Cabot Income Advisor Weekly Update - Cabot Wealth Network

Cabot Income Advisor Weekly Update

The Virus Makes a Comeback
Stocks had one of the worst days of the year yesterday as investors fear the spreading Delta variant coronavirus strain could hamper growth.

The market hasn’t seen ugliness on this scale since October. Indexes had been somewhat flat and bouncing around near the highs as investors weighed the booming economy against inflation fears, a falling 10-year rate and growth concerns after the pandemic recovery. But the growing virus fears hit an otherwise lackadaisical summer market hard.

Energy and financial stocks along with other cyclical sectors got creamed while the long-declining stay-at-home stocks like Peloton (PTON) and Doordash (DASH) soared. It was a reversal of fortunes from what has prevailed since the vaccines opened up the economy.

I don’t think the worry is that we will go back to 2020-style lockdown mode again. But the new virus strain could hamper growth around the edges. Most other countries had not done nearly as good a job as this country with the vaccines. And they will likely be hurt more. Slower international growth will slow growth in the U.S. As well, sectors like travel and leisure and hospitality will see an amplified effect.

That said, it is unlikely that this virus business drags the market into correction territory. Sure, it could reduce some of the growth in the third quarter that the market had already priced in. But whatever is lost will likely be made up in future quarters. And the hotter than normal GDP growth will last longer.

Summer markets are notoriously susceptible to headline risk. Investors aren’t really paying as much attention as they normally do. When they hear something bad, they tend to overreact. But it probably isn’t a good time to buy the dips yet. This story and the choppiness in the market may well last for the rest of July.

But it’s still a bullish prognosis over the remainder of the year. Before long, there will be good buying opportunities.

Trades this month
June 23rd
Sell AGNC August 20th $17 calls at $0.50 or better
Sell OKE August 20th $57.50 calls at $1.65 or better

July 14th
Sell BIP August 20th $55 calls at $2.00 or better – pending

July 16th
DLR July 16th $155 calls at $8.00 – Expired
Digital Realty Trust stock (DLR) – Called at $155

Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.9%
The deteriorating narrative that has put AGNC under pressure over the last month got a lot worse this week. The falling 10-year yield flattens the yield curve and lowers profits for mortgage REITS. But there is still the booming economy. Fears about the coronavirus variant that gripped the market this week threatens the remaining good part of the story and the stock plunged under 16 per share for the first time since March.

I have my doubts about the 10-year yield staying low. The Delta variant worries are also suspect. Earnings and the economy are booming. It is highly unlikely that the new strain of the virus returns the country to lockdown mode that threatens the recovery. Summer markets are notoriously susceptible to headline risk. We’ll see what happens, but I doubt this new coronavirus fear gets lasting traction. BUY

Brookfield Infrastructure Partners (BIP) Yield 3.7%
This infrastructure partnership was rolling along very well but it got caught up in the selloff this week along with just about everything else. But the main story is intact and I’m bullish on shares over the rest of the year. Calls were targeted in last week’s update for a 55 strike price at $2 per call. However, calls never reached that price after the issue was released. Those calls at the $2 target price is still a pending trade as BIP could still bounce back in the next week or two. HOLD

Enterprise Product Partners (EPD) Yield 7.4%
Energy stocks got clobbered this week as crude oil prices plunged after OPEC agreed on higher output levels, and virus fears prompted a cyclical selloff. Unless this new virus strain is a big problem, which I doubt, the story for EPD remains solid. It’s still cheap with a safe dividend as business should be booming in a good economy. I think this selloff represents a buying opportunity. BUY

NextEra Energy  Inc, (NEE) Yield 2.0%
This alternative energy utility is trending higher this month. It recently traded at the highest level since April but it still hasn’t broken out of the funk it’s been in since January. Since absolutely souring late last year, the alternative energy subsector has been struggling. It’s likely because of the conventional energy rally and the fact that alternative energy has gotten ahead of itself. But the NEE story is terrific. And high-growth alternative energy will have it day again, and maybe soon. BUY

