A Rough February as Inflation Disappoints
Last week marked the fourth straight week of declines for the S&P 500 and was the worst week so far this year, down nearly 3%.
The problem is inflation, go figure. The Federal Reserve’s preferred measure of inflation, the Personal Expenditures Price Index (PCE), was much higher than expected in January and showed inflation moving higher, not lower, to start the year. That suggests that the Fed will need to hike rates higher and keep them higher for longer than the market hoped.
It throws cold water on the narrative that rallied stocks in January. The market had hoped that with inflation coming down since June, the Fed was almost done raising rates. But investors are grappling with increased likelihood that the same tango will continue for a while before we move out of this cycle.
Inflation and higher rates are bad for technology and other growth stocks, as margins get reduced. Such an environment tends to favor dividend stocks and income. Defensive stocks had fallen back in the first part of the year as cyclical stocks rallied. But that trend appears to be reversing, and the BUY-rated portfolio stocks should get increased traction as inflation lingers.
Trades This Month
February 17
O February 17 $62.50 calls at $3.00 – Expired
Realty Income (O) – Called
February 21
Sell QCOM March 31 $130 calls at $7.00 or better
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.5%
The infrastructure juggernaut has been very bouncy over the last two years. It was hit along with everything else by covid as its transportation assets suffered. Lately, it has been hurt by the strong dollar and higher interest rates as the company does much business overseas and has a relatively high credit balance. But it still has very resilient earnings, a great track record, and a safe dividend. BUY
Global Ship Lease, Inc. (GSL)
Yield: 7.7%
Things are looking up for this container shipping company. The stock has returned about 20% YTD and is near the highest price since way back in June. The longer-term supply/demand dynamic is positive for container shipping and the stocks may be in a longer-term bull market. Plus, the opening of China could also be a positive catalyst for shipping activity and rates in the near term. The company announces fourth-quarter earnings on Wednesday and hopefully will get an additional lift from that. HOLD
Intel Corp, (INTC)
Yield: 2.0%
Last week, Intel announced that it is cutting the dividend by 66%. The move was unexpected as the company seemed to indicate otherwise in the last earnings report. It was also a low payout ratio until the recent earnings plunge as a result of falling PC sales. The cut knocks the yield from roughly 5.5% to 2%. While many argue the logic of feeding cash flow, it effectively ruins the only thing this stock had going for it over the past few years.
The good news is that the stock didn’t really fall much after the announcement. The price is so low already there wasn’t much left to punish. It indicates that perhaps the stock has already bottomed out. Intel is still a powerful industry player and its recent attempts to catch up to its competitors should succeed to at least some degree over time. Meanwhile, the stock sells at a fire-sale price at just about book value. The portfolio will hold on for now in case it recovers somewhat in the days and weeks ahead. HOLD
Medical Properties Trust, Inc. (MPW)
Yield: 11.0%
After rallying on good news from a recent troubled tenant the prior week, MPW plunged 14% last week after the market didn’t like its fourth-quarter earnings report. While the company did beat expectations on both the top and bottom lines, investors didn’t like some of the information that came out of the report.
It’s tough to say specifically what spooked investors most or if it was just the negative totality. The company typically raises the first-quarter dividend, but it didn’t this time. They also indicated that higher interest rates will significantly slow the pace of acquisitions this year. And finally, they said that an issue with a tenant means it will take 12 to 18 months for MPT to be made whole.
The lack of growth is already reflected in the stock that sells at just 6 times cash flow. The stock will be closely monitored from here and held in the portfolio for now. BUY
Realty Income Corp. (O)
Yield: 4.7%
The legendary income REIT reported solid earnings last week. It grew profits by 9.2% year over year, added $9 billion in new properties for the year, and reported the highest occupancy rate in the last 20 years at 99%. But the stock didn’t do much because it was also the worst week for the market so far this year. O has been trending slowly higher since October and recently eclipsed the elusive 65 per share level. This is a popular and defensive income stock that should hold its own in the event of a recession. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 20.9%
The container shipping company stock has been impressive lately. The price was up about 14% last week while the market had its worst week YTD. SBLK has already returned over 27% in the first two months of the year. The reason is likely a positive effect of more Chinese traffic the country opens again. Lower shipping rates and a slower global economy have already been factored into the stock and it is likely still the early innings of multiyear positive cycle for shipping. The shipping company may have already seen the bottom with better times ahead. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.6%
A stellar January was followed by a lousy February. QCOM soared about 29% in January and the price reached the highest level since the summer. But with just a couple days left it’s down over 10% in February. QCOM is tied to the fortunes of the market and the tech sector in the near term. And the sector has weakened after a strong start to the year as inflation appears to be hanging around. At some point this year, the market should start sniffing out the recovery. And QCOM can make up for lost time fast when it moves. HOLD
Visa Inc. (V)
Yield: 0.8%
The payments processing company stock has been thriving. After an impressive -3.4% return in last year’s bear market, V delivered strong returns in the earlier part of the year but has moved lower lately. Even if the recent cyclical rally ends, V should continue to hold up relatively well and showed a preview of how well it will react when the market finally turns for good. It’s well worth holding through the uncertainty into the next recovery. HOLD
The Williams Companies, Inc. (WMB)
Yield: 5.7%
After outperforming the market and its peers in the selloff this fall, WMB has been lagging both in recent months. It has a business that should well endure recession or inflation or both. The problem is that it is more leveraged to natural gas prices than some of its peers, which have crashed of late. However, those prices are likely to spring back in the months ahead as the selling has been overdone amidst solid demand. It may outperform the market and its peers in the months ahead. BUY
Active Covered Call Trades
Sell V March 17 $220 calls at $12.00 or better
As I mentioned above, V started the year strong but has since pulled back. We leverage the early year strength to sell higher priced in-the-money calls. The stock has since pulled back to right around the strike price. The calls have more than three weeks to go before expiration and much will depend on the direction of the overall market.
Sell QCOM March 31 $130 calls at $7.00 or better - Pending
These calls were targeted at the beginning of last week. But the market had a bad week and we never got the chance to sell these calls at the targeted $7 price. The price may not get there over the next week but I will leave the target as is just in case. If the call price doesn’t happen, that’s OK. I’ll remove the order and we’ll try again at another time.
CIA STOCK PORTFOLIO | |||||||
| 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 | $124.34 | NA | 2.41% | -4.42% |
| Visa Inc. | V | 12/22/21 | $217.96 | $219.55 | NA | 0.82% | 1.71% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.48 | NA | 7.73% | -15.58% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $23.98 | NA | 20.90% | -11.63% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $25.14 | NA | 1.99% | -35.16% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $31.18 | $38.00 | 5.74% | -10.06% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $43.90 | $46.00 | 3.46% | 5.18% |
| Medical Properties Trust | MPW | 1/24/23 | $13.22 | $10.55 | $15.00 | 11.00% | -20.20% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| V Mar 17 $220 call | V230317C00215000 | Sell | 1/24/23 | $12.00 | $4.60 | $12.00 | 5.51% |
| QCOM Mar 31 $130 call | QCOM230331C00130000 | Sell pending | $2.86 | $7.00 | 5.20% | ||
| as of close on 2/24/2023 | |||||||
SOLD STOCKS | |||||||
| Security | 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//2023 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
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./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $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 | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |