Note: Due to the Christmas holiday, we are bringing you this month’s Cabot Income Advisor issue a week earlier than usual. There will be no update next week. Happy holidays!
A Stock with the Right Stuff for 2025
It’s the end of the year again. Time sure flies. We’re already a quarter of the way through this century. A new year is a notable occasion on Wall Street because prognosticators go on steroids.
Big financial institutions are the most active with their prognostication this time of year because they issue their forecasts for the upcoming year. These experts are almost never right. But financial institutions are expected to deliver a prediction, and they have to say something.
This year the experts are a little more optimistic than usual. A roundtable of 14 major financial companies issued predictions ranging from positive 2025 returns of 5% to 15%. Of course, that’s not a stretch considering the average annual S&P 500 return is 11% since 1950. These predictions tend to be safe and mostly worthless.
Of course, predicting the future is a dicey business, especially when trying to nail down a specific block of time. Anything is possible. Remember the pandemic? But a new year is a specific and measured period that forces us to take stock of things and figure out where we are and where we might be going. That’s not a bad thing to do occasionally.
By most measures, 2025 looks pretty good for stocks.
As inflation appears subdued, the Fed has begun a rate-cutting cycle that should last for the next two years. Historically, stocks do well when the Fed is cutting rates and there is no recession. And the economy has been solid. In fact, investors have been more optimistic going forward since the election. Consumer and business confidence has soared to multi-year highs.
Corporate earnings are expected to be strong. Forecasts are for average earnings growth on the S&P 500 of 13.4% and 13.2% for the next two calendar years. It is also a good point in the cycle. This bull market is just 25 months old and has returned 65%. Bull markets usually don’t just run out of gas after two years. In fact, the average bull market has lasted 50 months and returned 152%.
Anything can happen. There is always an element of risk. And there are still two wars going on. But the biggest negative is probably valuation. Stocks are expensive. The S&P currently sells at 22.3 times forward earnings compared to an average of 16 times over the last twenty years. The market returned 26% in 2023 and about 28% this year with two weeks to go. It might be tough for stocks to deliver another consecutive year of 20%-plus returns.
Although bull markets don’t typically die of valuation, it may be that a lot of the easy upside is behind. Stocks can still perform well, but they’ll probably have to earn it in 2025. For those reasons, I like stocks that will likely experience big earnings jumps in the new year.
In this issue, I highlight a stock that is poised for a strong earnings rebound in 2025. It is a stock that bounces a lot between the highs and lows. And it is currently well below the high. It is also one of the best healthcare companies on the market at a time when the population is older than ever before and aging at warp speed.
What to Do Now
The portfolio beneficiaries of the post-election spike have been pulling back. The stocks that took a hit after the election have leveled off. It looks like the market has digested the election and is looking for a way forward in 2025.
Midstream energy company Enterprise Product Partners (EPD) was on a tear for most of last month but has pulled back in December. It’s been a similar story for homebuilder Toll Brothers (TOL) and natural gas exporter Cheniere Energy Partners (CQP). But Business Development Company FS KKR Capital Corp. (FSK) is still hanging in there.
The prognosis for these stocks is still bright. It’s just that they flew like crazy after the election and that situation couldn’t last. I think these stocks will consolidate for a while and then regain some upward traction early next year.
Utility stock NextEra Energy (NEE) as well as REITs AGNC Corp (AGNC) and Realty Income (O) fell after the election but have since regained footing. These stocks are still relatively cheap and should be fine going forward as interest rates trend lower. Technology stock Qualcomm (QCOM) has been wallowing in limbo for several months. But it shouldn’t take too long for the artificial intelligence gods to shine favor on it again.
There is no one sector or area that I favor right now. A diversified mix of the BUY-rated stocks is best until 2025 identifies itself more. Of course, this month’s highlighted stock seems particularly timely.
As several stocks have pulled back, the covered call situation isn’t as good as it was weeks ago. Toll Brothers (TOL) pulled back over the last few weeks and that outstanding call trade is being removed. But things change fast, and a rally could put several other stocks in play for covered calls in the near future.
Recent Activity
November 19
Sold Alexandria Real Estate Equities, Inc. (ARE) - $104.49
November 26
Purchased Ally Financial Inc. (ALLY) - $39.42
Enterprise Product Partners L.P. (EPD) – Rating change “BUY” to “HOLD”
December 3
Sell TOL Jan 17th $165.00 calls at $9.65 or better
December 17
Sell TOL Jan 17th $165.00 calls at $9.65 - Remove
Buy AbbVie Inc. (ABBV)
Featured Actions
Buy AbbVie Inc. (ABBV)
Yield: 3.8%
Security type: Common Stock
Sector: Healthcare (pharmaceutical)
Price: $173
52-week range: $151.29 - $207.32
Yield: 3.8%
Profile: AbbVie is one of the largest pharmaceutical companies and specializes in biotechnology.