ONEOK, Inc. (OKE) Yield 6.9%
OKE is a similar story to EPD, but more volatile. It got creamed in the selloff this week. The whole market sold off, but the cyclical stocks and energy took the biggest hit. But there still isn’t evidence of anything to interrupt the recovery in energy demand and midstream energy companies. We are not going to go into lockdown mode again. This latest worry presents a great buying opportunity for midstream energy companies. BUY

Qualcomm Corp. (QCOM) Yield 1.9%
This chip maker stock could be on the cusp of a breakout that I have been expecting. After a huge move, QCOM has been languishing along with most of the tech sector since February. I think it’s just a consolidation ahead of another surge. Last quarter’s earnings were sensational. And this quarter should be great as well. QCOM just hit the highest price since February. The stock might be on the move, but it’s still too early to tell for sure. We’ll see. BUY

U.S. Bancorp (USB) Yield 3.2%
U.S. Bancorp reported second quarter earnings last week and had a big up day. While several other banks reported mixed results, U.S. Bancorp kicked butt. The bank reported earnings of $1.28 versus an expected $1.12 on the strength of both a release of loan loss reserves and a booming fee business. This bank is well diversified and higher fees, along with the adjustment from an overly cautious bad loan adjustment, overcame lower than previously expected net interest income resulting from falling interest rates. The stock soared over 3% on the day. It’s benefitting from the booming economy side of the equation and there is a good chance that rates trend higher in future quarters. HOLD

Existing call trades
Sell DLR July 16th $155 calls at $8.00 – Expired
This is a slow-moving stock that was near the all-time high when we wrote the calls. It was milked for about as much income as it could generate in a relatively short period of time. DLR could continue to run higher but it’s usually a good idea to cash in on a conservative stock near the high.

Call premium: $8.00
Dividend: $1.16 (paid March 31st)
Dividend: $1.16 (paid June 30th)
Appreciation: $5.83 ($155 strike price minus $149.17 purchase price)

Total: $16.15 (total return 10.8% in six months)

Sell AGNC August 20th $17 calls at $0.50 or better
The mortgage REIT has continued to be under pressure since we wrote the calls about a month ago. Expiration is still more than a month away but it looks like the shares won’t be called, at least right now. That’s okay. I still like the stock over the rest of the year. The $0.50 calls are more than four months of dividends and it’s the second time this newsletter wrote calls on the stock for $0.50.

Sell OKE August 20th $57.50 calls at $1.65 or better
OKE is getting clobbered this week. The targeted calls are selling at just pennies as the stock fell below 50 per share and the strike price is 57.50. The August 20th expiration is still a month away and the stock can move a lot in that time. But regardless of what happens over the next month, we locked in a strong income.

