Interest Rates Versus Earnings
The market is in a tug-o-war between the bummer that rates are likely to stay higher for longer and excitement about the earnings season and artificial intelligence.
The launch of this earnings season has so far saved the market from a selloff that began at the beginning of April when the interest rate prognosis soured. Sticky inflation and a Fed that appeared to lose its resolve to cut rates this year spoiled a five-month rally. But earnings are reviving the market.
I don’t quite know if investors are getting comfortable with the idea that the Fed will make fewer or no rate cuts this year and higher rates are likely to stick around, or whether they just don’t believe it. We’ll see. But a strong earnings season has saved the market several times over the past few years. Plus, there is the AI catalyst that may again boost technology stocks, the market’s largest sector.
At this point, the S&P only endured a mere 5% dip after a torrid five-month rally. And it’s already gotten back about half of that. That’s better than okay if the selling has truly given way to an earnings rally. There is still uncertainty though. We don’t know if inflation will continue to rise and cause rates to go still higher or if last quarter’s slower GDP is the beginning of a trend toward slower growth and maybe recession.
But earnings are king for now. This week several portfolio positions will report earnings including American Tower (AMT), Brookfield Infrastructure Corporation (BIPC), Enterprise Product Partners (EPD), Qualcomm (QCOM), and The Williams Companies (WMB). By next week’s update, we should have a better idea of how kind earnings season will be to this portfolio.
In the meantime, the QCOM calls expired Friday without the stock being called. We were able to generate a great income and keep a stock that has started to generate positive momentum again ahead of a promising earnings report.
Past Month Activity
April 23rd
Purchased FS KKR Capital Corp (FSK) – $19.42
April 26th
QCOM April 26th $170 calls at $10.00 – Expired
Portfolio Recap
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.4%
Earnings
This one-of-a-kind life science property REIT, which owns properties in highly sought-after innovation clusters throughout the country, reported strong earnings last week that beat expectations. Adjusted funds from operation grew at 7.3% over last year’s quarter and they raised the quarterly dividend by 5%. Occupancy and the rate of acquisitions reflected a solid business, and the dividend hike showed confidence. ARE is a great income stock selling at the low end of historical valuations while the company is consistently growing revenues and profits from its niche properties. Interest rates have likely peaked and may fall lower over the rest of the year. BUY
American Tower Corporation (AMT)
Yield: 3.8%
AMT has been lousy. Hopefully, the earnings report later this week can turn things around. AMT has had the same interest rate-related gyrations as most other REITs but has also been acting badly after the company cut the dividend by 4.7% to focus on debt reduction. But the current dividend is still higher on a year-over-year basis. The reversal of the fourth-quarter dividend hike is a headscratcher that shouldn’t affect the stock’s trajectory over the course of the year. Maybe the earnings report can reinforce that fact to investors. BUY
Brookfield Infrastructure Corp. (BIPC)
Yield: 5.2%
This is a great company with a great business that has a long track record of outperforming the market. But it has had a miserable two years. Although BIPC is well off the lows, it’s still much closer to the 52-week low than high. I will be patient with BIPC and other interest rate-sensitive stocks because attitudes about interest rates may have already hit a low point for this year. The longer-term prognosis is still positive as rates have likely already peaked, and Brookfield has some of the most defensive revenues possible and continues to deliver strong operational results, which should be on display later this week when Brookfield reports earnings. BUY
Enterprise Product Partners L.P. (EPD)
Yield: 7.1%
This midstream energy juggernaut pulled back a little from the high in the recent market tumult but not much. The stock didn’t really go down so much as it just stopped making new highs. Energy stocks are still strong with the solid economy and in a good position as a hedge against increased tensions in the Middle East. But this month has been mostly about interest rates. Rising rates will hurt almost all stocks, but EPD has shown a lot more resilience than most. The company should deliver solid growth this year, and that massive distribution is extremely well supported. Earnings later this week should reinforce that fact. (This security generates a K1 form at tax time). BUY
FS KKR Capital Corporation (FSK)
Yield: 14.5%
It’s all about that beast of a dividend in the uncertain market. FSK has covered the last four dividends by an average rate of about 111%. FSK has been remarkably solid for such a high-yield stock. It provided a total return (including appreciation and dividends) of 43% over the past three years compared to a return of 26% for the S&P 500 over the same period. I’m hopeful the position will provide great dividend income combined with covered call premiums in the quarters ahead. The company reports earnings at the end of this week or the beginning of next week. BUY
Main Street Capital Corporation (MAIN)
Yield: 5.9%
The Business Development Company didn’t get hurt at all in the rough market. The stock isn’t interest rate sensitive because it has a higher yield, and its companies perform well in a strong economy. Although MAIN is currently selling near the 52-week high, it is still reasonably priced at less than 1.6 times book value and most valuation measures are below the five-year average. It has also shown resilience in the tough market over the last week. The safe and high yield pays dividends every single month with a strong possibility of supplemental dividends over the course of the year as well. BUY
NextEra Energy, Inc. (NEE)
Yield: 3.1%
The regulated and clean energy utility, that has been so bludgeoned over the past couple of years, is now officially turning things around big time. NEE has been trending higher since the beginning of March and is up 23% in that time. It’s also up 44% from the low in October. It was so beaten down that downside volatility has proven to be limited and it wants to go higher. NEE had been a superstar performer before inflation and rising interest rates. It provides both safety from its best-in-class regulated utility business and growth from its considerable clean energy business. BUY
