Daniel Cullinane CPA
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U.S. retail gasoline pump price increases fell by more than 6 cents last week to a national average of $2.67 for a gallon of regular gas. The price of crude oil dipped by more than 2% last week and remains down about 17% over the past four weeks. The attack on two tankers in the Persian Gulf on June 13 sent crude oil prices higher momentarily, but rising supply in the United States quickly returned as the dominant force holding down crude oil — and U.S. gasoline — prices.
Futures and options traders continue selling their long positions in major petroleum contracts. Hedge funds are piling into short positions but if the global economy gets a boost and avoids a recession later this year, the funds will dump those short positions as quickly as they can and shift to long contracts. The result could be the mother of all short squeezes.
Patrick DeHaan, GasBuddy’s head of petroleum analysis, commented, “For the sixth straight week, gasoline prices have declined nationally, a feat not often seen heading into the prime of summer driving season. It was a perfect week with every state seeing average gas prices decline versus last Sunday when stations continued to pass along the lower replacement cost as oil prices remain under considerable selling pressure ….”
DeHaan continued, “For some states like California, Illinois and Ohio, the party may partially end in just two weeks as those states prepare to raise gasoline taxes a noticeable amount, sending their gas prices higher just in time for July 4. For the rest of us, not only can we celebrate the holiday with fireworks, but celebrate the falling prices heading into it. Not a bad summer to be hitting the road as Americans are spending nearly $100 million less every day on gasoline than a year ago.”
Retail gas prices dipped in all 50 states last week. The most common price for a gallon of regular gas was $2.39 a gallon, 20 cents a gallon lower than the prior week as prices in the Great Lakes region once again dropped sharply. Gas at the most expensive, 10% of U.S. gas stations, averaged $3.68 while prices at the least expensive, 10% of gas stations, averaged $2.17. The median price at all stations was $2.55, down 6 cents from the prior week.
At the same time last month, gas prices averaged $2.86, about 19 cents above the current price. A year ago, the national average price was about $2.89, or 22 cents higher than the most recent price. Gasbuddy continuously updates crowd-sourced gas prices on its website.
California drivers were paying $3.87 on average for a gallon of gas on Monday morning (down 5 cents week over week), with drivers in Hawaii ($3.81), Nevada ($3.39), Alaska ($3.37), and Washington ($3.33) rounding out the five states with the highest prices. Drivers in Oregon, Arizona, Utah, and Idaho, are also paying more than $3 a gallon.
At the other end of the spectrum, drivers in Mississippi ($2.24), South Carolina ($2.27), Louisiana ($2.27), Alabama ($2.28), and Tennessee($2.33) are paying the least for gas.
WTI crude oil for July delivery traded down about 0.4% in the noon hour Monday at $52.31 while Brent for August delivery traded at $61.50, down about 0.5%. The price differential (spread) between front-month WTI and Brent crude is now around $9.20 a barrel, about $0.30 cents wider than a week ago.
The Organization of the Petroleum Exporting Countries (OPEC) and Russia can’t seem to agree on where the price of oil should be, and even if they could, the price would probably have to be lower than it is now. That’s not something either partner wants.24/7 Wall St.
With summer starting on Friday, we could be in for a hot three months in more ways than one. On-going trade battles, the potential for escalation of tensions in the Middle East, the continuing white-hot political rhetoric, which may include an attempt to impeach the President, are just three of the many issues that are continuing to spike investor worry and volatility. In addition, with interest rates back at cycle lows, the Treasury market is hardly a safe haven now.
One good idea for nervous investors is to move out of momentum plays, and go to safer dividend stocks, like those that reside in the Merrill Lynch Large Cap Defensive Portfolio. This is how the portfolio managers describe the holdings.
The primary objective is to protect principal with some emphasis on income from what we view as the relatively safest, highest quality investments. This portfolio furthers its objective by focusing on stocks offering liquidity and consistency of dividend growth to provide some protection against inflation.
We screened the stocks in the portfolio looking for the highest dividend paying companies. All of these top stocks are rated Buy at Merrill Lynch.
American Electric Power
This industry leading utility is also a solid dividend paying company. American Electric Power Co., Inc. (NYSE: AEP) is one of the largest electric utilities in the United States, delivering electricity to more than 5.4 million customers in 11 states. The company ranks among the nation’s largest generators of electricity, owning nearly 32,000 megawatts of generating capacity in the U.S. American Electric also owns the nation’s largest electricity transmission system, with a 39,000 mile network that includes more 765 kilovolt extra-high voltage transmission lines than all other U.S. transmission systems combined.
Many on Wall Street feel that the stock trades at a discount to its utility peers, and they feel it deserves a premium. Top analysts also think the company may sell generating assets and buy back shares with the proceeds, which will be also accretive. American Electric Power shareholders are paid a solid 2.97% dividend. The Merrill price target is posted at $93, while the consensus price target across Wall Street is set at $86.19. Shares closed on Monday at $90.08.
This is a top pharmaceutical stock made a gigantic splash this week with a $10.6 billion purchase of cancer drug maker Array Bio Pharma (NASDAQ: ARRY). Pfizer Inc. (NYSE: PFE) is a global biopharmaceutical company with a diversified portfolio of products and pipeline candidates. The company’s commercial operations are bifurcated into two business segments: Innovative Health (IH) and Essential Health (EH).
Pfizer is also one of the largest Pharmaceutical companies in the world as measured by market capitalization and revenue, and is a component of the Dow Jones Industrial Average. Investors are paid a very solid 3.37% dividend. The Merrill Lynch price objective is $49 and that compares with the Wall Street consensus price objective which is posted at $45.57. The shares closed Monday at $42.88.
Royal Dutch Shell
This company is a top international play for investors looking to add energy exposure and is yet another company that has posted solid results. Royal Dutch Shell plc (NYSE: RDS-A) operates as an independent oil and gas company worldwide. It operates through Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas, and natural gas liquids. Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.
Royal Dutch Shell also engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas (LNG) for transport, lubricants, bitumen, and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.
Investors are paid a huge 5.04% dividend. The Merrill Lynch price objective is $69, and that compares with the higher Wall Street consensus figure of $79.58. The stock closed Monday at $62.92.
Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. The company engages in investment, ownership, management, and development of properties. Simon Property primarily invests in regional malls, premium outlets, mills, and community/lifestyle centers to create its portfolio. Through its subsidiary partnership, they also own or has an interest in about 230 properties in the US and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
One key driver of growth will include the $1.0 billion+ of development/redevelopment planned over the next few years. The Merrill Lynch team also feels that the company’s high quality portfolio is weathering the retail storm better than most.
Shareholders are paid a massive 4.97% distribution. The Merrill Lynch price target is $188. The consensus price target on Wall Street is $186.89. The shares ended trading Monday at $166.54.
This is a top telecommunications company that offers tremendous value. Verizon Communications, Inc (NYSE: VZ) is a global leader in delivering the digital world. Verizon Wireless operates America’s self described most reliable wireless network, with 109.5 million retail connections nationwide. Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and delivers integrated business solutions to customers worldwide.
Verizon investors are paid an outstanding 4.14% dividend. The Merrill Lynch price target is posted at $64, while the consensus is set at $59.71. The stock closed Thursday trading at $57.63.
Five top blue chip companies from the Merrill Lynch Defensive Portfolio that not only are priced right, but pay dependable dividends. We are clearly in a very vulnerable market, and while the economy is still acting reasonably good economic indicators have slowed, so it makes sense for investors to look for safer territory for now.
PRICES ARE DECLINING
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