Tag Archives: industry

Playing The Santa Rally With ETFs And Stocks

After a spectacular six-year bull run, the U.S. stock market got caught up in a nasty web of never-ending worries. It all started with the collapse in oil prices. Then came the instability in Greece, global growth concerns and the uncertainty of the Fed rate hike. Persistent weakness in China and the slump in commodities aggravated the woes. As a result, the S&P 500 and Dow Jones indices are trading in the red in the year-to-date frame, losing 1% and 2.3%, respectively. But the trend might reverse heading into the winter holidays if Santa pays a call. A Santa rally has gained coinage in the investment world, referring to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) and extending into the first two days of the New Year. According to the 2016 Stock Trader’s Almanac , the Santa Claus rally has yielded average positive returns of 1.4% in 34 of the past 45 holiday seasons since 1969. Other research also confirmed this trend. If we dig into historical data dating back to 1896, the Dow Jones Industrial Average has a track record of gaining an average of 1.7% during this seven-day trading period. And this has happened 77% of the time. Santa on The Way! The Fed has raised interest rates for the first time in nearly a decade with a dovish view for future hikes. It is a clear signal that the U.S. economy has largely emerged from the impact of a financial crisis supported by solid labor market fundamentals and a gradually increasing inflation rate. This in turn has lifted consumer confidence, providing a boost to the stock market, setting the tune for a Santa rally. This is especially true as the stock market gained momentum at the start of this week with both the S&P 500 and Dow Jones gaining 1.7% each. Further, year-end seasonal factors such as holiday optimism, tax-related affairs, people investing their Christmas bonuses, short sellers going on vacation, and the “January effect” added to the strength. As such, Santa seems to be just round the corner but the rout in commodities and the resultant stress in the junk bond space could block its way. Nevertheless, the oil price has rebounded slightly from their 11-year low, bolstering hopes of a bullish market. As hopes start building for a Santa rally, we have highlighted a trio of ETFs and stocks that could provide investors with happy returns in the coming days and weeks. ETFs to Buy While there are a number of ETFs that are expected to benefit from the Santa Claus rally, we have highlighted three growth funds that have a higher potential to move upward when the markets go up. These products have been leading the broad market by a wide margin and have a top Zacks ETF Rank of 1 or ‘Strong Buy’. Further, these provide a broad play across various sectors rather than specific ones. PowerShares Dynamic Large Cap Growth Portfolio (NYSEARCA: PWB ) This ETF provides a pure exposure to the large cap growth segment of the broad U.S. equity market by tracking the Dynamic Large Cap Growth Intellidex Index. The fund is widely diversified across 50 securities with each holding less than 3.5% of total assets. From a sector look, consumer discretionary takes the top spot at 32% while information technology, healthcare and consumer staples round off the next three spots. The product has accumulated around $415.3 million in its asset base and charges 58 bps in fees per year. It gained 6.4% so far this year. iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ) This fund offers exposure to 139 large U.S. companies whose earnings are expected to grow at an above-average rate relative to the market. It is concentrated in the technology sector and the top firm – Apple (NASDAQ: AAPL ) – occupies 8.2% of the basket while the other firms hold no more than 3.4% share. Consumer discretionary, healthcare and consumer staples also receive double-digit allocation each. The fund has amassed $559.3 million in AUM and has an expense ratio of 0.20%. IWY is up 5.6% in 2015. First Trust Large Cap Growth AlphaDEX Fund (NYSEARCA: FTC ) This fund provides a slightly active choice as it uses the AlphaDEX methodology to select the stock. The methodology seeks to narrow the large cap space to only the best positioned growth companies, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 177 stocks, which are widely spread across various securities with none holding more than 1.21% share. More than one-fourth of the portfolio is skewed toward consumer discretionary, followed by information technology (19.5%), healthcare (13.5%), consumer staples (13.0%) and industrials (12.8%). The product has $714.8 million in AUM and charges 63 bps in annual fees. It added 3.2% in the year-to-date time frame. Stocks to Buy For