Roger Conrad, in a leading expert on utility stocks; the editor of Conrad's Utility Forecaster is al...
2 High Yields for Turbulent Times
06/28/2012 11:00 am EST
Finding technically strong stocks with good dividends, like these two, offer an attractive alternative to the low yields and potential negative total returns of the Treasury market.
Today promises to be another turbulent day in the financial markets, with the expected Supreme Court ruling on health care, the start of the latest two-day meeting on the Euro debt crisis, and the news that JPMorgan Chase’s (JPM) loss on its “hedge” is closer now to $9 billion.
Investors are understandably skeptical that anything meaningful will come out of the Eurozone, and are clearly unsure of what the Supreme Court decision will do to their investments. Obviously, the news from JPMorgan Chase will not help investor confidence.
For those who want an alternative to the potentially negative return from the Treasury market, there are stocks with attractive yields that also look positive technically. Even the most cautious investors these two stocks could improve the overall yield of their portfolios.
Chart Analysis: The daily chart of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) is still edging higher after spiking to a low last week of $124.09. The sluggish recent action suggests that many are not expecting a sharp decline in longer-term rates.
- TLT reached a high of $130.38 on June 1
- The completion of the trading range, lines a and b, still has upside targets in the $133-$134 area
- The relative performance, or RS analysis did confirm the June highs, and is still holding above its uptrend (line c). This indicates that TLT is still outperforming the S&P 500 or Spyder Trust (SPY)
- The on-balance volume (OBV) is acting stronger than prices, as it is very close to its June highs and is holding above its rising WMA
- Initial support now sits at $125.50 and the rising 20-day EMA
Great Plains Energy (GXP) is a $2.9 billion electric utility that showed up on my volume scan last week. It closed Wednesday above its recent highs (line e) on three times the average daily volume. It fits the criteria that I discussed in “5 Steps for Finding the Next Winning Stock.”
- GXP has next resistance at $21.98, which was the high early in the year
- From the nice base in the $19.50 area, the breakout has initial upside targets in the $22.80 to $23.20 area
- The RS line turned higher in early May, starting a new uptrend. It is well above support (line g)
- The daily OBV broke through three-month resistance (line h) in June, and still looks strong
- There is minor support now between $21 and $21.20, with further levels in the $20.50 area
- GXP has a current yield of 4.1%
Broadridge Financial Solutions (BR) is a $2.9 billion information technology company that provides services to the financial services sector. It also closed sharply higher on heavy volume Wednesday, and the chart shows a potential short-term bottom formation (line b). It is down sharply from the February high of $24.94.
- There is next resistance at $21.12, with the 38.2% Fibonacci retracement resistance at $21.76
- The more important 50% resistance stands at $22.40
- The relative performance has just broken its downtrend (line c), but it needs to move above the June highs to start a new uptrend
- The daily OBV turned positive in early June, as the volume surged and the downtrend (line d) was overcome
- The one day of high-volume selling on May 31 looks like panic liquidation
- BR currently yields 3.1%
What it Means: The major stock-market averages have pulled back to more important support and are lower in early trading Thursday. A close below Monday’s lows could set the stage for a deeper decline.
However, the positive intermediate-term signals from the market internals do indicate that this will be a further buying opportunity.
Locking in attractive yields in technically positive stocks should give your portfolio a good balance. When Treasury yields move higher later in the year, the total returns are otherwise likely to become even more negative.
How to Profit: For Great Plains Energy (GXP), go 50% long at $21.14 and 50% long at $20.94, with a stop at $20.17 (risk of approx. 4%)
For Broadridge Financial Solutions (BR), go 50% long at $20.74 and 50% long at $20.56, with a stop at $19.67 (risk of approx. 4.7%)
Portfolio Update: Investors are 50% long TLT from May 10 at $117.93. Raise the stop now to $123.74. Half the position was sold at $124.73.
Aggressive traders as per the June 14 column should be long the iShares Barclays 20+ Year Treasury Bond Fund (TLT) at $125.66 or better. Use a stop now at $123.74, and sell half the position at $129.76 or better.
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