Open Recommendations Ticker Symbol Entry Date Entry Price Price on
Buy at or
Under Price
Yield Total Return
AGNC Investment Corp. AGNC 01/13/21 15.52 15.84 17.00 9.09% 6.48%
Brookfield Infrastructure BIP 01/13/21 50.63 54.01 53.00 3.72% 8.74%
NextEra Energy, inc. NEE 2/24/21 73.76 76.99 80.00 1.98% 5.48%
Enterprise Product Partners EPD 3/17/21 23.21 23.20 25.00 7.76% 2.23%
U.S. Bancorp USB 3/24/21 53.47 54.51 55.00 3.22% 3.47%
Qualcomm Inc. QCOM 5/5/21 134.65 138.79 140.00 1.95% 3.60%
ONEOK, Inc. OKE 5/26/21 52.51 50.20 60.00 7.45% -4.40%
Open Recommendations Ticker Symbol Intial
Entry Date Entry
Price on
Sell To Price
or Better
Total Return
AGNC Aug 20 $17 call AGNC210820C00017000 Sell 6/23/21 0.50 0.05 0.50 3.00%
OKE Aug 20 $57.50 call OKE210820C00057500 Sell 6/23/21 1.65 0.18 1.65 3.14%
BIP Aug 20 $55 call BIP210820C00055000 Sell pending 0.70 2.00 3.95%
Security Ticker Symbol Action Entry Date Entry
Sale Date Sale Price Total Return
Innovative Industrial Props. IIPR Called 6/2/20 87.82 9/18/20 100.00 15.08%
Qualcomm QCOM Called 6/24/20 89.14 9/18/20 95.00 7.30%
U.S. Bancorp USB Called 7/22/20 36.26 9/18/20 38.00 3.42%
Brookfield Infras. Ptnrs. BIP Called 6/24/20 41.92 10/16/20 45.00 8.49%
Starbucks Corp. SBUX Called 8/26/20 82.41 10/16/20 88.00 6.18%
Visa Corporation V Called 9/22/20 200.56 11/20/20 200.00 0.00%
AbbVie Inc. ABBV Called 6/2/20 91.04 12/31/20 100.00 12.43%
Enterprise Prod. Prtnrs. EPD Called 6/24/20 18.14 1/15/21 20.00 15.16%
Altria Group MO Called 6/2/20 39.66 1/15/21 40.00 7.31%
U.S. Bancorp USB Called 11/25/20 44.68 1/15/21 45.00 1.66%
B&G Foods Inc, BGS Called 10/28/20 26.79 2/19/21 28.00 4.42%
Valero Energy Inc. VLO Called 8/26/20 53.70 3/26/21 60.00 11.73%
Chevron Corp. CVX Called 12/23/20 85.69 4/1/21 96.00 12.95%
KKR & Co. KKR Called 3/24/21 47.98 6/18/21 55.00 14.92%
Digital Realty Trust DLR Called 1/27/21 149.17 7/16/21 155.00 5.50%
Security In/out money Sell Date Sell Price Exp. Date $ Return Total % Return
IIPR Jul 17 $95 call out-of money 6/3/20 3.00 7/17/20 3.00 3.40%
MO Jul 31 $42 call out-of-money 6/17/20 1.60 7/31/20 1.60 4.03%
ABBV Sep 18 $100 call out-of-money 7/15/20 4.60 9/18/20 4.60 5.05%
IIPR Sep 18 $100 call in-the-money 7/22/20 5.00 9/18/20 5.00 5.69%
QCOM Sep 18 $95 call in-the-money 6/24/20 4.30 9/18/20 4.30 4.82%
USB Sep 18 $37.50 call in-the-money 7/22/20 2.00 9/18/20 2.00 5.52%
BIP Oct 16 $45 call in-the-money 9/2/20 1.95 10/16/20 1.95 4.65%
SBUX Oct 16 $87.50 call in-the-money 10/16/20 3.30 10/16/20 3.30 4.00%
V Nov 20 $200 call in-the-money 9/22/20 10.00 11/20/20 10.00 4.99%
ABBV Dec 31 $100 call in-the-money 11/18/20 3.30 12/31/20 3.30 3.62%
EPD Jan 15 $20 call in-the-money 11/23/20 0.80 1/15/21 0.80 4.41%
MO Jan 15 $40 call in-the-money 11/25/20 1.90 1/15/21 1.90 4.79%
USB Jan 15 $45 call in-the-money 11/25/20 2.00 1/15/21 2.00 4.48%
BGS Feb 19 $27.50 call in-the-money 12/11/20 2.40 2/19/21 2.40 8.96%
VLO Mar 26 $60 call in-the-money 2/10/21 6.50 3/26/21 6.50 12.10%
CVX Apr 1 $95.50 call in-the-money 2/19/21 $4.30 4/1/21 $4.30 5.02%
AGNC Jun 18 $17 call out-of-money 4/13/21 $0.50 6/18/21 $0.50 3.21%
KKR Jun 18 $55 call in-the-money 4/28/21 $3.00 6/18/21 $3.00 6.25%
USB Jun 16 $57.50 call out-of-money 4/28/21 $2.80 6/18/21 $2.80 5.24%
DLR Jul 16 $155 call in-the-money 6/16/21 $8.00 7/16/21 8 5.36%


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