5 Top Stock Trades for Wednesday Morning

On Monday morning, investors came out strong and bought the trade-war dip. On Tuesday, it took more convincing, but bulls reluctantly bid U.S. equities off their lows. I don’t know how much longer they can handle it though and if trade talks intensify, U.S. stocks look likely to head lower. That’s why on days like this, I like to look for strength, which you’ll see in our top stock trades below.

Top Stock Trades for Tomorrow No. 1: Netflix (NFLX)

Top Stock Trades for Tomorrow No. 1: Netflix (NFLX)


Talk about a juggernaut — Netflix, Inc. (NASDAQ:NFLX) has powered higher again on Tuesday, now up more than 3% and above $400. Thought you could get this on a pullback? Well think again, apparently.

Shares are now up a laughable 110% this year and more than 160% over the past 12 months. FANG is hanging tough amid the selling too, with Amazon.com, Inc. (NASDAQ:AMZN) racking up another all-time high on Tuesday as well.

So what do investors do with NFLX? For the love of God, please don’t short the thing. We’ve preached over and over not to short strength and this is a perfect example as to why, regardless of the valuation.

We were all over the breakout in late-May and props to those who are still riding it. $400 is a significant level, but with this high of an RSI (green circle) and after this big of a run, new buyers have to wait for a pullback or some consolidation first.

Top Stock Trades for Tomorrow No. 2: Chipotle (CMG)

Top Stock Trades for Tomorrow No. 2: Chipotle (CMG)

Want to know another strong stock lately? Chipotle Mexican Grill, Inc. (NYSE:CMG). This burrito monster has been on a tear, almost doubling from its 2018 lows.

Now though, CMG is coming into some pretty notable resistance between $475 and $500. The optimist in me is looking for shares to push through, but the realist in me says that may not happen quite so fast.

You may recall we warned investors not to short CMG after it ran from $325 to $425 in a week. But now we need to see how it handles resistance. If it pushes through, then great, as bulls can buy with a great risk/reward. Buying as CMG enters resistance though is a bad risk/reward.

Top Stock Trades for Tomorrow No. 3: Dropbox (DBX)

Top Stock Trades for Tomorrow No. 3: Dropbox (DBX)

Another monster? Dropbox Inc (NASDAQ:DBX), which went public in March at $21. After closing at $42 on Monday, the stock is officially a double.

But the story is a little more strange than that. While the stock was holding onto its gains following a successful IPO, shares were getting into a narrow, sideways range. It was the perfect name to watch for a breakout or a breakdown. However, no one expected it go from $31 to $43 in three days. We still don’t really have an explanation, (although there may be some reasoning).

While shares are down a bit Tuesday, the 40% gain in five days gives recent investors a lot of cushion to work with. I wouldn’t chase this name because it’s run too much. But those that think this name could outperform amid further market weakness (as we’ve seen the past few days) could buy DBX and use a stop-loss below Tuesday’s lows.

Top Stock Trades for Tomorrow No. 4: Celgene (CELG)

Top Stock Trades for Tomorrow No. 4: Celgene (CELG)

To say Celgene Corporation (NASDAQ:CELG) stock has been hammered this year almost feels like an understatement. With shares down more than 40% over the past eight months, it’s surprising to see this dud outperforming on any day, let alone Tuesday, up 2%.

$75 held as support and shares have been consolidating above this level for a month. That gives bulls a solid risk/reward should they go long near current levels.

Investors have two real tests though: If $75 is retested it has to hold or CELG could be in for more pain. Additionally, downtrend resistance is now near $83, but could be lower by the time it comes into play, which will be vital to bulls and bears.

If it holds, bears are still in control. A close above it and bulls have the ball.

Top Stock Trades for Tomorrow No. 5: MGM Resorts (MGM)

Top Stock Trades for Tomorrow No. 5: MGM Resorts (MGM)

It can’t all be about the winners today.

Should we call it $29? How about $30? For MGM Resorts International (NYSE:MGM), it’s not perfectly clear as to what the level is that shares must hold, but it’s pretty darn close.

Our line — parked at the politically correct $29.50 mark — shows this area was a critical pivot point for MGM as it went from resistance to support. Should it give way, it will likely become resistance again.