Positives
- The company is moving past the Humira patent expiration and loss of revenues as newer immunology drugs are growing sales fast.
- AbbVie has one of the best pipelines in the business.
- ABBV got through this tough year in great shape and management expects “robust” earnings growth next year.
Risks
- More competition will put pressure on high immunology profit margins.
- The nomination of RFK Jr. is a wild card that could negatively affect pricing.
AbbVie Inc. (ABBV) is a U.S.-based biopharmaceutical company formed in 2013 as a spinoff from Abbott Laboratories. AbbVie is a research-based pharmaceutical company that specializes in small-molecule drugs. It’s a cutting-edge company with a terrific pipeline.
AbbVie became an industry giant because of its mega-blockbuster drug Humira. It’s an autoimmune medication that became the world’s bestselling drug with annual sales of $20 billion. But the tremendous success of that drug became a problem as Humira lost its patent overseas a few years ago, and it lost its U.S. patent in 2023.
Because of shrinking Humira sales, AbbVie posted lower year-over-year revenues in 2023 and most of 2024. But the company is turning it around. AbbVie has long planned for this eventuality and has done a stellar job launching new drugs.
AbbVie’s new immunology drugs, Skyrizi and Rinvoq, are expected to replace Humira’s peak revenues in a short period of time. In fact, management estimates that the combined revenue of these two drugs will be over $16 billion this year and $27 billion by 2027, far exceeding Humira’s peak sales.
This was supposed to be a tough year. Longer-term investors planned on enduring 2024 on route to greener pastures ahead. But ABBV is getting through this year in solid shape. It has returned 12.5% YTD (as of December 13). Looking ahead, management expects earnings to return to “robust growth” in 2025 and beyond.
The population is aging at warp speed. The main industry beneficiary of the aging population is healthcare. In 2012, total healthcare expenditures in the United States were $2.8 trillion. Since then, spending in the sector has increased 75% and now accounts for a staggering 20% of total U.S. GDP. Spending is likely to increase at a similar rate going forward.
AbbVie is a cutting-edge company with a strong pipeline of new drugs and recently launched drugs and treatments. The company is officially moving past the Humira patent expiration that has held the stock back for years. Imagine how the stock will perform without a patent cliff and with strongly growing sales.
ABBV has already been held twice in this portfolio, both times generating covered calls and solid total returns. The stock has a long track record of large bounces between highs and lows. It’s currently selling 17% below the high.
AbbVie Inc. (ABBV)
Next ex-div date: January 15, 2025
Portfolio Recap
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| AbbVie Inc. | ABBV | 12/17/24 | $173.37 | $200.00 | 3.78% | ||
| AGNC Investment Corp | AGNC | 9/24/24 | $10.47 | $9.58 | $12.00 | 15.03% | -5.09% |
| Ally Financial Inc. | ALLY | 11/26/24 | $39.42 | $37.68 | $45.00 | 3.18% | -4.41% |
| Cheniere Energy Prtns. | CQP | 7/23/24 | $53.04 | $58.12 | $60.00 | 5.96% | 12.22% |
| Constellation Energy Corp. | CEG | 8/27/24 | $196.14 | $239.07 | $270.00 | 0.59% | 22.08% |
| Enterprise Product Ptnrs. | EPD | 2/27/24 | $27.61 | $32.19 | $30.00 | 6.52% | 23.06% |
| FS KKR Capital Corp. | FSK | 4/23/24 | $19.42 | $21.48 | $23.00 | 13.04% | 22.86% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $73.62 | NA | 2.80% | -0.51% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $158.43 | $180.00 | 2.14% | 27.61% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $55.34 | NA | 5.72% | -0.02% |
| Toll Brothers, Inc. | TOL | 10/22/24 | $148.02 | $133.85 | $170.00 | 0.60% | -9.57% |
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| CEG Dec 20 $260 call | CEG241220C00260000 | Sell | 9/25/24 | $24.00 | $0.65 | $24.00 | 12.24% |
| FSK Dec 20 $20 call | FSK241220C00020000 | Sell | 10/25/24 | $0.95 | $1.32 | $0.95 | 4.89% |
| EPD Jan 17 $29 call | EPD250117C00029000 | Sell | 11/12/24 | $1.75 | $3.45 | $1.75 | 6.34% |
| as of close on 12/13/2024 | |||||||
| 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 | $100.00 | 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 | 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% |
| The Williams Companies, Inc. | WMB | Called | 8/24/22 | $35.58 | 5/17/24 | $35 | 7.14% |
| Main Street Capital Corp. | MAIN | Called | 3/26/24 | $46.40 | 9/20/24 | $49 | 10.91% |
| Brookfield Infrastructure Cp. | BIPC | Called | 2/27/24 | $32.64 | 9/20/24 | $35 | 11.00% |
| American Tower Corp. | AMT | Called | 1/23/24 | $202.26 | 9/20/24 | $210 | 5.43% |
| ONEOK, Inc. | OKE | Called | 8/27/24 | $79.59 | 10/18/24 | $88 | 11.18% |
| Alexandria Real Estate Eq. | ARE | Sold | 12/19/23 | $129.54 | 11/19/24 | $108 | -12.82% |
| 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 | $10.00 | 6.69% | |
| QCOM $200 July 19th call | out-of-money | 6/5/24 | $12.00 | 7/19/24 | $12.00 | 8.91% | |
| MAIN $49.4 Sep 20th Call | in-the-money | 6/27/24 | $2.00 | 9/20/24 | $2.00 | 4.31% | |
| BIPC $35 Sep 20th Call | in-the-money | 7/16/24 | $3.00 | 9/20/24 | $3.00 | 9.19% | |
| AMT Sep 20 $210 call | in-the-money | 7/30/24 | $15.00 | 9/20/24 | $15.00 | 7.42% | |
| OKE Oct 18 $87.50 call | in-the-money | 8/27/24 | $3.50 | 10/18/24 | $3.50 | 4.40% | |
AGNC Investment Corp. (AGNC)
Yield: 15.0%
This high-yielding mortgage REIT has been slowly coming back after it got whacked with disappointing earnings and a pivot in interest rate expectations. Costs were higher and the net spread shrank from the prior quarter. Although interest rates are likely to trend lower over the next year, rates are still high. The deterioration of the interest rate story is more of a short-term issue. The stock is still on track for improving performance over the next year and that is likely to compel investor demand for the stock. AGNC has come off the recent bottom and moved up 6.4% in November. BUY
AGNC Investment Corp. (AGNC)
Next ex-div date: December 31, 2024
Ally Financial Inc. (ALLY)
Yield: 3.2%
Financial stocks have cooled off this month after a big November following the election. But next year looks very good for the sector. Short-term interest rates will move lower, the economy is expected to be strong, and the regulatory environment will be much better. Other financial companies made huge moves in recent months but ALLY was held back because of a temporary situation. It is the nation’s leading online bank, and it is well positioned in the high-growth area of a hot sector. Analysts are expecting earnings growth of 40% in 2025. ALLY’s spike may still be ahead. BUY
Ally Financial Inc. (ALLY)
Next ex-div date: February 1, 2025, est.
Cheniere Energy Partners, L.P. (CQP)
Yield: 6.0%
The price of this liquid natural gas exporting partnership has been on fire since the election, up over 18%. The energy sector has cooled off over the last few weeks, but CQP is still hanging tough. The reason for the price spike is the anticipated improvement in the regulatory environment. The administration is highly encouraging of natural gas exports and Cheniere is the country’s largest exporter. The longer-term situation was always strong as the rest of the world desperately needs U.S. natural gas. Now, the short-term situation is improving. (This security generates a K-1 form at tax time.) BUY
Cheniere Energy Partners (CQP)
Next ex-div date: February 4, 2025, est.
Constellation Energy Corporation (CEG)
Yield: 0.6%
This nuclear power generator is up 109% YTD and 22% since being added to the portfolio a little more than three months ago. Earnings have been strong, but the stock is really being powered by future growth prospects in terms of large energy deals with technology companies. Constellation made a huge deal with Microsoft (MSFT) to provide power to a new data center with the reopening of the Three Mile Island generator. Other energy and tech companies have since inked similar deals. Tech companies have to secure power sources for the massive energy demand of AI. Constellation is a prime candidate with dependable carbon-free power. The new administration will likely bring a friendlier regulatory environment, making more deals likely. HOLD
Constellation Energy Corp. (CEG)
Next ex-div date: February 15, 2025, est.
Enterprise Product Partners L.P. (EPD)
Yield: 6.5%
For the first time in a couple of years, EPD is pulling back. But it’s after a big spike higher following the election. EPD was up 22% in November after being up only 15% all year before November. That’s okay. An upward move of that magnitude for this normally stodgy stock was never going to last. But the future is still bright. There should be more oil and gas sloshing around the country in the years ahead. And EPD can move higher. The stock is still well below the all-time high set in 2014. And now earnings are much higher. (This security generates a K-1 form at tax time.) HOLD
Enterprise Product Partners (EPD)
Next ex-div date: January 31, 2025, est.
