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A Cheap Stock in a Changing Market
This market got a powerful injection of good news that may propel stocks higher at the start of the new year.
After falling for three straight months after July into correction territory, the market has really turned things around. The S&P 500 has moved higher for seven consecutive weeks since the end of October and is up over 12.5% in that time frame and 23% for 2023.
The inflation and interest rate saga that dogged the market since the beginning of 2022 has changed for the better. Inflation has consistently fallen, and the Fed indicated it is done raising the Fed Funds rate. The benchmark ten-year Treasury yield tanked from about 5% at the end of October to below 4%.
The perceived end of the market’s greatest problem, inflation and rising interest rates, has been a huge positive for stock prices. As the post-October rally waned, the market got another shot in the arm last week when the Fed indicated it would likely start cutting rates in the new year. The rally on that news is likely being somewhat muted because of the holiday season. But it should help drive stocks higher in January.
The rate cut news is big. I had believed the Fed would cut rates if the economy turned south. But the Fed indicated it will likely start cutting rates even in a “soft landing” scenario. Apparently, the Fed thinks inflation is that subdued. I’m not sure if that’s the best move, but it should propel stocks higher, at least for a while.
The high YTD returns for the S&P are somewhat deceiving. Until the market rally broadened out very recently, most stocks and sectors were having a crummy year. Only a handful of large technology stocks accounted for the overwhelming majority of the market’s positive return.
Many stocks are still in a bear market. In fact, certain more interest rate-sensitive stocks recently fell to the lowest level since the trough of the pandemic market more than three years ago, although they have rebounded with falling interest rates recently. Buying stocks in the throes of a bear market has proven to be a winning strategy over time. Buying stocks after they have already started to climb out of the lows has proven to be a winning strategy sooner.
Certain stocks and sectors had been driven down by a force that has ceased and is likely retreating. Some of these same stocks also have long track records of market outperformance.
The timing may be perfect for a rare opportunity to generate much higher returns than can normally be expected from stocks of defensive companies. In this issue, I highlight a defensive stock that had been a stellar performer before inflation and rising interest rates took hold. It is priced near the lowest valuations in its history and has recently been generating upward momentum.
What to Do Now
This is as positive as I have seen the market outlook in a long time. Inflation is finished. The Fed is done. The economy is still solid and may escape this cycle without much economic pain. The nemesis has been conquered and stocks are free to rise.
At least that’s how it looks right now. Things can always discombobulate. But the pieces might be in place for a solid run higher in January. For that reason, I have refrained from selling calls on stocks that have recently moved higher. AbbVie (ABBV), Qualcomm (QCOM), and Xcel Energy (XEL) could have more upside in the weeks ahead and I don’t want to limit the potential gain.
Anything is possible. But the risks seem more toward a slowing economy rather than still-rising inflation and interest rates. That sets up well for the beleaguered defensive stocks. At the same time, artificial intelligence (AI) isn’t going anywhere. Companies will continue to spend big on the technology, regardless of the economy, the Fed, or who is President.
Looking ahead to 2024, I like the battered defensive stocks. Despite the recent impressive move off the bottom, many are still very cheap, and the major obstacle has been removed. It should also be another good year for technology.
Right now, I would favor the current BUY-rated stocks NextEra Energy (NEE), Xcel Energy (XEL), and Realty Income (O) because of the reasons mentioned above. The technology stocks look attractive as well. Qualcomm (QCOM) would be my pick right now because it has lagged the technology sector this year and has just recently started moving, QCOM should have its big surge next year.
Monthly Recap
November 22nd
SOLD DLR January 19th $135 calls at $6.00
November 28th
SOLD Tractor Supply Company (TSCO) - $199.92
November 29th
SOLD INTC January 19th $42.50 calls at $3.50
December 5th
NextEra Energy, Inc. (NEE) - Rating change “HOLD” to “BUY”
December 19th
Buy Alexandria Real Estate Equities (ARE)
Featured Actions: Buy Alexandria Real Estate Equities (ARE)
Alexandria Real Estate Equities is a U.S.-based Real Estate Investment Trust (REIT) specializing in office buildings and laboratories leased to tenants primarily engaged in the life science and technology sectors. It has over 800 tenants primarily in locations that are clusters for innovation in greater Boston, the San Fransico Bay area, New York City, San Diego, Seatle, and Washington D.C.