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Buy These 3 High-Yield Stocks Thriving With Higher Fed Rates

Last week the Federal Reserve Board increased its Fed Funds Target rate for the second time this year, to 1.75%. The Fed Funds rate controls yields on the short end of the yield curve. Rate increases typically push fear-driven investors to sell the income stock categories like REITs and Utilities. Informed investors use these sell-offs as opportunities to buy dividend paying stocks for what will likely be market beating total returns.

I grabbed this important piece of data from a recent article from investment management company Neuberger Berman:

Our research indicates that while, in the short term, REIT share prices have been influenced by the direction of interest rates, when measured over longer time periods, REIT total returns historically have not tended to be correlated to interest rates. In the current period, REITs’ underlying fundamentals and access to capital have not declined. Furthermore, many REITs have used low borrowing costs and the capital markets to strengthen their balance sheets… during periods when 10-year Treasury yields rose sharply, REIT total returns generally underperformed broader equity market returns in the short term, but generally outperformed after the initial period of weakness.

I have seen other research that confirms in periods of rising interest rates REITs have, on average, outperformed the broader stock market. The reason is that rising rates indicate a strong economy and it is likely that commercial property values and rental rates are also increasing. If you are looking for individual REITs that specifically will do well in a rising rate environment, think about those commercial property sectors that have the shortest contract periods. With short term leases, these REITs will be able to more quickly increase the prices they charge to renters.

Hotels have the shortest lease periods – one night. Hotels operators change their rates daily based on demand and occupancy levels. Historically, hotel results mirror economic growth. A strong economy will lead to growing profits and share prices for the hotel REITs.

Chatham Lodging Trust (NYSE: CLDT) is a lodging/hotel REIT which owns 40 hotels in 15 states. The portfolio consists of premium branded upscale extended stay and select service hotels. The hotel REIT sector peaked in January 2015 and then went into a steep bear market which bottomed one year later. Over the last two and a half years, share prices have been volatile without a definite up or down trend.

Since its 2010 IPO, Chatham Lodging has steadily increased its dividend rate, with the last increase in March 2016. Chatham pays monthly dividends and is currently paying out just 62% of funds from operations (FFO) per share. This is a conservatively managed, attractive income yield stock that gives exposure to the lodging sector.

CLDT currently yields 6.4%.

Self-storage companies have rental rates that renew each year. There is a lot of turnover in a self-storage facility, which allows the operator to quickly adjust rates to changing economic conditions. Over the last 15 years, self-storage has been one of the best performing commercial property sectors.

Extra Space Storage (NYSE: EXR) is a large-cap, self-storage REIT with a best in class track record. The company owns 851 storage facilities. It has interests in another 216 through joint ventures and provides the management services for an additional 456 properties. The self-storage business provides strong same store revenue growth with low expenses and capital spending requirements.

Of the four major self-storage REITs, Extra Space is the historic leader for revenue, net operating income, and FFO growth. The company’s dividend has increased by 244% since 2012, including a 10.3% boost this year. This company is the class of the self-storage sector.

EXR currently yields 3.5%.

Rental rates paid for living quarters are usually reset annually. There are several economic factors that continue to push apartment and single family home rental rates higher. The REITs in this sector will be able to increase rental rates faster than the rate of increase in the Fed Funds rate.

Invitation Homes (NYSE: INVH) is one of the small number of REITs focused on owning single-family rental homes as opposed to apartment complexes. These REITs are the result of the institutional buying of distressed homes during the housing make crash of 2009-2011.Thousands of homes were bought at low prices, rehabilitated and turned into rental properties.

In the current economy the number of families that prefer renting to owning remains high. At the same time, millennials are forming families and want to get away from the apartment life into single family homes.

Invitation Homes owns 82,500 homes, with an average of 4,800 in each of the metropolitan areas where it has ownership. This large scale operation provides economy of ownership similar to apartments. The company forecasts to generate 5% to 6% same store net operating income growth. This is the highest growth rate among the different REIT sectors.

INVH is generating FFO of $1.15 per share against a current annual dividend of $0.44. When the company starts to grow the dividend the share price will take off.

Current yield is 2.0%.

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Source: Investors Alley