Stocks Trapped in Trading Range. Buy GE with 3.2% Yield
In April we were pleased that all three major stock market indices hit record highs during the month, spurred by slightly better earnings reports. However, as more earnings reports trickled in at the end of the month, all major stock market indices retreated from their all-time highs with a significant sell-off on April 30th.
And with no major economic catalyst pushing stocks higher coupled with the following significant headwinds: (1) pending Federal Reserve action to raise interest rates, (2) a strong dollar adversely affecting export profits, and (3) lower U.S. Gross Domestic Product (GDP) projections, stocks will be trapped in a narrow trading range, which could test the year’s lows. Until these headwinds are resolved, stocks will pause from their 6-year bull run. As the trading in the first few days of May has already resulted in vigorous moves in both directions, stock market volatility will likely be with us through the 2nd quarter.
Rather than avoid stocks under these market conditions, investors should take advantage of any dips to continue to add to their stock portfolios by accumulating shares of quality companies, equity mutual funds, and stock ETFs (such as the stocks, mutual funds, and ETFs we have recommended in this and earlier blog posts). Consequently, we see no need to make any changes in our TSOA Retirement Account Allocation models.
Buy “New” GE
For many years prior to the “Crash of 2008,” General Electric (GE) was considered the safest of safe stocks. Analysts called it a “widows and orphans stock” (meaning widows and orphans should own lots of it). Unfortunately, GE was not what many believed it to be – a strong industrial company. Instead, it was more like a financial conglomerate (a bank), and it got caught up in the financial debacle that involved most banks in 2008/2009.
With the mild recovery, especially in the financial sector, GE has also rebounded. However, GE recently announced that it will divest most, if not all, of its financial holdings and return to being a simpler, and hopefully, more profitable industrial company. Recent earnings show this to be the case. Therefore, we eagerly welcome this new development and will look to accumulate GE shares at prices below $28.00/share or better. Its current 3.2% yield also supports a long-term positive outlook.
Note: Jim Tso and his clients own shares of GE in their portfolios.