The primarily state-of-the-art laboratory properties are mostly clustered in urban life science, agricultural technology, and technology campuses in the U.S. Properties are leased to tenants under long-term triple net leases with automatic rent escalations. Triple net leases account for just about all of revenues. Tenants pay everything, including insurance, taxes, utilities, and maintenance. They provide a big advantage by eliminating unexpected and variable expenses and provide a much more predictable revenue stream.
These kinds of properties have high demand that should continue to grow for many years to come. We are in the midst of megatrends of a technological revolution and an aging population. Innovation is the key to the future and Alexandria’s properties are among the best. The innovation clusters are also the highest-demand properties by the very best companies and have high barriers to exit.
Alexandra’s tenants are major pharmaceutical, biotech, life science, and technology companies. The biggest tenants include Bristol Myers Squibb (BMY), Moderna (MRNA), and Eli Lilly (LLY).
For many years, ARE delivered the performance one would expect from a high-quality REIT operating in a growing space. It performed on par with the S&P 500 during a bull market with less volatility and blew away the returns of the REIT index in every measurable period for ten years. But things turned ugly in the beginning of 2022. By late October of this year, ARE crashed 60%.
The fall in price isn’t because of internal or fundamental reasons. Revenues, earnings, and occupancy rates have remained solid. Revenues are up 10.9% in the first nine months of 2023 and earnings have grown in the high single digits. It’s the macro environment that has battered this stock.
REITs have been one of the worst-performing market sectors over the last two years because of rising interest rates. Higher interest rates make alternative income-generating investments in the fixed-income arena more competitive. The higher rates also increase the cost of funding for REITS that need to borrow money to expand because they are required to pay out the bulk of earnings in dividends.
The inflation and rising interest rates environment caused the Vanguard Real Estate Index Fund (VNQ) to fall 25% over the last two years. But ARE fell a lot more because of another issue. Alexandria is technically classified as an office REIT, and office space is in crisis. After the pandemic, many workers continue to work at home and are not returning to the office. In several major cities, office occupancy rates remain as low as 60%.
The work-from-home trend is expected to continue, and workers are not expected to return to offices at anywhere near pre-pandemic levels. There is currently way more office space available than demand. Investors understand this and are avoiding office REITs like the plague. In an unforgiving market, ARE has been subjected to the double whammy of rising interest rates and the crash of office properties.
But the problem doesn’t apply to Alexandria’s properties. The market has been blind to the distinction and has thrown the baby out with the bathwater. Sure, if all you need is a cubicle and a computer you can work from home. But laboratories can’t be duplicated at home. And the related offices provide a level of innovation and collaboration that needs people to be there. That’s why Alexandria’s properties have a 93.7% occupancy rate that is expected to grow in the quarters ahead.
Although it has been moving sharply higher lately, ARE still sells more than 40% below the all-time high. And the yield is high at 3.9%. The dividend is well-supported with a payout ratio at just 55% of adjusted funds from operations (AFFOs), which is low for a REIT. The company has also raised the dividend every year for the past 14 years.
ARE is a rock-solid REIT with highly reliable state-of-the-art properties that attract the very best innovative life science, biotech, and technology companies. It’s just been through its own horrible bear market because of the unusual macro environment that has likely changed.
After the interest rates story changed at the end of October, ARE shares have spiked over 40% higher. This cheap stock has added strong momentum to its list of current attributes. ARE presents a rare opportunity to get a much higher total return than is usually possible from an investment this defensive.
Alexandria Real Estate Equities, Inc. (ARE)
Security type: Real Estate Investment Trust (REIT)
Sector: Office (Healthcare)
Price: $130.14
52-week range: $90.73 - $172.65
Yield: 3.9%
Profile: Alexandria is a REIT that owns and leases specialized laboratory and office properties to tenants engaged in life science, biotechnology, agtech, and technology primarily in urban innovation and research clusters.