FS KKR Capital Corporation (FSK)
Yield: 13.0%
This Business Development Company (BDC), with an enormous yield and a quarterly payout, went ex-dividend last month and the price only went down a little. FSK normally pulls back after going ex-dividend, but the upside potential outweighs that. The stock continues to hang tough even though the post-election rally has faded. FSK is a strong beneficiary of the Trump victory. The perception of high economic growth going forward is exactly what FSK needed to make a new high. It has a portfolio of smaller companies that tend to be economically sensitive. The prognosis just got better going forward. HOLD
FS KKR Capital Corp. (FSK)
Next ex-div date: March 4, 2025, est.
NextEra Energy, Inc. (NEE)
Yield: 2.8%
This once stellar-performing combination regulated and alternative energy utility has been bouncing around with the interest rate narrative over the past few years. Things were bad for NEE. Then they got very good. Then things turned rotten again. Now, NEE is leveling off and appears to have found a new bottom. Of course, the volatility is from the macro environment and not the internal operations of the company. The regulated and clean energy utility is doing great. NextEra expects to deliver 10% average earnings growth over the next several years, and it has a long track record of successfully delivering. The utility also stands to benefit from the increased electricity demand from AI and data centers. HOLD
NextEra Energy, Inc. (NEE)
Next ex-div date: February 22, 2025, est.
Qualcomm Corp. (QCOM)
Yield: 2.1%
In a way, QCOM has been a bummer. It’s way below the June high and still at the same price it was last February. But we have sold two calls on the stock and ratcheted up the return despite the recent lack of appreciation. Also, when this stock moves it easily makes up for lost time. And it will take off at some point. The market wants to see strong U.S. smartphone sales from an AI upgrade cycle. But that doesn’t appear to be happening yet, although analysts think it is a strong possibility next year. BUY
Qualcomm Incorporated (QCOM)
Next ex-div date: March 5, 2025, est.
Realty Income Corp. (O)
Yield: 5.7%
The legendary monthly income REIT has a great long-term track record, not only for income but total return as well. But it is a slave to the interest rate narrative in the short term. The stock rises and falls with interest rate expectations. Lately, it’s been falling. But the prognosis is still good. The Fed has begun a rate-cutting cycle that will likely last for the next two years. Longer-term rates have likely peaked and there is a good chance they trend lower in the year ahead. HOLD
Realty Income Corporation (O)
Next ex-div date: January 2, 2025
Toll Brothers, Inc. (TOL)
Yield: 0.6%
The luxury homebuilder stock has fallen 13% since reporting earnings last Monday. Earnings beat expectations with revenues up 10.3% and earnings up 12.6% over last year’s quarter. Toll Brothers also reported that unit sales were up a whopping 25% for the full year versus 2023. But the stock is being hurt by industry-wide affordability concerns. The median age of first-time homebuyers reached 38 years old, an all-time high. New homebuyers comprised 24% of the market over the last year, an all-time low. But luxury homes aren’t as impacted by that. Plus, lower mortgage rates should improve things. BUY
Toll Brothers, Inc. (TOL)
Next ex-div date: January 10, 2025, est.
Existing Call Trades
Sell CEG Dec 20th $260.00 calls at $24.00 - Expiring
These calls expire on Friday and CEG is more than $20 per share below the strike price. It is highly unlikely these shares will be called, unless there is some big news in the next couple of days. Meanwhile, we secured a huge income with the premium being more than 12% of the purchase price and the shares still have a good prognosis going forward.
Sell FSK Dec 20th $20.00 calls at $0.95 - Expiring
We sold the call when this BDC was right near the high. But FSK is getting a further boost from the Trump election. FSK is selling $1.50 per share above the strike price with just a few days until expiration. These shares are almost certain to be called. That’s okay. We secured a huge income and a solid total return in a short amount of time.
Sell EPD Jan 17th $29.00 calls at $1.75 or better
We sold the calls near the high. But EPD took off to unprecedented levels since. The stock moved above $34 per share but it has been moving lower over the past couple of weeks. It seems unlikely that the price will move below $29 per share at this point. But there is still more than a month until expiration and you never know.
Income Calendar
Ex-Dividend Dates are in RED and italics. Dividend Payments Dates are in GREEN. Confirmed dates are in bold, all other dates are estimated. See the Guide to Cabot Income Advisor for an explanation of how dates are estimated.
The next Cabot Income Advisor issue will be published on January 28, 2025.
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