stocks, we have chosen three top picks using the Zacks Screener that fits our six criteria: a Zacks Rank #1, a Growth Style Score of ‘A’, Zacks Industry Rank within the top 15%, positive estimate revision for the current year, market cap of over 1 billion and year-to-date price performance in excess of the broad market returns. Here are the three chosen stocks. American Woodmark Corp. (NASDAQ: AMWD ) Based in Winchester, VA, American Woodmark is a major manufacturer and distributor of kitchen cabinets and vanities for the remodeling and home construction markets in the United States. The company has seen solid earnings estimate revisions of 8 cents for the current quarter over the past 30 days and delivered positive earnings surprises in the last four quarters, with an average beat of 35.40%. The stock has a solid Zacks Industry Rank in the top 5% and has doubled its returns in the year-to-date time frame. Integrated Device Technology Inc. (NASDAQ: IDTI ) Based in San Jose, CA, Integrated Device is engaged in designing, developing, manufacturing, and marketing a wide range of high-performance semiconductor products and modules for the communications, computing, and consumer industries worldwide. The company has seen earnings estimates rising by a penny for the current quarter over the past 30 days and delivered average positive earnings surprises of 10.04% in the last four quarters. Further, Integrated Device has an Industry Zacks Rank in the top 15% and gained over 37% this year. Leidos Holdings Inc. (NYSE: LDOS ) Based in Reston, VA, Leidos Holdings delivers solutions and services in the national security, health, and engineering markets in the United States and internationally. It has seen earnings estimate revision of 3 cents for the current quarter over the past 30 days and generated an average earnings surprise of 22.44% in the last four quarters. The stock is up 27.3% this year and has an Industry Zacks Rank in the top 15%. Bottom Line As the positive momentum starts to build in the market this week, Santa might definitely be on the way to give bountiful gifts to investors and set the tone for the New Year. Original Post

Is Consolidated Edison A Good Income Investment With Its Underperforming Total Return?

Summary Consolidated Edison’s dividend is high at 4.1% and has been increased each year over the last 41 years making Consolidated Edison a dividend aristocrat. Consolidated Edison’s total return underperforms over the last 35.8 month test period but its cash flow is good to make the dividend safe that will most likely be increased in. Consolidated Edison’s revenue growth is not great at 2% going forward but is very stable and the company business is defensive. This article is about Consolidated Edison Inc. (NYSE: ED ) and why it’s an income company that’s being looked at in The Good Business Portfolio. Consolidated Edison is a holding company with its business being an electric and gas utility in the North East United States. The Good Business Portfolio Guidelines, total return, earnings and company business will be looked at. Good Business Portfolio Guidelines. Consolidated Edison passes 7 of 10 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. There are many good business companies that don’t break many of these guidelines but will still not be considered for the portfolio at this time. For a complete set of the guidelines, please see my article ” The Good Business Portfolio: All 24 Positions .” These guidelines provide me with a balanced portfolio of income, defensive and growing companies that keeps me ahead of the Dow average. Consolidated Edison is a large-cap company with a capitalization of $17.829 billion. The Company operates through its subsidiaries, which include Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R) and the Competitive Energy Businesses. Consolidated Edison has a dividend yield of 4.1% that has been increased each year for 41 years. The dividend grows slowly but is extremely safe. Consolidated Edison therefore is a income story. The average payout ratio is 67% over the past five years which leaves plenty of cash remaining for investment after paying its high dividend Consolidated Edison’s cash flow is good at $1.2 Billion which leaves it with plenty of cash allowing it to pay its high dividend and have cash left over for company equipment modernization. I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% capital gain in addition for a yearly distribution of 5%. Consolidated Edison has a three-year CAGR of 2% not meeting my overall requirement. Looking back five years $10,000 invested five years ago would now be worth over $15,379 today (from S&P IQ). This makes Consolidated Edison a good investment for the income investor with its steady slow growing 4.1% dividend that has been raised for over the last 41 years each year but does not meet the 5% CAGR growth I require. Consolidated Edison’s S&P Capital IQ has a two-star rating or sell with a price target of $59.0. This makes Consolidated Edison slightly over priced at present but a good choice for the income investor that does not need much capital gains growth and wants a safe income stream. Total Return and Yearly Dividend The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. Consolidated Edison did worst than the Dow baseline in my 35.8 month test compared to the Dow average but does have a positive total return of 24.54% over the test period of 35.8 months.. I chose the 35.8 month test period (starting January 1, 2013) because it includes the great year of 2013, the moderate year of 2014 and the losing year of 2015 YTD. I have had comments about why I do not compare the total return to the S&P 500 average. I use the Dow average because the Good Business Portfolio has six Dow companies in it and is weighted more to the Dow average than the S&P 500. Modeling the Dow average is not an objective of the portfolio but just happened by using the 10 guidelines as a filter for company selection. This total return makes Consolidated Edison appropriate for the income investor with the steady slow growing dividend of 4.1%, but the aggressive investor should look for companies with more growth potential. It is expected that the dividend will be increased from its present $0.65/Qtr. to $0.67/Qtr. in January of 2016. DOW’s 35.8-month total return baseline is 30.71% Company Name 35.8 Month total return Difference from DOW baseline Yearly Dividend percentage Consolidated Edison Inc. 24.54% -6.17% 4.3% Last Quarter’s Earnings For the last quarter Consolidated Edison reported earnings on November 5, 2015 that missed expected at $1.44 compared to last year at $1.48 and expected at $1.48. They reaffirmed yearly earnings of $3.90 – $4.05. This was a fair to weak report. Earnings for the next quarter are expected to be at $0.52 compared to the last year at $0.58. The steady slow growth in Consolidated Edison over long periods of time should provide a company that will continue to have slightly below average total return but provide steady income for the income investor. Business Overview Consolidated Edison, Inc. (Con Edison) is a holding company. The Company operates through its subsidiaries, which include Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R) and the Competitive Energy Businesses. CECONY delivers electricity, natural gas and steam to customers in New York City and Westchester County. Orange and Rockland Utilities Inc. (O&R) delivers electricity and natural gas to customers located in south-eastern New York, northern New Jersey and north-eastern Pennsylvania. O&R’s utility subsidiaries include Rockland Electric Company and Pike County Light & Power Company. Competitive energy businesses provide retail and wholesale electricity supply and energy services. The Competitive Energy Businesses include three subsidiaries: Consolidated Edison Solutions, Inc. (Con Edison Solutions); Consolidated Edison Energy, Inc. (Con Edison Energy), and Consolidated Edison Development, Inc. (Con Edison Development). The good cash flow of Consolidated Edison, Inc. allows the company to expand its business slowly and modernize its equipment as the population of its service area increases over time. Takeaways and Recent Portfolio Changes Consolidated Edison Inc. is an income company choice considering its steady slow growth and its total return underperforming the Dow average. Consolidated Edison is a buy for the income investor that is willing to have underperformance of total return but have a steady increasing income and have safety of a defensive company business. Consolidated Edison is not being added to The Good Business Portfolio right now since there are no open slots in the portfolio and the total return underperforms the DOW average for the 35.8 month test period. Bought Eaton Vance Enhanced Income Equity Fund II (NYSE: EOS ) to bring it up to 6.5% of the portfolio. Great income fund that beats the DOW average. Trimmed Cabela’s (NYSE: CAB ) to 4.6% of the portfolio, want to take a little off the table while its up due to the buyout possibilities. The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Home Depot (NYSE: HD ) is 8.3% of portfolio, Walt Disney (NYSE: DIS ) is 7.5% of the portfolio and Boeing (NYSE: BA ) is 8.9% of the Portfolio therefore BA and HD and now in trim position with DIS getting close. I have written individual articles on EOS, CAB and HD, if you have an interest please look for them in my list of previous articles. Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.

