.3%) – CCL is pulling back toward its 50-day moving average. The stock’s last few such pullbacks—most recently April’s six-day retreat—have all been good buying opportunities. Carnival is seeing higher cruise demand in almost all markets this year, and analysts expect 4% sales growth and 8% EPS growth. Dividend growth investors can buy here.
Next ex-div date: May 24, 2017
BUY – Cummins (CMI 157 – yield 2.6%) – CMI is puttering between 155 and 160. Analyst estimates are rising as economic activity in China, India and the U.S. speeds up. Dividend growth investors who haven’t bought yet can do so now.
Next ex-div date: May 17, 2017
HOLD – Prudential Financial (PRU 108 – yield 2.8%) – PRU fell as low as 106 at the end of last week, found support, and is now rebounding with the rest of the financial stocks. A lot of the movement in the sector can be chalked up to uncertainty about government spending, the dollar and the Fed. It’s possible PRU will have trouble making progress until some of those uncertainties are resolved. On the other hand, 14 analysts have raised their 2017 estimates in the past month, including five in the past week. For our purposes, PRU is a Hold.
Next ex-div date: May 19, 2017
BUY – Wynn Resorts (WYNN 128 – yield 1.6%) – WYNN hit a new 52-week high yesterday. The stock has more than recovered from last week’s pullback, triggered by China’s new ID requirements for ATM withdrawals in Macau. Various analysts have weighed in to say any chilling effect from the new rules is likely to be short-lived. And there are plenty of positive catalysts for Wynn in the pipeline, from the general rebound in Macau tourism to the completion of construction around the new Wynn Palace. WYNN is a Buy on pullbacks for investors whose primary goals are growth and dividend growth.
Next ex-div date: August 9, 2017 est.
SAFE INCOME TIER
BUY – 3M (MMM 198 – yield 2.4%) – MMM traded flat over the past week. Investors interested in long-term capital appreciation and safe income can buy MMM here.
Next ex-div date: May 17, 2017
HOLD – Automatic Data Processing (ADP 98 – yield 2.3%) – ADP found support at its 200-day moving average last week, and rebounded 1.3% over the past week. The payroll processor is having trouble signing new customers, but has maintained earnings growth by increasing efficiency. A Hold for investors who already own it.
Next ex-div date: June 7, 2017
HOLD – Consolidated Edison (ED 79– yield 3.5%) – ED traded flat over the past week. The stock is a long-term Hold for safe income. It faces upside resistance just above 80.
Next ex-div date: August 14, 2017 est.
BUY – Guggenheim BulletShares 2017 Corporate Bond ETF (BSCH 23 – yield 1.1%)
BUY – Guggenheim BulletShares 2018 High Yield Corporate Bond ETF (BSJI 25 – yield 4.0%)
BUY – Guggenheim BulletShares 2019 Corporate Bond ETF (BSCJ 21 – yield 1.8%)
BUY – Guggenheim BulletShares 2020 High Yield Corporate Bond ETF (BSJK 25 – yield 4.8%)
These four funds make up our bond ladder, a conservative strategy for owning fixed income that’s particularly good at preserving capital when interest rates are rising. Each ETF will mature at the end of the year in the fund’s name, and Guggenheim will distribute the net asset value (NAV) of the fund to shareholders at that point—just like getting your principal back when a bond matures. Because of this maturity feature, these bond funds don’t lose value when interest rates rise, like traditional bond funds. At the end of each year, we’ll sell that maturing fund and reinvest the funds into a new longest-dated ETF to preserve the bond ladder. Note that the last letter in each of Guggenheim’s ETFs corresponds to the maturity year, so if you’re constructing a four-year ladder starting in 2017, your funds should end in H, I, J and K, whether you’re using high yield or investment grade funds. (Although at this point, you may want to begin your bond ladder with a fund maturing in 2018.)
Next ex-div dates: all June 1, 2017 est.
BUY – Home Depot (HD 158 – yield 2.2%) – HD reported earnings that beat all expectations yesterday. EPS rose 16% year-over-year, to $1.67, about 4% above estimates. Revenue of $23.9 billion also beat estimates, and was 5% higher year over year. The stock popped in the morning but retreated during the day; try to buy on pullbacks.
Next ex-div date: June 6, 2017 est.
HOLD – PowerShares Preferred Portfolio (PGX 15 – yield 5.6%) – PGX is a Hold for investors who want reliable monthly income. The preferred share ETF doesn’t have capital appreciation potential, but it trades in a low-volatility range between 14 and 16 and pays monthly dividends of about seven cents per share.
Next ex-div date: June 15, 2017 est.
HOLD – Xcel Energy (XEL 46 – yield 3.2%) – XEL gained nearly 2% this week, hitting a new 52-week high, thanks to a brief rally in utility stocks. The stock is healthy but the utility sector has been less predictable than usual lately, so I’ll keep it on Hold.
Next ex-div date: June 20, 2017 est.
Closing prices as of May 16, 2017