Positives
- Demand for these specialized properties is growing.
- Tenants are leaders in their industry and sign long-term triple net lease contracts.
- The stock is oversold because of rising interest rates and an unjustified association with the office REIT space.
Risks
- Interest rates are likely to remain higher than in the past and funding costs will be higher.
- Inflation and interest rates may rise and pressure on the REIT sector could continue.
Alexandria Real Estate Equities, Inc. (ARE)
Next ex-div date: December 28, 2023
Portfolio Recap
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $143.13 | $130.00 | 2.24% | 12.96% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $46.16 | $35.00 | 1.08% | 20.35% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.62 | $38.00 | 5.17% | 5.61% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $61.50 | $65.00 | 3.04% | -19.27% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $57.29 | $62.00 | 5.37% | -2.09% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $132.17 | $125.00 | 3.69% | 14.78% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $154.04 | $150.00 | 4.02% | 9.85% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $61.58 | $65.00 | 3.38% | 7.21% |
| Marathon Petroleum Corp. | MPC | 10/24/23 | $149.45 | $148.38 | $155.00 | 2.22% | 0.38% |
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| DLR Jan 19th $135 call | DLR240119C00130000 | Sell | 11/22/23 | $6.00 | $2.72 | $6.00 | 5.11% |
| INTC Jan 19th $42.50 call | INTC240119C00042500 | Sell | 11/29/23 | $3.50 | $4.38 | $3.50 | 8.71% |
| as of close on 12/15/2023 | |||||||
| 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 | 4/14/2022 | $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% |
| 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 | 9/01/21 | $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 | 3/17/203 | $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% | |
AbbVie Inc. (ABBV)
Yield: 4.0%
The biopharmaceutical company has spiked higher lately. ABBV is up over 11% since late November. AbbVie announced it is buying biotech company ImmunoGen (IMGN) for $10.1 billion in cash in a deal slated to close early next year. ImmunoGen is a cancer therapy specialist that fits nicely with AbbVie’s pipeline. Seven days later, AbbVie announced buying Cerevel Therapeutics (CERE) for $8.7 billion.
Both deals should enhance the already strong pipeline longer term. But its current pipeline should lift the stock sooner. Its two new biosimilar drugs Rinvoq and Skyrizi grew sales over 50% in the last quarter and the company expects these drugs alone to eventually surpass Humira’s peak sales. The stock sells at a low valuation and investors sense that it might turn the Humira corner sooner ahead of a very bright future. BUY
AbbVie Inc. (ABBV)
Next ex-div date: January 12, 2024
Digital Realty Trust (DLR)
Yield: 3.7%
This data center REIT has pulled back from the recent high. Even though REITS have been terrible this year, DLR has now returned about 37% YTD. It looks like REITs have bottomed out and are on their way higher as interest rates have likely peaked and may be headed lower. Digital also has the additional catalyst of increasing AI spending and is getting a boost from the AI craze. DLR tends to pull back after a surge higher and the calls were sold when it hit a new high. HOLD
Digital Realty Trust, inc. (DLR)
Next ex-div date: March 15, 2024, est.
Intel Corp, (INTC)
Yield: 1.1%
The chipmaker company stock had been taking a breather after a huge surge this fall. But last week there was more good news that lifted INTC to another new 52-week high. It launched an AI chip for personal computers (PCs) that is cutting-edge and very promising. It represents a big push to bring AI to the fledging PC market and some analysts say it could trigger a new upgrade cycle in 2024 and beyond. The news feeds into the positive mentality increasing among investors that Intel is turning things around and is still a very cheap stock with a bright future. BUY
Intel Corporation (INTC)
Next ex-div date: February 5, 2024, est.