Retail ETFs In Focus This Holiday Season

As a pioneer in retail business, the U.S. provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy. The U.S. economy is on the growth path driven by lower oil prices and an improved job market that is counteracted by certain spillover effects from the global economy. However, this is not likely to come in the way of U.S. economic growth and the labor market boom. The Federal Reserve chairwoman Janet Yellen and the president of the New York Fed William Dudley recently expressed the possibilities of a U.S. rate hike in December, the first since the 2007-09 economic crisis and recession. The key basis for the hike will be a fall in unemployment rate and the return of inflation to the Central Bank’s 2% target over the medium term. From the economic standpoint, we see a gradual improvement in the labor market, as unemployment rates have declined to the lowest level since September 2008. According to the recent data from the Bureau of Labor Statistics, the unemployment rate for November has declined to 5%, same as in October. In November, 211,000 people were hired, reflecting improved employment prospects. Given a rebounding U.S. economy, the retail space is bubbling with optimism. A gradual recovery in the housing market and manufacturing sector, along with an improving labor market and lower gasoline prices, are favoring the economy and playing key roles in raising buyers’ confidence. We expect this positive sentiment to translate into higher consumer spending. The recent U.S. GDP data (second estimate) revealed that the economy grew at a rate of 2.1% in the third quarter, despite a strong dollar and overseas weakness, while consumer spending increased 3.2%. Though the pace of economic growth decelerated from the second quarter due to inventory correction, analysts are hopeful of a pickup in momentum in the final quarter that primarily constitutes the holiday season. The holiday season is the time when retailers are on their toes, flooding the markets with offers and promotions. Apart from price-matching policies, retailers will sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies and free shipping on online purchases. Since the season accounts for a sizeable chunk of yearly revenues and profits, retailers are gung ho to drive footfall. In this regard, retailers are efficiently allocating a major portion of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance web and mobile experiences of customers, giving their stores a facelift, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers. ETFs present a low-cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry: SPDR S&P Retail (NYSEARCA: XRT ) Launched in June 2006, SPDR S&P Retail ( XRT ) is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 104 stocks, the top holdings being Wayfair Inc. (NYSE: W ), Pep Boys – Manny, Moe & Jack (NYSE: PBY ) and Abercrombie & Fitch Co. (NYSE: ANF ), representing asset allocation of 1.44%, 1.42% and 1.39%, respectively, as of December 11, 2015. The fund’s gross expense ratio is 0.35%, while its dividend yield is 1.12%. XRT has $637 million of assets under management (AUM) as of December 10, 2015. Market Vectors Retail ETF (NYSEARCA: RTH ) Initiated in December 2011, Market Vectors Retail ETF ( RTH ) tracks the performance of Market Vectors U.S. Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. (NASDAQ: AMZN ), Home Depot Inc. (NYSE: HD ) and Wal-Mart Stores Inc. (NYSE: WMT ), representing asset allocation of 15.25%, 8.73% and 6.39%, respectively, as of December 11, 2015. The fund’s net expense ratio is 0.35% and dividend yield is 0.37%. RTH has managed to attract $147.2 million in AUM till December 10, 2015. PowerShares Dynamic Retail (NYSEARCA: PMR ) PowerShares Dynamic Retail ( PMR ), launched in October 2005, follows the Dynamic Retail Intellidex Index and is made up of 30 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund’s top holdings are The Kroger Co. (NYSE: KR ), Costco Wholesale Corporation (NASDAQ: COST ) and L Brands, Inc. (NYSE: LB ), reflecting asset allocation of 5.54%, 5.25% and 5.16%, respectively, as of December 11, 2015. The fund’s net expense ratio is 0.63%, while its dividend yield is 0.71%. PMR has managed to attract $22.4 million in AUM as of December 10, 2015. Original post .