Rate Cuts Are Back On
The market has shown some renewed strength over the past several days, particularly among interest rate-sensitive stocks. The Fed met last week, and the market dug this month’s vague insinuations.
The rally sputtered in April after sticky inflation soured the falling interest rate narrative. But last week the Fed Chairman indicated that the next Fed Funds rate move would most likely be a cut and not a raise. Although a hike wasn’t expected, investors like hearing the Fed say it. The statement also combines with recent news of weaker economic growth and a slowing job market.
The hope is that the weaker economic news will enable the Fed to lower rates. The expectation is now for a first rate cut in September and another one before the end of the year. Investors can live with that, as long as rates don’t go higher. At this point, it looks like interest rates will trend lower, albeit slowly, and the economy is still solid.
Last week’s news is taking pressure off the rising interest rate fear, at least for now. Again, I believe the market should be okay for the rest of the year provided interest rates don’t rise to new highs and the economy stays away from recession.
Meanwhile, earnings season continues. Portfolio positions reporting earnings last week included American Tower Corporation (AMT), Brookfield Infrastructure Corporation (BIPC), Enterprise Product Partners (EPD), and Qualcomm Inc. (QCOM). Qualcomm soared more than 10% on better-than-expected earnings after the options expired and the stock wasn’t called. The company also increased its 2024 guidance and is generating excitement over its new AI chips for smartphones and PCs.
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: 4.2%
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 the company 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. BUY
American Tower Corporation (AMT)
Yield: 3.6%
Earnings
Help in the form of strong earnings has arrived for this struggling data center REIT. In what has been a pretty awful year so far for REITs and other interest rate-sensitive stocks, AMT had a terrific week when it rallied 6%. American Tower beat estimates on both revenue and earnings with 9.8% adjusted funds from operations per share growth over last year’s quarter. The REIT also raised guidance for 2024. Hopefully, the strong operational performance along with the better interest rate news will last and AMT can muster a sustained rally in the weeks and months ahead. BUY
Brookfield Infrastructure Corp. (BIPC)
Yield: 4.9%
Earnings
It was an awful first half of April for the infrastructure company as the stock fell about 20% in the first two weeks. But Brookfield reported strong earnings and the company has rallied over 10% since last week’s report. It’s also up 20% since April 16th. Funds from operations grew 11% over last year’s quarter as new assets came online, the transportation segment was strong, and inflation indexation kicked in for a lot of its contracts. The company also raised the next quarterly dividend by 6%. Solid earnings and a dividend raise are indicative of a company that is operationally strong. BIPC can be at the mercy of interest rate sentiment in the near term but the longer-term prognosis should be excellent. BUY
Enterprise Product Partners L.P. (EPD)
Yield: 7.3%
Earnings
This midstream energy partnership reported solid earnings last week. Profits per share were in line with estimates and revenues were a lot better as new projects came to fruition. Distributable cash flow was solid with 1.7 times distribution coverage and justified the recent 5.1% distribution increase. Capital investments were also aligned with strategic initiatives. Overall, the earnings didn’t reflect much change in an already solid story with good stock performance. The massive payout is well-supported, and the energy sector still looks good. (This security generates a K1 form at tax time.) BUY
FS KKR Capital Corporation (FSK)
Yield: 14.6%
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. BUY
Main Street Capital Corporation (MAIN)
Yield: 5.7%
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. The BDC has continued to edge slightly higher since being added to the portfolio. 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 markets. 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: 2.9%
The combination regulated, and alternative energy utility reported earnings earlier this month that slightly missed on revenues but beat significantly on earnings. The stock has continued to move higher since. It was a solid report and NEE is now officially turning things around big time. NEE has been trending higher since the beginning of March and is up 28% in that time. It’s also up 50% from the low in October. 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: 1.9%
Earnings
The mobile device chip king reported earnings last week that beat estimates, and the company raised earnings guidance for 2024. The market was thrilled, and QCOM has risen 11% since the report to a brand-new 52-week high. The earnings growth was expected as a still somewhat weak smartphone market is getting better. But the enthusiasm is mostly about the rapid approach of AI-enabled smartphones and PCs. One analyst contends that an AI-driven iPhone supercycle is coming next year. Qualcomm is at the leading edge of chips that enable AI for smartphones and PCs and should benefit mightily if such a cycle comes to fruition. BUY
Realty Income Corp. (O)
Yield: 5.6%
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. The REIT reports earnings this week that can hopefully generate more upward momentum. BUY
The Williams Companies, Inc. (WMB)
Yield: 4.9%
Like EPD, this midstream energy company stock has been strong all year but a little weaker relative to other dividend stocks in the rally following the Fed’s dovish statements on interest rates. 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: 4.0%
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 this month 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
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 about 4 per share above the strike price. There are only about 10 days 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 | $3.77 | $2.00 | 5.62% |
| as of close on 05/03/2024 | |||||||
| 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 | $10.00 | 6.69% | |
| QCOM $170 Apr 26th call | out-of-money | 3/12/24 | $10.00 | 4/26/24 | $10.00 | 7.42% | |
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