Marathon Petroleum Corp, (MPC)
Yield: 2.2%
After a big move higher in the summer, this refiner has been bouncing around sideways as demand remains strong, but energy stocks came under pressure. But the recent dovish tone by the Fed about rates and the continued strength in the economy may prompt another MPC rally in the new year. The stock has blown away the performance of its peers and the overall market for several years. Even in a bad year for energy stocks, MPC has delivered a 30% YTD return. Think what it could do with a tailwind. It’s good to have something in the portfolio that benefits in case the economy continues to be stronger than expected. BUY
Marathon Petroleum Corporation (MPC)
Next ex-div date: February 15, 2024, est.
NextEra Energy, Inc. (NEE)
Yield: 3.0%
NEE has been bouncing around. But the stock is still in a strong uptrend that began in early October and it’s up over 30% from the 52-week low. The clean energy utility delivered solid earnings and management reiterated previous growth projections and said the company expects to deliver earnings near the top of the expected range through 2026. This stock is still very oversold, especially considering interest rates have likely peaked. BUY
NextEra Energy, Inc. (NEE)
Next ex-div date: February 22, 2024, est.
Realty Income Corp. (O)
Yield: 5.4%
The legendary income stock should be a great buy right now. It’s cheap. O sells more than 30% below the all-time high set before the pandemic. There is upward momentum. It moved 20% off the bottom set in October. And interest rates have likely peaked, removing the main downside catalyst that has been in place for the past two years. And its retail staple properties, and new data center acquisitions, should produce reliable revenue in just about any economy. O is setting up to have a very good year in 2024. BUY
Realty Income Corporation (O)
Next ex-div date: December 29, 2023
Qualcomm Corp. (QCOM)
Yield: 2.2%
On the one hand, it’s been a decent year for QCOM. It has returned 33% YTD. But the overall technology sector is up 56% YTD. QCOM may be at a 52-week high, but it’s still a long way below the early 2022 high. Revenues are down 19% in 2023 as smartphone chipset sales have tanked and consumers weakened at the end of an upgrade cycle. But smartphone sales have likely bottomed out. Qualcomm is introducing new AI chips for PCs and smartphones that could be big sellers next year. Also, strong smartphone sales in China are indicating a bottom. It’s looking like 2024 could be a much better year and QCOM may have already started to ascend. BUY
Qualcomm Inc. (QCOM)
Next ex-div date: February 29, 2024, est.
The Williams Companies, Inc. (WMB)
Yield: 5.2%
The natural gas pipeline company reported strong earnings growth and moved to within pennies of the 52-week high. But WMB has pulled back this month along with the rest of the energy sector as oil prices fell below $70 per barrel. But business remains solid and not dependent on commodity prices. It pays a well-supported dividend (with 2.38 times cash flow coverage). Recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. This should be a solid holding in any environment, but it could get a boost in the near term as energy stocks are rallying on the Fed news. BUY
The Williams Companies, Inc. (WMB)
Next ex-div date: March 8, 2024, est.
Xcel Energy Inc. (XEL)
Yield: 3.4%
This clean energy utility stock has been trending higher since the beginning of last month. The low may be in. XEL had a convincing 17% move off the low. But, like NEE, XEL came under pressure last week as analysts expressed concern about the solar energy business amid the current high interest rates. But this is one of the best utility stocks to own and the recent debauchery may prove to be very temporary. XEL still sells near the lowest levels of the past several years and now has positive momentum. BUY
Xcel Energy Inc. (XEL)
Next ex-div date: December 27, 2023
Existing Call Trades
Sell DLR January 19th $135 calls at $6.00 or better
The data center REIT seems to be in a consolidation phase after a surge higher. Despite a tough year for REITs in 2023, DLR has returned 37% in the year. The share price has already moved below the strike price and the timing for the calls looks good at this point.
Sell INTC January 19th $42.50 calls at $3.50 or better
INTC had been pulling back from the high as expected. But last week it reported encouraging news about its new PC chip for AI and the stock rallied well above the strike price. We’ll see if the good news is enough to counter a natural consolidation phase in the next month or so. But either way, we secured a huge premium on the calls.
The next Cabot Income Advisor issue will be published on January 23, 2024.