Qualcomm Corp. (QCOM)
Yield: 2.0%
The chipmaker stock stumbled earlier this month after a stellar five months prior when the stock soared 60%. But it has moved sharply higher again over the last week on excitement about the earnings season and artificial intelligence. Qualcomm reports earnings later this week. The negative cycle in semiconductors and smartphones that held the stock back last year has likely come to an end. Also, the company is introducing new AI chips for PCs and smartphones. Hopefully, it can get a boost from the earnings report. BUY
Realty Income Corp. (O)
Yield: 5.7%
This legendary income stock is still floundering after a rough two years. But it has been going sideways since early February and not pulling back like many of its peers. Perhaps O has seen the worst also and is finally headed for better days. It is looking like O will be stuck in the mud until interest rates really move lower, which may or may not happen later this year. But the monthly dividend has been raised every year since 1969. The last two years have been among the worst in this stock’s history, which makes it dirt cheap ahead of an environment that will get better eventually. BUY
The Williams Companies, Inc. (WMB)
Yield: 4.8%
Like EPD, this midstream energy company stock has been strong all year but a little weaker this month in sympathy with the overall market. But it’s still hovering close to the high. WMB broke out in the middle of February and the latest pause may be only a temporary setback as the energy sector is still strong. It’s a stable, high-yield stock and the company should deliver solid and dependable earnings in just about any economy. Williams reports earnings this week and, hopefully, the report can propel the stock to a new high. BUY
Xcel Energy Inc. (XEL)
Yield: 4.1%
There has been some good news for the alternative energy utility after the price shock last month. Xcel admitted that its equipment was likely involved in the raging Texas wildfire. The extent of the liability is still not known. But the company reported earnings last week that exceeded expectations and reiterated its previous earnings guidance for the year. Unfortunately, the stock price hasn’t benefitted from the earnings news, at least not yet. Early indications are that investors are not yet convinced the liabilities won’t be a bigger problem than the company indicated. HOLD
Existing Call Trades
QCOM April 26th $170 calls at $10.00 – Expired
Call premium: $10.00
Dividends: $9.72
Total: $19.72 (total income of 14.6% in 3 years, and 23.4% if you sold the earlier call)
We juiced up the income and got to keep a stock that looks promising over the rest of the year. This call plus the previous call and the dividends have provided a 23.4% income so far while the stock has also appreciated 24% from the original purchase price. I’m holding off on selling another call for now because the stock could have strong upside from the earnings report later this week.
Sell WMB May 17th $35 calls at $2.00 or better
Although this stock was near a high when the calls were sold, it has shown no real signs of weakness or consolidation. It is now more than 4 per share above the strike price. There are still more than three weeks to go before options expiration, and anything is possible, although a call seems likely. If the market rolls over, we’ll keep a great stock and sell more calls later. If not, we secured a great income and we still own EPD in the midstream energy space.
Current Recommendations
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $115.69 | $140.00 | 4.39% | -8.91% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $171.30 | $220.00 | 3.78% | -14.54% |
| Brookfield Infrstr. Cp. | BIPC | 2/27/24 | $32.64 | $30.87 | $40.00 | 5.25% | -6.79% |
| Enterprise Product Ptnrs. | EPD | 2/27/24 | $27.61 | $28.84 | $30.00 | 7.14% | 4.45% |
| FS KKR Capital Corp. | FSK | 4/23/24 | $19.42 | $19.33 | $20.50 | 14.49% | -0.46% |
| Main Street Capital Corp. | MAIN | 3/26/24 | $46.40 | $47.62 | $50.00 | 6.05% | 3.15% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $64.30 | $65.00 | 3.20% | -14.80% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $157.63 | $165.00 | 2.16% | 25.05% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $53.04 | $62.00 | 5.81% | -7.63% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $38.51 | $38.00 | 4.93% | 19.03% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $54.72 | NA | 4.00% | -2.92% |
| Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| WMB May 17th $35 call | WMB240517C00035000 | Sell | 3/12/24 | $2.00 | $3.68 | $2.00 | 5.62% |
| as of close on 04/26/2024 | |||||||
| SOLD STOCKS | |||||||
| X | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14/22 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20/23 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
| Hess Corporation | HES | Called | 6/6/23 | $132.25 | 10/20/23 | $155 | 17.87% |
| Tractor Supply Company | TSCO | Sold | 9/26/23 | $203.03 | 11/28/23 | $200 | -1.02% |
| Digital Realty Trust | DLR | Called | 7/18/23 | $117.31 | 1/19/24 | $135 | 17.16% |
| Intel Corporation | INTC | Called | 7/27/22 | $40.18 | 1/19/24 | $43 | 9.76% |
| AbbVie Inc. | ABBV | Called | 7/25/23 | $141.63 | 3/15/24 | $160 | 15.11% |
| Marathon Petroleum Corp. | MPC | Called | 10/24/23 | $149.45 | 3/28/24 | $165 | 12.06% |
| EXPIRED OPTIONS | |||||||
| 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 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9/1/21 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19/21 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20/22 | $11.75 | 9/16/22 | $11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/23 | $12.00 | 5.51% | |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% | |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | $10.50 | 4.82% | |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% | |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% | |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | $1.25 | 5.00% | |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | $3.20 | 4.92% | |
| INTC $35 Oct 20th call | out-of-money | 9/8/23 | $3.78 | 10/20/23 | $3.78 | 9.41% | |
| HES $155 Oct 20th call | in-the-money | 9/8/23 | $9.00 | 10/20/23 | $9.00 | 6.81% | |
| DLR $135 Jan 19th call | in-the-money | 11/22/23 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/23 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
| ABBV $160 Mar 15th call | in-the-money | 1/10/24 | $7.00 | 3/15/24 | $7.00 | 4.94% | |
| MPC $165 Mar 28th call | in-the-money | 2/14/23 | $10.00 | 3/28/24 | 10 | 6.69% | |
| QCOM $170 Apr 26th call | out-of-money | 3/12/24 | $10.00 | 4/26/24 | 10 | 7.42% | |
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